What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-08 · 108 added, 167 removed, 306 unchanged (47% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

VPG is a global, diversified company focused on precision measurement sensing technologies, including specialized sensors, weighing solutions, and measurement systems.

Many of our precision measurement sensing products and solutions are “designed-in” by our customers and address growing applications across a diverse array of industries and markets.

Our products are marketed under a variety of brand names that we believe are characterized as having a very high level of precision and quality, and we employ an operationally diversified structure to manage our businesses.

Driven by the continued proliferation of data generated by the expanding use of sensors across a widening array of industrial and non-industrial applications, precision measurement technologies help ensure and deliver required levels of quality of mission-critical or high-value data.

VPG is a global, diversified company focused on precision measurement and sensing technologies that help power the future by bridging the physical world with the digital one.

Many of our specialized sensors, weighing solutions, and measurement systems are “designed-in” by our customers, and address growing applications across a diverse array of industries and markets.

Our products are marketed under brand names that we believe are characterized as having a very high level of precision and quality, and we employ an operationally diversified structure to manage our businesses.

Driven by the continued proliferation of data generated by the expanding use of sensors across a widening array of industrial and non-industrial applications, precision measurement and sensing technologies help ensure and deliver required levels of quality of mission-critical or high-value data.

VPG’s products are often at the first stage of a data value chain (i.e., the process of converting the physical world into a digital format that can be used for a specific purpose) and as such impact the effectiveness of vast number of critical, high-value downstream processes.

Over the past few years, we have seen a broadening of precision sensing applications in both our traditional industrial markets and new markets, due to the development of higher functionality in our customers' end products.

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The Company has a long heritage of innovation in sensor technologies that provide accuracy, reliability and repeatability that make our customers' products safer, smarter, and more productive.

As the functionality of customers products increases, and they integrate more precision measurement sensors and related systems into their solutions in order to link the mechanical and physical world with digital control and/or response, we believe this will offer substantial growth opportunities for our products and expertise.

As the functionality of customers' products continues to increase, and they integrate more precision measurement sensors and related systems into their solutions, we believe this will offer substantial growth opportunities for our products and expertise.

Overview of Financial Results

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The Measurement Systems reporting segment is comprised of highly specialized systems for steel production, materials development, and safety testing.

Net revenues for the fiscal quarter ended October 1, 2022 were $90.1 million versus $82.0 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the fiscal quarter ended October 1, 2022 were $10.1 million, or $0.74 per diluted share, versus $5.4 million, or $0.39 per diluted share, for the comparable prior year period.

Net revenues for the nine fiscal months ended October 1, 2022 were $266.3 million versus $227.9 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the nine fiscal months ended October 1, 2022 were $27.2 million, or $1.99 per diluted share, versus $14.3 million, or $1.04 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarter and nine fiscal months ended October 1, 2022 and October 2, 2021 include items affecting comparability as listed in the reconciliations below.

Net revenues for the fiscal quarter ended April 1, 2023 were $88.9 million versus $87.7 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the fiscal quarter ended April 1, 2023 were $7.0 million, or $0.51 per diluted share, versus $6.4 million, or $0.46 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarters ended April 1, 2023 and April 2, 2022 include items affecting comparability as listed in the reconciliations below.

The reconciliations below include certain financial measures which are not recognized in accordance with U.S.

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Gross Profit Operating Income Net Earnings Attributable to VPG Stockholders Diluted Earnings Per share

Three months ended October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

As reported - GAAP $ 37,320 $ 31,845 $ 11,884 $ 7,265 $ 10,118 $ 5,379 $ 0.74 $ 0.39

As reported - GAAP Margins 41.4 % 38.8 % 13.2 % 8.9 %

Acquisition purchase accounting adjustments (a) 260 1,329 260 1,329 260 1,329 0.02 0.10

COVID-19 impact (b) — 111 — 111 — 111 — 0.01

Start-up costs (c) — 970 — 970 — 970 — 0.07

Restructuring costs — 165 — 165 — 0.01 —

Foreign currency exchange (gain)/loss (d) — — (1,261) 38 (0.09) 0.01

Tax effect of reconciling items and discrete tax items — — (194) 754 (0.01) 0.06

As Adjusted - Non GAAP $ 37,580 $ 34,255 $ 12,309 $ 9,675 $ 9,476 $ 7,073 $ 0.69 $ 0.52

As Adjusted - Non GAAP Margins 41.7 % 41.8 % 13.7 % 11.8 %

Gross Profit Operating Income Net Earnings Attributable to VPG Stockholders Diluted Earnings Per share

