What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-07 compared with 2023-08-08 · 121 added, 103 removed, 348 unchanged (39% of the section changed)

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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.

The impact of the recent Israel-Hamas war

In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets.

Hamas also launched extensive rocket attacks on Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State of Israel.

These attacks resulted in extensive deaths, injuries and kidnapping of civilians and soldiers.

Following the attack, Israel’s security cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in parallel to their continued rocket and terror attacks.

As of November 7, 2023 (date of filing), our operations in Israel have operated at near normal levels.

The extent and duration of the current war, as well as the possibility of further spread of the conflict to other countries in the region as well as involving other political and military entities in the Middle East, poses risks to our operations and may lead to disruptions which could adversely affect our business, prospects, financial condition and results of operations.

While sales to customers in Israel account for a relatively small portion of our revenues, our operations in Israel include executive offices, which are the workplace for key executives including our chief executive officer, as well as two manufacturing facilities located in the central part of Israel which represent approximately 25 percent of our total worldwide revenues.

As of November 7, 2023, these facilities remain open and operational.

We have implemented a contingency plan that we believe will secure supply of materials and logistics, build safety stock of finished goods and transfer these goods to our distribution centers outside of Israel, and we continue to take measures with regards to the safety of our employees.

We may, however, determine to temporarily discontinue production in Israel for the safety of our employees.

We could also face future production slowdowns or interruptions at either manufacturing location in Israel due to the impacts of the war, including personnel absences as a number of our employees have been called to active military duty, or due to other resource constraints such as the inability to source materials for production.

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 July 1, 2023 were $90.8 million versus $88.6 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the fiscal quarter ended July 1, 2023 were $8.2 million, or $0.60 per diluted share, versus $10.8 million, or $0.79 per diluted share, for the comparable prior year period.

Net revenues for the six fiscal months ended July 1, 2023 were $179.7 million versus $176.3 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the six fiscal months ended July 1, 2023 were $15.2 million, or $1.11 per diluted share, versus $17.1 million, or $1.25 per diluted share, for the comparable prior year period.

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

Net revenues for the fiscal quarter ended September 30, 2023 were $85.9 million versus $90.1 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the fiscal quarter ended September 30, 2023 were $6.3 million, or $0.46 per diluted share, versus $10.1 million, or $0.74 per diluted share, for the comparable prior year period.

Net revenues for the nine fiscal months ended September 30, 2023 were $265.5 million versus $266.3 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the nine fiscal months ended September 30,

2023 were $21.5 million, or $1.57 per diluted share, versus $27.2 million, or $1.99 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarters ended September 30, 2023 and October 1, 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 July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Three months ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022

As reported - GAAP $ 35,935 $ 37,320 $ 8,224 $ 11,884 $ 6,280 $ 10,118 $ 0.46 $ 0.74

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Restructuring costs — — 1,153 165 1,153 165 0.08 0.01

Foreign currency exchange (gain)/loss (d) — — — — (794) (3,380) (0.05) (0.25)

Foreign currency exchange gain (d) — — — — (1,283) (1,261) (0.09) (0.09)

Tax effect of reconciling items and discrete tax items — — — — (77) (194) — (0.01)

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

Six fiscal months ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Nine fiscal months ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022

As reported - GAAP 111,846 109,904 29,943 30,750 $ 21,480 $ 27,229 $ 1.57 $ 1.99

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Restructuring costs — — 1,431 1,330 1,431 1,330 0.11 0.10

Foreign currency exchange (gain)/loss (d)

Foreign currency exchange gain (d)

— — — — (2,139) (5,195) (0.16) (0.38)

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As Adjusted - Non GAAP Margins 42.2 % 41.9 % 11.9 % 12.6 %

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Fiscal quarter ended Nine fiscal months ended

September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022

Net earnings attributable to VPG stockholders $ 6,280 $ 10,118 $ 21,480 $ 27,229

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Start-up costs (c) — — — 150

Foreign currency exchange (gain)/loss (d) (794) (3,380) (856) (3,934)

Foreign currency exchange gain (d) (1,283) (1,261) (2,139) (5,195)

ADJUSTED EBITDA $ 13,736 $ 16,138 $ 43,853 $ 44,525

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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 second quarter of 2022 through the second quarter of 2023.

