What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2023-11-07 · 102 added, 150 removed, 319 unchanged (44% 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 and sensing technologies that help power the future by bridging the physical world with the digital one.

VPG is a global leader in 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.

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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.

Such geopolitical and military instabilities, impact of sanctions and trade restrictions imposed as a result thereof, operational disruptions at facilities located in Israel as a result of military call-ups of the Company’s employees in Israel, closure of the offices there, potential impact of litigation and risks related to supply chain disruptions, might affect the Company's business and results from operations.

As of May 7, 2024 (date of filing),our facilities in Israel remain open and operated at normal level.

The extent and duration of the current war, 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 is relatively a 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 source approximately 25 percent of our total worldwide revenues.

We continue to take measures with regards to the safety of our employees.

We may, however, determine at some point in the future 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 personnel absences or resource constraints such as the inability to source materials for production.

Overview of Financial Results

VPG reports in three product segments:

the Sensors segment, the Weighing Solutions segment, and the Measurement Systems segment.

Sensors segment, Weighing Solutions segment, and Measurement Systems segment.

The Sensors reporting segment is comprised of the foil resistor and strain gage operating segments.

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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 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.

Net revenues for the fiscal quarter ended March 30, 2024 were $80.8 million versus $88.9 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the fiscal quarter ended March 30, 2024 were $5.9 million, or $0.44 per diluted share, versus $7.0 million, or $0.51 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarters ended March 30, 2024 and April 1, 2023 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 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

As reported - GAAP Margins 41.9 % 41.4 % 9.6 % 13.2 %

Acquisition purchase accounting adjustments (a) 214 260 214 260 214 260 0.02 0.02

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

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)

As Adjusted - Non GAAP $ 36,149 $ 37,580 $ 9,591 $ 12,309 $ 6,441 $ 9,476 $ 0.47 $ 0.69

As Adjusted - Non GAAP Margins 42.1 % 41.7 % 11.2 % 13.7 %

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

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

Three months ended March 30, 2024 April 1, 2023 March 30, 2024 April 1, 2023 March 30, 2024 April 1, 2023 March 30, 2024 April 1, 2023

As reported - GAAP $ 35,094 $ 37,199 $ 6,918 $ 9,924 $ 5,891 $ 6,964 $ 0.44 $ 0.51

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

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

Start-up costs (c)

— 150 — 150 — 150 — 0.01

Restructuring costs — — 782 116 782 116 0.06 0.01

Foreign currency exchange gain (d)

— — — — (2,139) (5,195) (0.16) (0.38)

Severance cost — 0 347 0 347 — 0.03 —

Foreign currency exchange gain (b) — — — — (1,589) (62) (0.12) —

Tax effect of reconciling items and discrete tax items — — — — (238) 32 (0.01) —

1 unchanged sentence

As Adjusted - Non GAAP Margins 43.4 % 41.9 % 10.0 % 11.4 %

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

March 30, 2024 April 1, 2023

Net earnings attributable to VPG stockholders $ 5,891 $ 6,964

7 unchanged sentences

Restructuring costs 782 116

COVID-19 impact (b) — — — 138

Start-up costs (c) — — — 150

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

Severance cost 347 —

Foreign currency exchange gain (b) (1,589) (62)

ADJUSTED EBITDA $ 12,320 $ 14,142

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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 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.

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

Financial Metrics

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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 2022 through the third quarter of 2023.

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 2023 through the first quarter of 2024.

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

(dollars in thousands)

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Inventory turnover 2.39 2.34 2.20 2.27 2.05

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

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

(dollars in thousands) 2023 2023 2023 2023 2024

16 unchanged sentences

Inventory turnover 1.70 1.94 1.94 1.87 1.62

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 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.

Net revenues for the first fiscal quarter of 2024 decreased 9.8% from the fourth fiscal quarter of 2023 mainly due to lower revenues in all three reporting segments.

Net revenues decreased 9.1% from the first fiscal quarter of 2023 reflecting lower volume primarily in the Sensors and Weighing Solutions reporting segments, which was partially offset by higher volume in the Measurement Systems reporting segment.

Net revenues in the Sensors reporting segment decreased 14.1% compared to the fourth fiscal quarter of 2023, and decreased 19.9% from the first fiscal quarter of 2023.

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

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 precision resistors and strain gages in the AMS market.

Net revenues in the Weighing Solutions reporting segment decreased 5.2% from the fourth fiscal quarter of 2023, and decreased 9.5% from the first fiscal quarter of 2023.

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

Net revenues in the Measurement Systems reporting segment decreased 9.3% from the fourth fiscal quarter of 2023 and increased 11.1% from the first fiscal quarter of 2023.