Nine fiscal months ended October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Three months ended April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

As reported - GAAP $ 37,199 $ 35,250 $ 9,924 $ 8,315 $ 6,964 $ 6,356 $ 0.51 $ 0.46

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Acquisition purchase accounting adjustments (a) 49 371 49 371 49 371 — 0.03

Acquisition costs — — 1,198 — 1,198 — 0.09

COVID-19 impact (b) — 138 — 138 — 138 — 0.01

Start-up costs (c) — 150 — 150 — 150 — 0.01

150 2,258 150 2,258 150 2,258 0.01 0.17

Impairment of goodwill and indefinite-lived intangibles — — — 1,223 — 1,223 — 0.09

Restructuring costs — — 116 261 116 261 0.01 0.02

Foreign currency exchange (gain)/loss (d) — — — — (62) (554) — (0.04)

(5,195) (523) (0.38) (0.04)

Tax effect of reconciling items and discrete tax items — — — — 32 76 — —

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As Adjusted - Non GAAP Margins 41.9 % 41.0 % 11.4 % 10.5 %

Three months ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Three months ended

April 1, 2023 April 2, 2022

Net earnings attributable to VPG stockholders $ 6,964 $ 6,356

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EBITDA MARGIN 15.8 % 14.0 %

Impairment of goodwill and indefinite-lived intangibles — — — 1,223

Acquisition purchase accounting adjustments (a) 49 371

Acquisition costs — — — 1,198

Restructuring costs 116 261

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(a) Acquisition purchase accounting adjustments include fair market value adjustments associated with inventory recorded as a component of costs of products sold.

(b) COVID-19 impact is the net impact to the Company of costs incurred as a result of the COVID-19 pandemic, net of government subsidies received.

(b) COVID-19 impact in 2022 is the net impact to the Company of costs incurred as a result of the COVID-19 pandemic, net of government subsidies received.

(d) Impact of foreign currency exchange rates on assets and liabilities.

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The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business.

The following tables show net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover for our business as a whole and by segment during the five quarters beginning with the third quarter of 2021 through the third quarter of 2022 (dollars in thousands) :

3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter

The following tables show net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover for our business as a whole and by segment during the five quarters beginning with the first quarter of 2022 through the first quarter of 2023 (dollars in thousands) :

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter

2022 2022 2022 2022 2023

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Inventory turnover 2.69 2.52 2.47 2.63 2.39

3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter

2022 2022 2022 2022 2023

16 unchanged sentences

Inventory turnover 1.68 1.90 1.68 2.11 1.70

Net revenues for the third quarter of 2022 increased 1.6% from the second quarter of 2022 mainly due to increased volume in the Weighing Solutions and Measurement Systems reporting segments partially offset by decreased volume in the Sensors reporting segment.

Net revenues increased 9.9% from the third quarter of 2021 with increased volume primarily from the Sensors reporting segment.

Net revenues in the Sensors reporting segment decreased 6.0% compared to the second quarter of 2022 and increased 23.3% from the third quarter of 2021.

Excluding the unfavorable impact of foreign currency exchange rates, revenue increased 35.1% from the third quarter of 2021.

Excluding the unfavorable impact of foreign currency exchange rates, revenue decreased 4.2% from the second quarter of 2022.

Sequentially, the decrease primarily reflected lower advanced sensors revenue in Other markets (mainly for consumer applications) and lower revenue of precision resistors in the Test and Measurements market.

The year-over-year increase in revenues was primarily attributable to higher sales of precision resistors in the Test and

Measurements market and higher revenue of our advanced sensors products primarily in Other markets (mainly for consumer applications).

Net revenues in the Weighing Solutions reporting segment increased 10.3% from the second quarter of 2022 and increased 2.4% from the third quarter of 2021.

The year-over-year and sequential increases in revenues were primarily attributable to increases in our Other markets for precision agriculture and construction applications.

Net revenues in the Measurement Systems reporting segment increased 4.5% from the second quarter of 2022 and increased 1.0% from the third quarter of 2021.

Sequentially, the increase in revenue was primarily due to the higher revenue of Dynamic Systems Inc.

("DSI") products in the Steel market and our Diversified Technical Systems Inc.

Net revenues for the first quarter of 2023 decreased 7.7% from the fourth quarter of 2022 mainly due to decreased volume in the Weighing Solutions and Measurement Systems reporting segments.

Net revenues increased 1.4% from the first quarter of 2022 with increased volume, primarily from the Measurement Systems reporting segment, partially offset by lower net revenues in the Sensors and Weighing Solutions reporting segments.