As part of our quarter-end review of backlog in connection with the preparation of our Form 10-Q for the fiscal quarter ended July 1, 2023, we discovered historical backlog inaccuracy relating to certain orders, which we have corrected.

As a result of the correction of historical inaccuracy, we made a one-time adjustment of $3.6 million to prior periods end of period backlog of our consolidated and sensors segments data.

2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd 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 third quarter of 2022 through the third quarter of 2023.

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

(dollars in thousands)

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Inventory turnover 2.47 2.63 2.39 2.34 2.20

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

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

(dollars in thousands) 2022 2022 2023 2023 2023

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Inventory turnover 1.68 2.11 1.70 1.94 1.94

Net revenues for the second fiscal quarter of 2023 increased 2.2% from the first fiscal quarter of 2023 mainly due to increased revenues in the Measurement Systems reporting segment.

Net revenues increased 2.5% from the second fiscal quarter of 2022 with increased volume, primarily from the Weighing Solutions and Measurement Systems reporting segments, partially offset by lower net revenues in the Sensors reporting segments.

Net revenues in the Sensors reporting segment decreased 1.3% compared to the first fiscal quarter of 2023 and decreased 10.0% from the second fiscal quarter of 2022.

Sequentially, the decrease primarily reflected lower revenue of precision resistors and

advanced sensors in the AMS markets partially offset by higher advanced sensors revenue in our 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 our Other markets (mainly for consumer applications) and lower sales of precision resistors in the Test and Measurement market, partially offset by increases in precision resistor sales in the Avionics, Military and Space (AMS) market.

Net revenues in the Weighing Solutions reporting segment decreased 1.9% from the first fiscal quarter of 2023 and increased 9.8% from the second fiscal quarter of 2022.

Sequentially, the decrease in revenues was attributable to lower sales in our Other markets for precision agriculture and construction applications, partially offset by an increase in revenues in the Industrial Weighing market.

The year-over-year increase in revenues was mainly attributable to higher sales of load cells in our Other markets for precision agriculture, consumer, and construction applications.

Net revenues in the Measurement Systems reporting segment increased 14.8% from the first fiscal quarter of 2023 and increased 17.1% from the second fiscal quarter of 2022.

Sequentially, the increase in revenue was primarily due to the higher revenue of products in the Steel market, partially offset by lower sales of Diversified Technical Systems Inc.

("DTS") products in the AMS market.

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

Overall gross profit margin in the second fiscal quarter of 2023 increased 0.7% as compared to the first fiscal quarter of 2023 and increased 0.5% from the second fiscal quarter of 2022.

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

In the Sensors reporting segment, the gross profit margins decreased sequentially due to lower volume, partially offset by favorable foreign currency exchange rates.

In the Weighing Solutions reporting segment, the sequential increase in gross profit margins was primarily due to favorable product mix, increased selling prices and cost reduction programs.

The sequential decrease in the gross profit margins in the Measurement Systems reporting segment was a result of higher volume with an unfavorable product mix.

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

Net revenues for the third fiscal quarter of 2023 decreased 5.4% from the second fiscal quarter of 2023 mainly due to decreased revenues in the Sensors and Weighing Solutions reporting segments.

Net revenues decreased 4.7% from the third fiscal quarter of 2022 with decreased volume, primarily in the Sensors and Weighing Solutions reporting segments, respectively, partially offset by higher volume in the Measurement Systems reporting segment.

Net revenues in the Sensors reporting segment decreased 10.3% compared to the second fiscal quarter of 2023, and decreased 14.1% from the third fiscal quarter of 2022.

Sequentially, the decrease primarily reflected lower revenue of precision resistors in the Avionics, Military and Space ("AMS") market and Test and Measurement end markets and lower sales of strain gages in the General Industrial end market.

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

Net revenues in the Weighing Solutions reporting segment decreased 7.3% from the second fiscal quarter of 2023, and decreased 7.7% from the third fiscal quarter of 2022.

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

Net revenues in the Measurement Systems reporting segment increased 4.6% from the second fiscal quarter of 2023 and increased 17.2% from the third fiscal quarter of 2022.

Sequentially, the increase in revenue was primarily due to the higher sales of Diversified Technical Systems Inc.