Sequentially, the decrease in revenue was primarily due to the lower sales of DTS in the AMS and Transportation markets partially offset by higher sales in the Steel markets.

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

Total Company gross profit margin in the first fiscal quarter of 2024 increased 0.4% as compared to the fourth fiscal quarter of 2023 and increased 1.5% from the first fiscal quarter of 2023.

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

In the Sensors reporting segment, the gross profit margin decreased sequentially mainly due to lower volume.

In the Weighing Solutions reporting segment, the gross profit margin increased sequentially despite lower sales volume due to cost reduction programs and positive inventory adjustments in prior quarter.

The sequential increase in the gross profit margin in the Measurement Systems reporting segment was primarily a result of favorable product mix partially offset by lower sales volume.

Compared to the first fiscal quarter of 2023, the Weighing Solutions and Measurement Systems reporting segments had higher gross profit margins, while the gross profit margin for the Sensors reporting segment was lower mainly due to lower sales volume.

The increase in gross profit margin for the Weighing Solutions reporting segment as compared to 2023 was primarily due to favorable product mix, cost reduction programs and favorable foreign currency exchange, offset by lower sales volume.

In the Measurement Systems reporting segment, the higher gross profit margin compared to the first fiscal quarter of 2023 was primarily due to higher sales volume and favorable product mix.

Optimize Core Competence

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We are realizing the benefits of our restructuring through lower labor costs and other operating expenses, and expect to continue reaping these benefits in future periods.

However, these programs to improve our profitability also involve certain risks which could materially impact our future operating results, as further detailed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 1, 2023.

We are evaluating plans to further reduce our costs by consolidating additional manufacturing operations.

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Our operations in Europe, Canada, and certain locations in Asia primarily generate and expend cash using local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency.

For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated condensed balance sheets have been translated at the rate of exchange as of the balance sheet date.

For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated condensed balance sheets have been translated at

the rate of exchange as of the balance sheet date.

Translation adjustments do not impact the results of operations and are reported as a separate component of equity.

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Effects of Foreign Currency Exchange Rate on Operations

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.

For the fiscal quarter ended March 30, 2024, changes in foreign currency exchange rates decreased net revenues by $0.2 million, and decreased costs of products sold and selling, general, and administrative expenses by $0.8 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 Nine fiscal months ended

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

Fiscal quarter ended

March 30, 2024 April 1, 2023

Costs of products sold 56.6 % 58.1 %

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Net revenues were as follows (dollars in thousands) :

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

March 30, 2024 April 1, 2023

Net revenues $ 80,783 $ 88,864

Change versus comparable prior year period

$ (4,203) $ (820)

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 (9.1) %

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.

During the fiscal quarter ended March 30, 2024, net revenues decreased 9.1%, as compared to the comparable prior year period with decreased volume, primarily from the Sensors and Weighing Solutions reporting segments, was partially offset by higher volume in the Measurement Systems reporting segment.

Gross Profit Margin

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

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

March 30, 2024 April 1, 2023

Gross profit margin 43.4 % 41.9 %

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.

The gross profit margin for the fiscal quarter ended March 30, 2024 increased 1.5%, as compared to the comparable prior year periods.

For the fiscal quarter period 2024, 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 Nine fiscal months ended

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

Fiscal quarter ended

March 30, 2024 April 1, 2023

Net revenues $ 29,414 $ 36,726

Change versus comparable prior year period

$ (5,347) $ (10,385)

Percentage change versus prior year period

(14.1) % (9.0) %

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

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Net change (19.9) %

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.

Net revenues decreased 19.9% for the fiscal quarter ended March 30, 2024, as compared to the comparable prior year period.

The decrease in revenues was primarily attributable to lower sales of precision resistors in the Test and Measurement market and lower sales of precision resistors and strain gages in the AMS market.

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

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

March 30, 2024 April 1, 2023

Gross profit margin 36.5 % 41.2 %

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.

The gross profit margin decreased 4.7% for the fiscal quarter ended March 30, 2024, when compared to the comparable prior year periods due to lower volume.

Weighing Solutions

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

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

March 30, 2024 April 1, 2023

$ 28,845 $ 31,859

Change versus comparable prior year period

$ (2,429) $ (536)

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 (9.5) %

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.

Net revenues decreased 9.5% for the fiscal quarter ended March 30, 2024, as compared to the comparable prior year period.

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

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

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

March 30, 2024 April 1, 2023

Gross profit margin 39.1 % 34.9 %

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.

The gross profit margin for the fiscal quarter ended March 30, 2024 increased by 4.2% compared to the comparable prior year period primarily due to favorable product mix, cost reduction programs and favorable foreign currency exchange, partially offset by lower sales volume.