Net revenues in the Sensors reporting segment increased 1.1% compared to the fourth quarter of 2022 and decreased 2.7% from the first quarter of 2022.

Sequentially, the increase primarily reflected higher revenue of precision resistors in the AMS market partially offset by lower advanced sensors revenue in Other markets (mainly for consumer applications).

The year-over-year decrease in revenues was primarily attributable to lower sales of advanced sensors products primarily in Other markets (mainly for consumer applications), partially offset by increases in precision resistors revenues and advanced sensors in Avionics, Military and Space (AMS) and in precision resistors in the Test and Measurement market.

Net revenues in the Weighing Solutions reporting segment decreased 3.7% from the fourth quarter of 2022 and decreased 2.8% from the first quarter of 2022.

Sequentially, the decrease in revenues was attributable to lower sales in the Industrial Weighing market, partially offset by an increase in revenues in the Transportation market.

The year-over-year decrease in revenues was mainly attributable to lower sales of load cells in the Industrial Weighing market, partially offset by higher revenues in our Other markets for precision agriculture and construction applications.

Net revenues in the Measurement Systems reporting segment decreased 24.4% from the fourth quarter of 2022 and increased 18.3% from the first quarter of 2022.

Sequentially, the decrease in revenue was primarily due to the lower revenue of products in the Steel market and at Diversified Technical Systems Inc.

("DTS") products in the Transportation market.

The year-over-year increase was primarily attributable to increased revenue in the Steel market.

Overall gross profit margin in the third quarter of 2022 decreased 0.7% as compared to the second quarter of 2022 and increased 2.6% from the third quarter of 2021.

Sequentially, the decrease in the gross profit margin in the Sensors and Weighing Solutions reporting segments was partially offset by an increase in the gross profit margin in the Measurement Systems reporting segments.

In the Sensors reporting segment, the gross profit margins decreased sequentially due to lower volume, one-time inventory adjustments, and unfavorable foreign currency exchange rates.

In the Weighing Solutions reporting segment, the sequential decrease in gross profit margins was primarily due to higher materials costs and reduction of inventories partially offset by higher volume and selling price increases.

The sequential increase in the gross profit margins in the Measurement Systems reporting segment was a result of favorable product mix and higher volume.

Compared to the third quarter of 2021, the Sensors and Measurement Systems reporting segments had higher gross profit margins, while the Weighing Solutions reporting segment gross profit margin was lower.

The Sensors reporting segment had a higher gross profit margin due to higher volume and selling price increases partially offset by unfavorable foreign currency exchange rates and wage increases.

In the Measurement Systems reporting segment, the gross profit margin was higher as compared to the third quarter of 2021 primarily due to lower purchase accounting adjustments related to the DTS acquisition, partially offset by unfavorable product mix.

The Weighing Solutions reporting segment decrease in gross profit margin as compared to 2021 was primarily due to higher materials costs, unfavorable product mix, unfavorable foreign currency exchange rates, and reduction of inventories, partially offset by higher volume and selling price increases.

Overall gross profit margin in the first quarter of 2023 increased 0.7% as compared to the fourth quarter of 2022 and increased 1.7% from the first quarter of 2022.

Sequentially, the increase in the gross profit margin in the Sensors and Weighing Solutions reporting segments was partially offset by a decrease in the gross profit margin in the Measurement Systems reporting segment.

In the Sensors reporting segment, the gross profit margins increased sequentially due to manufacturing efficiencies and favorable foreign currency exchange rates.

In the Weighing Solutions reporting segment, the sequential increase in gross profit margins was primarily due to favorable foreign currency exchange rates, partially offset by lower volume.

The sequential decrease in the gross profit

margins in the Measurement Systems reporting segment was a result of lower volume and higher material costs, offset by higher selling prices.

Compared to the first quarter of 2022, the Sensors and Measurement Systems reporting segments had higher gross profit margins, while the Weighing Solutions reporting segment gross profit margin was lower.

The Sensors reporting segment had a higher gross profit margin due to higher selling prices and favorable foreign currency exchange rates.

In the Measurement Systems reporting segment, the gross profit margin was higher as compared to the first quarter of 2022 primarily due to higher volume.

The Weighing Solutions reporting segment decrease in gross profit margin as compared to 2022 was primarily due to higher materials costs, lower volume and unfavorable product mix, mainly offset by selling price increases and favorable foreign currency exchange rates.