("DTS") products in the AMS and Transportation markets, partially offset by lower sales in the Steel market.

The year-over-year increase was primarily attributable to increased revenue in the Steel market and higher sales of DTS products in the AMS market.

Total Company gross profit margin in the third fiscal quarter of 2023 decreased 0.7% as compared to the second fiscal quarter of 2023 and increased 0.5% from the third fiscal quarter of 2022.

Sequentially, the decrease in the gross profit margin in the Sensors reporting segment was partially offset by the increase in the gross profit margin in the Measurement Systems segment, while the Weighing Solutions reporting segment gross profit margin remained unchanged.

In the Sensors reporting segment, the gross profit margin decreased sequentially due to lower volume and temporary labor inefficiencies.

In the Weighing Solutions reporting segment, there was no sequential change in gross profit

margins as lower operating costs offset the impact of lower volume.

The sequential increase in the gross profit margin in the Measurement Systems reporting segment was primarily a result of higher volume.

Compared to the third fiscal quarter of 2022, the Weighing Solutions reporting segments had higher gross profit margins, while the Sensors and Measurement Systems reporting segments gross profit margins were lower.

The Sensors reporting segment had a lower gross profit margin due to lower volume and temporary labor inefficiencies, partially offset by favorable foreign currency exchange rates and cost reduction programs.

The Weighing Solutions reporting segment increase in gross profit margin as compared to 2022 was primarily due to higher volume, selling price increases, lower freight costs, and cost reduction programs, partially offset by higher materials costs.

In the Measurement Systems reporting segment, the gross profit margin was higher as compared to the second fiscal quarter of 2022 primarily due to higher volume and higher selling prices and lower purchase accounting adjustments, partially offset by unfavorable foreign exchange rates and higher wages and materials costs.

The Weighing Solutions reporting segment increase in gross profit margin as compared to 2022 was primarily due to cost reductions, lower logistics costs, and favorable foreign currency rates, which offset the impact of lower volume.

In the Measurement Systems reporting segment, the gross profit margin was lower as compared to the third fiscal quarter of 2022 primarily due to higher volume and higher average selling prices and lower purchase accounting adjustments being offset by higher labor costs.

Optimize Core Competence

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Effects of Foreign Currency Exchange Rate on Operations

For the fiscal quarter ended July 1, 2023, exchange rates decreased net revenues by $0.7 million, and decreased costs of products sold and selling, general, and administrative expenses by $2.4 million, when compared to the comparable prior year period.

For the six fiscal months ended July 1, 2023, exchange rates decreased net revenues by $3.1 million, and increased costs of products sold and selling, general, and administrative expenses by $6.0 million, when compared to the comparable prior year period.

For the fiscal quarter ended September 30, 2023, exchange rates increased net revenues by $0.5 million, and decreased costs of products sold and selling, general, and administrative expenses by $1.6 million, when compared to the comparable prior year period.

For the nine fiscal months ended September 30, 2023, exchange rates decreased net revenues by $2.7 million, and decreased costs of products sold and selling, general, and administrative expenses by $7.6 million, when compared to the comparable prior year period.

Results of Operations

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

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Fiscal quarter ended Nine fiscal months ended

September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022

Costs of products sold 58.1 % 58.6 % 57.9 % 58.7 %

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Net revenues were as follows (dollars in thousands) :

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Fiscal quarter ended Nine fiscal months ended

September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022

Net revenues $ 85,854 $ 90,057 $ 265,520 $ 266,340

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Percentage change versus prior year period

(4.7) % (0.3) %

Changes in net revenues were attributable to the following:

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Net change (4.7) % (0.3) %

During the fiscal quarter and six fiscal months ended July 1, 2023, net revenues increased 2.5% and 1.9%, respectively, as compared to the comparable prior year periods, with increased volume, primarily from the Weighing Solutions and Measurement Systems reporting segments, partially offset by lower net revenues in the Sensors reporting segments.

During the fiscal quarter and nine fiscal months ended September 30, 2023, net revenues decreased 4.7% and 0.3%, respectively, as compared to the comparable prior year periods.

For the fiscal quarter period, decreased volume, primarily from the Sensors and Weighing Solutions reporting segments, was partially offset by higher volume in the Measurement Systems reporting segment.