Measurement Systems

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

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

March 30, 2024 April 1, 2023

Net revenues $ 22,524 $ 20,279

Change versus comparable prior year period

$ 3,573 $ 10,101

Percentage change versus prior year period

17.2 % 17.5 %

Changes in Measurement Systems segment net revenues were attributable to the following:

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Net change 11.1 %

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.

Net revenues increased 11.1% for the fiscal quarter ended March 30, 2024 as compared to the comparable prior year period.

The increase was primarily attributable to increased revenue in the Steel market as higher sales of KELK products were partially offset by lower sales of DSI systems.

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

Fiscal quarter ended Nine fiscal months ended

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

Fiscal quarter ended

March 30, 2024 April 1, 2023

Gross profit margin 58.1 % 53.9 %

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.

The gross profit margin for the fiscal quarter ended March 30, 2024 increased by 4.2% as compared to the comparable prior year period due to higher sales volume and favorable product mix.

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

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

Fiscal quarter ended

March 30, 2024 April 1, 2023

Total SG&A expenses $ 27,394 $ 27,159

As a percentage of net revenues 33.9 % 30.6 %

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.

SG&A expenses for the fiscal quarter ended March 30, 2024 increased $0.2 million, compared to the comparable prior year periods due to increases in bonus accruals, and travel costs, partially offset by lower commissions and 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 $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.

The Company recorded $0.8 million and $0.1 million of restructuring costs during the fiscal quarter ended March 30, 2024 and April 1, 2023.

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 September 30, 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 ended March 30, 2024 was lower when compared with the comparable prior year periods mainly due to the lower debt balance outstanding as a result of debt payments made in the second half of 2023.

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

Fiscal quarter ended

September 30, 2023 October 1, 2022 Change

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

Interest income 543 91 452

Pension expense (72) (81) 9

Other (83) (48) (35)

$ 1,671 $ 1,223 $ 448

Nine fiscal months ended

September 30, 2023 October 1, 2022 Change

March 30, 2024 April 1, 2023 Change

Foreign currency exchange gain $ 1,589 $ 62 $ 1,527

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

For the fiscal quarter ended March 30, 2024, as compared to the prior year period, was largely due to exposure to currency fluctuations with the Japanese yen, the Canadian dollar, and the British pound.

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 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 effective tax rate for the fiscal quarter ended March 30, 2024 was 28.4% compared to 24.1% for the fiscal quarter ended April 1, 2023.

The effective tax rate for the fiscal quarter ended March 30, 2024 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 September 30, 2023.

The Company was in compliance with its financial maintenance covenants at March 30, 2024.

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 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.

For the three fiscal months ended March 30, 2024, cash provided by operating activities was $6.4 million compared to $8.4 million in the comparable prior year period.

Our net cash used in investing activities for the three fiscal months ended March 30, 2024 was $2.2 compared to $3.5 million in the comparable to prior year period mainly due to lower capital expenditures.

Our net cash used in financing activities for the three fiscal months ended March 30, 2024 was $3.6 million compared to $0.8 million in the comparable prior year period mainly due to the repurchase of an aggregate of $2.8 million of our common stock.

Approximately 94% and 92% of our cash and cash equivalents balance at March 30, 2024 and December 31, 2023, respectively, was held by our non-U.S.

subsidiaries.

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

See the following table for the percentage of cash and cash equivalents, by region, at March 30, 2024 and December 31, 2023:

March 30, 2024 December 31, 2023

Israel 35 % 36 %

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United States 6 % 8 %

United Kingdom 10 % 10 %

Canada 13 % 11 %

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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 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 consider the majority of the undistributed earnings of our foreign subsidiaries, as of March 30, 2024, to be indefinitely reinvested.

Adjusted free cash flow generated during the three fiscal months ended March 30, 2024 was $4.2 million.

We refer to the amount of cash provided by operating activities ($6.4 million) in excess of our capital expenditures ($2.6 million) and net of proceeds from the sale of assets ($0.4 million) as “adjusted free cash flow.”

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

The following table summarizes the components of net cash at March 30, 2024 and December 31, 2023 (in thousands) :

March 30, 2024 December 31, 2023

Cash and cash equivalents $ 83,016 $ 83,965

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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 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.

Our financial condition as of March 30, 2024 remains strong, with a current ratio (current assets to current liabilities) of 2.6 to 1.0, as compared to a ratio of 3.9 to 1.0 at December 31, 2023.

The current ratio was affected in large part due to the reclassification of long-term debt to a current liability.

Cash paid for property and equipment for the three fiscal months ended March 30, 2024 was $2.6 million compared to $3.5 million in the comparable prior year period.

As of March 30, 2024 and December 31, 2023, we did not have any off-balance sheet arrangements.

Safe Harbor Statement

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the market risks previously disclosed in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 1, 2023.

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