Optimize Core Competence

The Company’s core competencies include our innovative, deep technical and applications-specific expertise that adds value to our customers' products, our strong brands and customer relationships, our focus on operational excellence, our ability to select and develop our management teams, and our proven M&A strategy.

The Company’s core competencies include our innovative deep technical and applications-specific expertise to add value to our customers' products, our strong brands and customer relationships, our focus on operational excellence, our ability to select and develop our management teams, and our proven M&A strategy.

We continue to optimize all aspects of our development, manufacturing and sales processes, including by increasing our technical sales efforts;

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We intend to leverage our insights into customer demand to continually develop and roll out new, innovative products within our existing lines and to modify our existing core products in ways that make them more appealing, addressing changing customer needs and industry trends in terms of form, fit, and function.

We also seek to achieve significant production cost savings through the transfer, expansion, and construction of manufacturing operations in countries such as India, China, and Israel, where we can benefit from improved efficiencies or available tax and other government-sponsored incentives.

In the past several years, we incurred restructuring expense related to closing and

downsizing of facilities as part of the manufacturing transitions of our load cell products to facilities in India and China, which marked key milestones in our ongoing strategic initiatives to align and consolidate our manufacturing footprint.

We also seek to achieve significant production cost savings through the transfer, expansion, and construction of manufacturing operations in countries such as India, Japan, and Israel, where we can benefit from improved efficiencies or available tax and other government-sponsored incentives.

In the past several years, we incurred restructuring expense related to closing and downsizing of facilities as part of the manufacturing transitions of our load cell products to facilities in India and China, which marked key milestones in our ongoing strategic initiatives to align and consolidate our manufacturing footprint.

Acquisition Strategy

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Effects of Foreign Currency Exchange Rate on Operations

For the fiscal quarter ended October 1, 2022, exchange rates decreased net revenues by $5.3 million, and decreased costs of products sold and selling, general, and administrative expenses by $4.2 million, when compared to the comparable prior year period.

For the nine fiscal months ended October 1, 2022, exchange rates decreased net revenues by $10.8 million, and decreased costs of products sold and selling, general, and administrative expenses by $7.7 million, when compared to the comparable prior year period.

For the fiscal quarter ended April 1, 2023, exchange rates decreased net revenues by $2.4 million, and decreased costs of products sold and selling, general, and administrative expenses by $3.6 million, when compared to the comparable prior year period.

Results of Operations

Results of operations by reporting segments for the fiscal quarter and nine fiscal months ended October 2, 2021 have been recast to reflect the new reporting segments as described under Item 7.

Overview of Financial Results of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 4, 2022.

Statement of operations’ captions as a percentage of net revenues and the effective tax rates were as follows:

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Fiscal quarter ended

April 1, 2023 April 2, 2022

Costs of products sold 58.1 % 59.8 %

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Net revenues were as follows (dollars in thousands) :

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Fiscal quarter ended

April 1, 2023 April 2, 2022

Net revenues $ 88,864 $ 87,665

Change versus comparable prior year period

$ 8,083 $ 38,438

Percentage change versus prior year period

4 unchanged sentences

Foreign currency effects (2.7) %

Acquisitions 0.0 % 5.0 %

Net change 1.4 %

During the fiscal quarter and nine fiscal months ended October 1, 2022, net revenues increased 9.9% and 16.9%, respectively, as compared to the comparable prior year periods, with increased volume primarily from the Sensors reporting segment.

During the fiscal quarter ended April 1, 2023, net revenues increased 1.4% as compared to the comparable prior year period, with increased volume, primarily from the Measurement Systems reporting segment, partially offset by lower net revenues in the Sensors and Weighing Solutions reporting segments.

Gross Profit Margin

Gross profit as a percentage of net revenues was as follows:

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Fiscal quarter ended

April 1, 2023 April 2, 2022

Gross profit margin 41.9 % 40.2 %

The gross profit margin for the fiscal quarter and nine fiscal months ended October 1, 2022 increased 2.6% and 1.7%, respectively, as compared to the comparable prior year periods.

For the fiscal quarter period, the Sensors and Measurement Systems reporting segments reported higher gross profit margins while the Weighing Solutions reporting segment reported lower gross profit margins when compared to the prior year period.

For the nine fiscal month period, the Sensors and Measurement Systems reporting segments reported higher gross profit margins while the Weighing Solutions reporting segment reported lower gross profit margins when compared to the prior year period.

The gross profit margin for the fiscal quarter ended April 1, 2023 increased 1.7% as compared to the comparable prior year period.

For the fiscal quarter period 2023, the Sensors and Measurement Systems reporting segments had higher gross profit margins, while the Weighing Solutions reporting segment gross profit margin was lower.