For the nine fiscal month period, higher volume in the Measurement Systems reporting segment was completely offset by lower volume 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 Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Fiscal quarter ended Nine fiscal months ended

September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022

Gross profit margin 41.9 % 41.4 % 42.1 % 41.3 %

The gross profit margin for the fiscal quarter and six fiscal months ended July 1, 2023 increased 0.5% and 1.1% as compared to the comparable prior year periods.

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

The gross profit margin for the fiscal quarter and nine fiscal months ended September 30, 2023 increased 0.5% and 0.8%, respectively, as compared to the comparable prior year periods.

For the fiscal quarter period, the Weighing Solutions reporting segments had higher gross profit margins, while the Sensors and Measurement Systems reporting segments gross profit margins

For the nine fiscal month period, the Weighing Solutions and Measurement Systems reporting segments had higher gross profit margin, while the Sensors reporting segment had lower gross profit margin.

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 Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Fiscal quarter ended Nine fiscal months ended

September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022

Net revenues $ 32,532 $ 37,879 $ 105,524 $ 115,909

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Net change (14.1) % (9.0) %

Net revenues decreased 10.0% and 6.5% for the fiscal quarter and six fiscal months ended July 1, 2023, respectively, as compared to the comparable prior year periods.

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

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

Net revenues decreased 14.1% and 9.0% for the fiscal quarter and nine fiscal months ended September 30, 2023, respectively, as compared to the comparable prior year periods.

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

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

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Fiscal quarter ended Nine fiscal months ended

September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022

Gross profit margin 35.9 % 40.5 % 39.2 % 40.9 %

The gross profit margin decreased 4.2% and 0.5% for the fiscal quarter and six fiscal months ended July 1, 2023, respectively, when compared to the comparable prior year periods due to lower volume and temporary labor inefficiencies, partially offset by favorable foreign currency exchange rates and cost reduction programs.

The gross profit margin decreased 4.6% and 1.7% for the fiscal quarter and nine fiscal months ended September 30, 2023, respectively, when compared to the comparable prior year periods due to lower volume and temporary labor inefficiencies, partially offset by favorable foreign currency exchange rates and cost reduction programs.

Weighing Solutions

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

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Fiscal quarter ended Nine fiscal months ended

September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022

$ 28,970 $ 31,399 $ 92,090 $ 92,626

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Percentage change versus prior year period

(7.7) % (0.6) %

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

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Net change (7.7) % (0.6) %

Net revenues increased 9.8% for the fiscal quarter ended July 1, 2023, as compared to the comparable prior year period.

The increase in revenues was mainly attributable to higher sales of load cells in our Other markets for precision agriculture, consumer, and construction applications.

Net revenues increased 3.1% for the six fiscal months ended July 1, 2023 as compared to the comparable prior year period.

The increase in net revenues was primarily attributable to increased sales of load sales in our Other markets for precision agriculture and construction applications, partially offset by lower sales of our load cell products in our Industrial weighing market, as well as negative foreign currency exchange rate effects.

Net revenues decreased 7.7% for the fiscal quarter ended September 30, 2023, as compared to the comparable prior year period.

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

Net revenues decreased 0.6% for the nine fiscal months ended September 30, 2023 as compared to the comparable prior year period.

Increased sales of load cells in our Other markets for precision agriculture and construction applications and transducer systems in our Industrial Weighing market were offset by lower sales of our load cell products in our Industrial weighing market.

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

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Fiscal quarter ended Nine fiscal months ended

September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022

Gross profit margin 38.7 % 33.3 % 37.4 % 34.7 %

The gross profit margin for the fiscal quarter and six fiscal months ended July 1, 2023 increased 5.0% and 1.4%, respectively, as compared to the comparable prior year periods primarily due to higher volume, selling price increases, lower freight costs, and cost reduction programs, partially offset by higher materials costs.

The gross profit margin for the fiscal quarter and nine fiscal months ended September 30, 2023 increased 5.4% and 2.7%, respectively, as compared to the comparable prior year periods primarily due to cost reductions, lower logistics costs, and favorable foreign currency rates, which offset the impact of lower volume.