Analysis of revenues and gross profit margins for each of our reportable segments is provided below.

Net revenues of the Sensors segment were as follows (dollars in thousands) :

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Fiscal quarter ended

April 1, 2023 April 2, 2022

Net revenues $ 36,726 $ 37,750

Change versus comparable prior year period

$ 7,158 $ 22,197

Percentage change versus prior year period

23.3 % 23.7 %

Changes in Sensors segment net revenues were attributable to the following:

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Net change (2.7) %

Net revenues increased 23.3% for the fiscal quarter ended October 1, 2022, as compared to the comparable prior year period and increased 23.7% for the nine fiscal months ended October 1, 2022, as compared to the comparable prior year period.

The year-over-year increase in revenues was primarily attributable to higher sales of precision resistors in the Test and Measurements market and higher revenue of our advanced sensors products primarily in Other markets (mainly for consumer applications).

Net revenues decreased 2.7% for the fiscal quarter ended April 1, 2023, as compared to the comparable prior year period.

The decrease in revenues was primarily attributable to lower sales of advanced sensors products primarily in Other markets (mainly for consumer applications), partially offset by increases in precision resistors revenues and advanced sensors in Avionics, Military and Space (AMS) and in precision resistors in the Test and Measurement market.

Net revenues were also impacted by unfavorable foreign currency exchange rate impacts.

Gross profit as a percentage of net revenues for the Sensors segment was as follows:

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Fiscal quarter ended

April 1, 2023 April 2, 2022

Gross profit margin 41.2 % 37.8 %

The gross profit margin increased 9.4% for the fiscal quarter ended October 1, 2022, when compared to the comparable prior year period due to higher volume and selling price increases partially offset by unfavorable foreign currency exchange rates and wage increases.

Additionally, there were higher start-up costs associated with our new advanced sensors facility in 2021.

The gross profit margin increased 4.1% for the nine fiscal months ended October 1, 2022 as compared to the comparable prior year period.

Volume increases were partially offset by impacts from charges related to start-up costs in our new advanced sensors facility, wage increase, and labor inefficiencies.

The gross profit margin increased 3.4% for the fiscal quarter ended April 1, 2023, when compared to the comparable prior year period due to higher selling prices and favorable foreign currency exchange rates.

Weighing Solutions

Net revenues of the Weighing Solutions segment were as follows (dollars in thousands) :

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Fiscal quarter ended

April 1, 2023 April 2, 2022

$ 31,859 $ 32,768

Change versus comparable prior year period

$ 723 $ (693)

Percentage change versus prior year period

2.4 % (0.7) %

Changes in Weighing Solutions segment net revenues were attributable to the following:

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Net change (2.8) %

Net revenues increased 2.4% for the fiscal quarter ended October 1, 2022, and decreased 0.7% for the nine fiscal months ended October 1, 2022 as compared to the comparable prior year periods.

The increase in fiscal quarter net revenues was primarily attributable to increases in our Other markets for precision agriculture and construction applications, while the same market reflected a decrease for the nine fiscal month period.

Both the fiscal quarter and nine fiscal month periods were negatively impacted by foreign currency exchange rate effects.

Net revenues decreased 2.8% for the fiscal quarter ended April 1, 2023, as compared to the comparable prior year period.

The decrease in revenues was mainly attributable to lower sales of load cells in the Industrial Weighing market, partially offset by higher revenues in our Other markets for precision agriculture and construction applications.

Net revenues were also impacted by unfavorable foreign currency exchange rate impacts.

Gross profit as a percentage of net revenues for the Weighing Solutions segment was as follows:

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Fiscal quarter ended

April 1, 2023 April 2, 2022

Gross profit margin 34.9 % 36.9 %

The gross profit margin for the fiscal quarter ended October 1, 2022 decreased 3.9% as compared to the comparable prior year period and decreased 2.8% for the nine fiscal months ended October 1, 2022 when compared to the prior year period.

The decrease for the fiscal quarter was primarily due to higher materials costs, unfavorable product mix, unfavorable foreign currency exchange rates, and reduction of inventories, partially offset by higher volume and selling price increases.

The decrease for the nine fiscal month period was primarily due to lower volume, higher materials costs, unfavorable product mix, unfavorable foreign currency exchange rates, and reduction of inventories, partially offset by selling price increases.

The gross profit margin for the fiscal quarter ended April 1, 2023 decreased 2.0% as compared to the comparable prior year period.

The decrease for the fiscal quarter was primarily due to higher materials costs, lower volume and unfavorable product mix, mainly offset by selling price increases and favorable foreign currency exchange rates.

Measurement Systems

Net revenues of the Measurement Systems segment were as follows (dollars in thousands) :

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Fiscal quarter ended

April 1, 2023 April 2, 2022

Net revenues $ 20,279 $ 17,147

Change versus comparable prior year period

$ 202 $ 16,934

Percentage change versus prior year period

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Foreign currency effects (3.3) %

Acquisitions 0.0 % 28.0 %

Net change 18.3 %

Net revenues increased 1.0% for the fiscal quarter ended October 1, 2022 as compared to the comparable prior year period and increased 41.4% for the nine fiscal months ended October 1, 2022 as compared to the comparable prior year period.

The increase for the fiscal quarter was primarily due to increased revenue in the Steel market.

The increase in revenue for the nine fiscal months period was primarily attributable to the addition of revenue for DTS, which was acquired on June 1, 2021, and higher revenue of our KELK and DSI steel-related businesses .

Net revenues increased 18.3% for the fiscal quarter ended April 1, 2023 as compared to the comparable prior year period.

The increase was primarily attributable to increased revenue in the Steel market.

Gross profit as a percentage of net revenues for the Measurement Systems segment were as follows:

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Fiscal quarter ended

April 1, 2023 April 2, 2022

Gross profit margin 53.9 % 51.8 %

The gross profit margin for the fiscal quarter ended October 1, 2022 increased 2.7% compared to the third quarter of 2021.

The increase was primarily due to lower purchase accounting adjustments related to the DTS acquisition partially offset by an unfavorable product mix.

The gross profit margin for the nine fiscal months ended October 1, 2022 increased 1.7% from the prior year period.

Higher revenues coming from DTS and our KELK and DSI steel-related businesses and lower purchase accounting adjustment related to the DTS acquisition were partially offset by an unfavorable product mix and an unfavorable foreign currency exchange rate impact.

Additionally, COVID-19 subsidies were received in 2021 that did not continue in 2022.

The gross profit margin for the fiscal quarter ended April 1, 2023 increased by 2.1% compared to the comparable prior year period primarily due to higher volume.

Selling, General, and Administrative Expenses

Selling, general, and administrative (“SG&A”) expenses are summarized as follows (dollars in thousands) :

Fiscal quarter ended Nine fiscal months ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Fiscal quarter ended

April 1, 2023 April 2, 2022

Total SG&A expenses $ 27,159 $ 26,674

As a percentage of net revenues 30.6 % 30.4 %

SG&A expenses for the fiscal quarter ended October 1, 2022 increased $0.7 million compared to the comparable prior year period due to increases in wages, travel costs and other fees, partially offset by favorable foreign currency exchange rate impacts.

SG&A expenses for the nine fiscal months ended October 1, 2022 increased $8.6 million compared to the comparable prior year periods with $6.1 million of the increase driven by SG&A expenses from DTS.

The remaining increase is from additional SG&A expenses related to wage increases, travel costs, and other fees.

Impairment of Goodwill and Indefinite-lived Intangible Assets

For the nine fiscal months ended October 2, 2021, as a result of our interim impairment test, we recorded a $1.2 million pre-tax, non-cash impairment charge which reduced the carrying value of our goodwill and indefinite-lived intangible assets.

Acquisition Costs

For the nine fiscal months ended October 2, 2021, we recorded Acquisition Costs associated with the acquisition of DTS as follows (in thousands):

Nine fiscal months ended

October 2, 2021

Legal fees $ 341

Appraisal fees 18

Other (investment banker and insurance costs) 839

SG&A expenses for the fiscal quarter ended April 1, 2023 increased $0.5 million compared to the comparable prior year period due to increases in wages, travel costs, commissions and other fees, partially offset by favorable foreign currency exchange rate impacts.

Restructuring Costs

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Because these costs are recorded based upon estimates, actual expenditures for the restructuring activities may differ from the initially recorded costs.

If the initial estimates are too low or too high, the Company could be required to either record additional expense in future periods or to reverse part of the previously recorded charges.

The Company recorded $0.2 million and $0.0 million of restructuring costs during the fiscal quarter ended October 1, 2022 and October 2, 2021, respectively, and $1.3 million and $0.0 million of restructuring costs during the nine fiscal months ended October 1, 2022 and October 2, 2021, respectively.

If the initial estimates are too low or too high, the Company could be required either to record additional expense in future periods or to reverse part of the previously recorded charges.