Measurement Systems

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

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Fiscal quarter ended Nine fiscal months ended

September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022

Net revenues $ 24,352 $ 20,779 $ 67,906 $ 57,805

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Net change 17.2 % 17.5 %

Net revenues increased 17.1% for the fiscal quarter ended July 1, 2023 as compared to the comparable prior year period and increased 17.6% for the six fiscal months ended July 1, 2023 as compared to the comparable prior year period.

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

Net revenues increased 17.2% for the fiscal quarter ended September 30, 2023 as compared to the comparable prior year period, and increased 17.5% for the nine fiscal months ended September 30, 2023 as compared to the comparable prior year period.

For the fiscal quarter period, the increase was primarily attributable to increased revenue in the Steel market and higher sales of DTS products in the AMS market.

For the nine fiscal month 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 Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Fiscal quarter ended Nine fiscal months ended

September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022

Gross profit margin 53.6 % 55.5 % 53.1 % 52.5 %

The gross profit margin for the fiscal quarter and six fiscal month ended July 1, 2023 increased by 1.9% and 2.0%, respectively, compared to the comparable prior year periods primarily due to higher volume and higher selling prices and lower purchase accounting adjustments, partially offset by unfavorable foreign exchange rates and higher wages and materials costs.

The gross profit margin for the fiscal quarter and nine fiscal month ended September 30, 2023 decreased by 1.9% and increased by 0.6%, respectively, compared to the comparable prior year periods.

For the fiscal quarter period, the decrease was primarily due to higher volume and higher average selling prices and lower purchase accounting adjustments, being offset by higher labor costs.

For the nine fiscal month period, the higher volume and higher average selling prices and lower purchase accounting adjustments were only partially offset by the higher labor costs.

Selling, General, and Administrative Expenses

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

Fiscal quarter ended Six fiscal months ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Fiscal quarter ended Nine fiscal months ended

September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022

Total SG&A expenses $ 26,558 $ 25,271 $ 80,472 $ 77,824

As a percentage of net revenues 30.9 % 28.1 % 30.3 % 29.2 %

SG&A expenses for the fiscal quarter and six fiscal months ended July 1, 2023 increased $0.9 million and $1.4 million, respectively, compared to the comparable prior year periods due to increases in wages, travel costs, commissions and other fees, partially offset by favorable foreign currency exchange rate impacts.

SG&A expenses for the fiscal quarter and nine fiscal months ended September 30, 2023 increased $1.3 million and $2.6 million, respectively, compared to the comparable prior year periods 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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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 $0.2 million and $0.9 million of restructuring costs during the fiscal quarter ended July 1, 2023 and July 2, 2022, respectively, and $0.3 million and $1.2 million of restructuring costs during the six fiscal months ended July 1, 2023 and July 2, 2022, respectively.

The Company recorded $1.2 million and $0.2 million of restructuring costs during the fiscal quarter ended September 30, 2023 and October 1, 2022, respectively, and $1.4 million and $1.3 million of restructuring costs during the nine fiscal months ended September 30, 2023 and October 1, 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 six fiscal months ended July 1, 2023 was higher when compared with the comparable prior year periods mainly due to higher borrowing rates in 2023.

Interest expense for the fiscal quarter and nine fiscal months ended September 30, 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

July 1, 2023 July 2, 2022 Change

September 30, 2023 October 1, 2022 Change

Foreign currency exchange gain $ 1,283 $ 1,261 $ 22

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$ 1,671 $ 1,223 $ 448

Six fiscal months ended

July 1, 2023 July 2, 2022 Change

Nine fiscal months ended

September 30, 2023 October 1, 2022 Change

Foreign currency exchange gain $ 2,138 $ 5,195 $ (3,057)

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

For the fiscal quarter and six fiscal months ended July 1, 2023, the change in foreign currency exchange gains and losses during the periods, as compared to the prior year periods, is largely due to exposure to currency fluctuations with the Israeli shekel, the Canadian dollar, and the British pound.

For the fiscal quarter and six fiscal months ended July 2, 2022, the change in foreign exchange gains and losses during the periods, as compared to the prior year periods, is largely due to exposure to currency fluctuations with the Israeli shekel, the Japanese yen and the British pound.

For the fiscal quarter and nine fiscal months ended September 30, 2023, the change in foreign currency exchange gains and losses during the periods, as compared to the prior year periods, was largely due to exposure to currency fluctuations with the Israeli shekel, the Canadian dollar, the EURO and the British pound.

For the fiscal quarter and nine fiscal months ended October 1, 2022, the change in foreign exchange gains and losses during the periods, as compared to the prior year periods, was 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 exchange impact primarily related to the shekel-denominated lease liability for the Sensors facility in Israel.

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

Included in Other for the fiscal quarter and nine fiscal months ended October 1, 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 July 1, 2023 was 28.8% compared to 19.2% for the fiscal quarter ended July 2, 2022.

The effective tax rate for the fiscal quarter ended July 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 effective tax rate for the six fiscal months ended July 1, 2023 was 26.8% compared to 19.8% for the six fiscal months ended July 2, 2022.

The effective tax rate for the six fiscal months ended July 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 effective tax rate for the fiscal quarter ended September 30, 2023 was 27.6% compared to 18.6% for the fiscal quarter ended October 1, 2022.

The effective tax rate for the fiscal quarter ended September 30, 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 effective tax rate for the nine fiscal months ended September 30, 2023 was 27.0% compared to 19.4% for the nine fiscal months ended October 1, 2022.

The effective tax rate for the nine fiscal months ended September 30, 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.

27 unchanged sentences

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

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

The Company was in compliance with its financial maintenance covenants at September 30, 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 six fiscal months ended July 1, 2023, cash provided by operating activities was $18.2 million compared to $8.8 million in the comparable prior year period.

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

Our net cash used in financing activities for the six fiscal months ended July 1, 2023 was slightly higher when compared with the prior year period due to the stock repurchases made during the period.

Approximately 91% and 83% of our cash and cash equivalents balance at July 1, 2023 and December 31, 2022, respectively, was held by our non-U.S.

For the nine fiscal months ended September 30, 2023, cash provided by operating activities was $27.1 million compared to $20.5 million in the comparable prior year period.

Our net cash used in investing activities for the nine fiscal months ended September 30, 2023 was lower compared to the prior year period mainly due to lower capital spending.

Our net cash used in financing activities for the nine fiscal months ended September 30, 2023 was higher when compared with the prior year period mainly due to a repayment on our revolving credit facility of $7.0 million during the third quarter of 2023.

Approximately 91% and 83% of our cash and cash equivalents balance at September 30, 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 July 1, 2023 and December 31, 2022:

July 1, 2023 December 31, 2022

See the following table for the percentage of cash and cash equivalents, by region, at September 30, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

Israel 41 % 28 %

11 unchanged sentences

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

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

Adjusted free cash flow generated during the six fiscal months ended July 1, 2023, was $11.4 million.

We consider the majority of the undistributed earnings of our foreign subsidiaries, as of September 30, 2023, to be indefinitely reinvested.

Adjusted free cash flow generated during the nine fiscal months ended September 30, 2023 was $17.3 million.

We refer to the amount of cash provided by operating activities ($27.1 million) in excess of our capital expenditures ($9.8 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 July 1, 2023 and December 31, 2022 (in thousands) :

July 1, 2023 December 31, 2022

The following table summarizes the components of net cash at September 30, 2023 and December 31, 2022 (in thousands) :

September 30, 2023 December 31, 2022

Cash and cash equivalents $ 94,632 $ 88,562

8 unchanged sentences

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

Our financial condition as of July 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 six fiscal months ended July 1, 2023 was $6.9 million compared to $8.8 million in the comparable prior year period.

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

Our financial condition as of September 30, 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 nine fiscal months ended September 30, 2023 was $9.8 million compared to $15.5 million in the comparable prior year period.

As of September 30, 2023 and December 31, 2022, we did not have any off-balance sheet arrangements.

Safe Harbor Statement

13 unchanged sentences

changes in foreign currency exchange rates;

political, economic, health (including the COVID-19 pandemic) and military instability in the countries in which we operate;

political, economic, and health (including pandemics) instabilities;

instability caused by military hostilities in the countries in which we operate (including Israel);

difficulties in implementing our cost reduction strategies, such as underutilization of production facilities, labor unrest or legal challenges to our lay-off or termination plans, operation of redundant facilities due to difficulties in transferring production to achieve efficiencies;

10 unchanged sentences

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