The Company recorded $0.1 million and $0.3 million of restructuring costs during the fiscal quarter ended April 1, 2023 and April 2, 2022, respectively.

Restructuring costs were comprised primarily of employee termination costs, including severance and statutory retirement allowances, in connection with various cost reduction programs.

Other Income (Expense)

Interest expense for the fiscal quarter and nine fiscal months ended October 1, 2022 was higher when compared with the comparable prior year periods mainly due to higher borrowing rates in 2022.

Interest expense for the fiscal quarter ended April 1, 2023 was higher when compared with the comparable prior year periods mainly due to higher borrowing rates in 2023.

The following table analyzes the components of the line “Other” on the consolidated condensed statements of operations (in thousands) :

Fiscal quarter ended

October 1, 2022 October 2, 2021 Change

Foreign currency exchange gain (loss) $ 1,261 $ (38) $ 1,299

Interest income 91 151 (60)

Pension expense (81) (151) 70

Other (48) 212 (260)

$ 1,223 $ 174 $ 1,049

Nine fiscal months ended

October 1, 2022 October 2, 2021 Change

April 1, 2023 April 2, 2022 Change

Foreign currency exchange gain $ 62 $ 554 $ (492)

4 unchanged sentences

Foreign currency exchange gains represent the impact of changes in foreign currency exchange rates.

For the fiscal quarter and nine fiscal months ended October 1, 2022, the change in foreign currency exchange gains and losses during the period, as compared to the prior year periods, is largely due to exposure to currency fluctuations with the Israeli shekel, the Japanese yen, the Canadian dollar, and the British pound.

The change in the dollar-shekel exchange rate resulted in a favorable foreign currency exchange impact primarily related to the shekel-denominated lease liability for the Sensors facility in Israel.

Included in Other for the nine fiscal months ended October 1, 2022 is a $0.2 million loss on the liquidation of two of the Company's European subsidiaries.

For the fiscal quarter ended April 1, 2023, the change in foreign currency exchange gains and losses during the period, as compared to the prior year period, is largely due to exposure to currency fluctuations with the Japanese yen, the Canadian dollar, and the British pound.

Included in Other for the fiscal quarter ended April 2, 2022 was a $0.2 million loss on the liquidation of two of the Company's European subsidiaries.

VPG calculates the tax provision for interim periods using an estimated annual effective tax rate methodology based on projected full-year pre-tax earnings among the taxing jurisdictions in which we operate with adjustments for discrete items.

The effective tax rate for the fiscal quarter ended October 1, 2022 was 18.6% compared to 23.4% for the fiscal quarter ended October 2, 2021.

The effective tax rate for the fiscal quarter ended October 1, 2022 was lower than the prior year period primarily due to foreign currency exchange gains and losses, tax rate changes and a reduction in our valuation allowance on deferred tax assets.

The effective tax rate for the nine fiscal months ended October 1, 2022 was 19.4% compared to 20.3% for the nine fiscal months ended October 2, 2021.

The effective tax rate for the nine fiscal months ended October 1, 2022 was lower than the prior year period primarily due to changes in the mix of worldwide income and foreign currency exchange gains and losses, tax rate changes and a reduction in our valuation allowance on deferred tax assets.

The effective tax rate for the fiscal quarter ended April 1, 2023 was 24.1% compared to 20.7% for the fiscal quarter ended April 2, 2022.

The effective tax rate for the fiscal quarter ended April 1, 2023 was higher than the prior year period primarily due to changes in the mix of worldwide income and an increase in our valuation allowance on deferred tax assets.

The Company and its subsidiaries are subject to income taxes imposed by the U.S., various states, and the foreign jurisdictions in which we operate.

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Additional customary fees apply with respect to letters of credit.

See additional disclosure regarding interest rate provisions that will take effect on June 15, 2023 under Part II Item 5.

Other Information.

The obligations of the Company under the 2020 Credit Agreement are secured by pledges of stock in certain domestic and foreign subsidiaries, as well as guarantees by substantially all of the Company’s domestic subsidiaries.

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The financial maintenance covenants include an interest coverage ratio and a leverage ratio.

The Company was in compliance with its financial maintenance covenants at October 1, 2022.

The Company was in compliance with its financial maintenance covenants at April 1, 2023.

If the Company is not in compliance with any of these covenant restrictions, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant to the credit facility could become immediately payable.

Our business has historically generated significant cash flow.

For the nine fiscal months ended October 1, 2022, cash provided by operating activities was $20.5 million compared to cash provided by operations of $18.1 million in the comparable prior year period.

Our net cash used in investing activities for the nine fiscal months ended October 1, 2022 was lower compared to the prior year period mainly due to the acquisition of DTS which took place in the second quarter of 2021.

Our net cash used in financing activities for the nine fiscal months ended October 1, 2022 was lower than the comparable to prior year period due to the 2021 borrowings in connection with the acquisition of DTS.

Approximately 91% and 87% of our cash and cash equivalents balance at October 1, 2022 and December 31, 2021, respectively, was held by our non-U.S.

For the three fiscal months ended April 1, 2023, cash provided by operating activities was $8.4 million compared to cash used by operations of $0.3 million in the comparable prior year period.

Our net cash used in investing activities for the three fiscal months ended April 1, 2023 was slightly lower compared to the prior year period mainly due to lower capital spending.

Our net cash used in financing activities for the three fiscal months ended April 1, 2023 was comparable with the prior year period.

Approximately 92% and 83% of our cash and cash equivalents balance at April 1, 2023 and December 31, 2022, respectively, was held by our non-U.S.

subsidiaries.

See the following table for the percentage of cash and cash equivalents, by region, at October 1, 2022 and December 31, 2021:

October 1, 2022 December 31, 2021

See the following table for the percentage of cash and cash equivalents, by region, at April 1, 2023 and December 31, 2022:

April 1, 2023 December 31, 2022

Israel 40 % 28 %

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Canada 5 % 5 %

We earn a significant amount of our operating income outside the United States, and we consider the majority of the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested, as of October 1, 2022.

We earn a significant amount of our operating income outside the United States, the majority of which is deemed to be indefinitely reinvested in foreign jurisdictions.

As a result, as discussed above, a significant portion of our cash and short-term investments are held by foreign subsidiaries.

The Company will continue to evaluate its cash needs.

However, we currently do not intend, nor do we foresee a need, to repatriate funds in excess of what

is already planned.

The Company will evaluate the possibility of repatriating future cash provided such repatriation can be accomplished in a tax efficient manner.

The Company will continue to evaluate its cash needs, however we currently do not intend, nor do we foresee a need, to repatriate funds in excess of what is already planned.

The Company will evaluate the

possibility of repatriating future cash provided such repatriation can be accomplished in a tax efficient manner.

In addition, we expect existing domestic cash, short-term investments, and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as debt repayment and capital expenditures, for at least the next 12 months and thereafter for the foreseeable future.

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These alternatives could result in higher tax expense, increased interest expense, or dilution of our earnings.

Adjusted free cash flow generated during the nine fiscal months ended October 1, 2022, was $5.4 million.

We consider the majority of the undistributed earnings of our foreign subsidiaries, as of April 1, 2023, to be indefinitely reinvested.

Adjusted free cash flow generated during the three fiscal months ended April 1, 2023, was $4.9 million.

We refer to the amount of cash provided by operating activities ($8.4 million) in excess of our capital expenditures ($3.5 million) and net of proceeds from the sale of assets ($0.0 million) as “adjusted free cash flow.”

The following table summarizes the components of net cash at October 1, 2022 and December 31, 2021 (in thousands) :

October 1, 2022 December 31, 2021

The following table summarizes the components of net cash at April 1, 2023 and December 31, 2022 (in thousands) :

April 1, 2023 December 31, 2022

Cash and cash equivalents $ 93,281 $ 88,562

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These measures, as calculated by us, may not be comparable to similarly titled measures used by other companies.

Our financial condition as of October 1, 2022 remains strong, with a current ratio (current assets to current liabilities) of 4.1 to 1.0, as compared to a ratio of 3.6 to 1.0 at December 31, 2021.

Cash paid for property and equipment for the nine fiscal months ended October 1, 2022 was $15.5 million compared to $11.2 million in the comparable prior year period.

As of October 1, 2022 and December 31, 2021, we did not have any off-balance sheet arrangements.

Our financial condition as of April 1, 2023 remains strong, with a current ratio (current assets to current liabilities) of 4.3 to 1.0, as compared to a ratio of 3.9 to 1.0 at December 31, 2022.

Cash paid for property and equipment for the three fiscal months ended April 1, 2023 was $3.5 million compared to $4.3 million in the comparable prior year period.

As of April 1, 2023 and December 31, 2022, we did not have any off-balance sheet arrangements.

Safe Harbor Statement

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general business and economic conditions;

impact of inflation, global labor and supply chain challenges;

impact of inflation;

issues respecting the United States federal government debt ceiling;

global labor and supply chain challenges;

difficulties or delays in identifying, negotiating and completing acquisitions and integrating acquired companies;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis