What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-05 compared with 2024-08-06 · 122 added, 119 removed, 347 unchanged (41% of the section changed)

9 unchanged sentences

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.

The impact of the continuing Israel-Hamas war and Israel-Hezbollah and Israel-Iran conflicts

In response to Hamas’s terrorist attack on Israel on October 7, 2023, Israel’s security cabinet declared war against Hamas and a military campaign against Hamas and, later, Hezbollah commenced in parallel to both terrorist organizations’ continued rocket and terror attacks.

In addition, Israel has come under attack by Iran and has responded to such attacks militarily.

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 August 6, 2024 (date of filing), our facilities in Israel remain open and operate 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.

As of November 5, 2024 (date of filing), our facilities in Israel remain open and operate at normal level.

The extent and duration of the current war and other conflicts, 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 offices, that 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.

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

Net revenues for the fiscal quarter ended June 29, 2024 were $77.4 million versus $90.8 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the fiscal quarter ended June 29, 2024 were $4.6 million, or $0.34 per diluted share, versus $8.2 million, or $0.60 per diluted share, for the comparable prior year period.

Net revenues for the six fiscal months ended June 29, 2024 were $158.1 million versus $179.7 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the six fiscal months ended June 29, 2024 were $10.5 million, or $0.78 per diluted share, versus $15.2 million, or $1.11 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarters ended June 29, 2024 and July 1, 2023 include items affecting comparability as listed in the reconciliations below.

Net revenues for the fiscal quarter ended September 28, 2024 were $75.7 million versus $85.9 million for the comparable prior year period.

Net loss attributable to VPG stockholders for the fiscal quarter ended September 28, 2024 were $(1.4) million, or $(0.10) per diluted share, versus $6.3 million, or $0.46 per diluted share, for the comparable prior year period.

Net revenues for the nine fiscal months ended September 28, 2024 were $233.9 million versus $265.5 million for the comparable prior year period.

Net earnings attributable to VPG stockholders for the nine fiscal months ended September 28, 2024 were $9.1 million, or $0.68 per diluted share, versus $21.5 million, or $1.57 per diluted share, for the comparable prior year period.

The results of operations for the fiscal quarters ended September 28, 2024 and September 30, 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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Management believes that the Company’s non-GAAP measures are regarded as supplemental to its GAAP financial results.

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

Three months ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

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

Three months ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

As reported - GAAP $ 30,260 $ 35,935 $ 3,841 $ 8,224 $ (1,351) $ 6,280 $ (0.10) $ 0.46

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Restructuring costs — — 82 1,153 82 1,153 0.01 0.08

Foreign currency exchange gain (b) — — — — (1,289) (794) (0.10) (0.05)

Foreign currency exchange (loss) gain (b) — — — — 2,912 (1,283) 0.22 (0.09)

Tax effect of reconciling items and discrete tax items — — — — (839) (77) (0.06) —

2 unchanged sentences

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

Six fiscal months ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Nine fiscal months ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

As reported - GAAP $ 97,761 $ 111,846 $ 16,665 $ 29,943 $ 9,143 $ 21,480 $ 0.68 $ 1.57

8 unchanged sentences

As Adjusted - Non GAAP Margins 41.8 % 42.2 % 7.6 % 11.9 %

Fiscal quarter ended Six fiscal months ended

June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Net earnings attributable to VPG stockholders $ 4,603 $ 8,236 $ 10,494 $ 15,200

Fiscal quarter ended Nine fiscal months ended

September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

Net (loss) earnings attributable to VPG stockholders $ (1,351) $ 6,280 $ 9,143 $ 21,480

Interest Expense 648 1,119 1,925 3,195

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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 2023 through the second quarter of 2024.

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 2023 through the third quarter of 2024.

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

(dollars in thousands)

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Inventory turnover 2.20 2.27 2.05 1.99 2.01

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

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

(dollars in thousands) 2023 2023 2024 2024 2024

16 unchanged sentences

Inventory turnover 1.94 1.87 1.62 1.65 1.55

Net revenues for the second fiscal quarter of 2024 decreased 4.2% from the first fiscal quarter of 2024 and decreased 14.8% from the second fiscal quarter of 2023 across all three reporting segments.

Net revenues in the Sensors reporting segment decreased 1.9% compared to the first fiscal quarter of 2024 and decreased 20.4% from the second fiscal quarter of 2023.

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

Net revenues in the Weighing Solutions reporting segment decreased 4.8% from the first fiscal quarter of 2024 and decreased 12.2% from the second fiscal quarter of 2023.

Sequentially, the decreases in revenues was primarily attributable to lower sales in the Transportation market.

The year-over-year decrease in revenues was mainly attributable to lower sales of load cells in our Other markets, primarily for precision agriculture and medical applications, and in our Industrial Weighing market.

Net revenues in the Measurement Systems reporting segment decreased 6.6% from the first fiscal quarter of 2024 and decreased 9.6% from the second fiscal quarter of 2023.

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

Net revenues for the third fiscal quarter of 2024 decreased 2.1% from the second fiscal quarter of 2024 and decreased 11.8% from the third fiscal quarter of 2023 across all three reporting segments.

Net revenues in the Sensors reporting segment decreased 2.3% compared to the second fiscal quarter of 2024 and decreased 13.3% from the third fiscal quarter of 2023.

The year-over-year decrease in Sensors reporting segment revenues was primarily attributable to lower sales of precision resistors in the Test and Measurement and AMS markets.

Sequentially, the decrease primarily reflected lower sales of advanced sensors in the Other markets, mainly for consumer applications, which was partially offset by higher sales of precision resistors in the AMS and Test and Measurement end markets.

Net revenues in the Weighing Solutions reporting segment decreased 8.3% from the second fiscal quarter of 2024 and decreased 13.1% from the third fiscal quarter of 2023.

Sequentially, the decreases in revenues were primarily attributable to lower sales in the Industrial Weighing, Transportation, and Other markets.

The year-over-year decrease in revenues was mainly attributable to lower sales in our Transportation and Industrial Weighing markets, as well as in our Other markets primarily for precision agriculture and medical applications.

Net revenues in the Measurement Systems reporting segment increased 6.2% from the second fiscal quarter of 2024 and decreased 8.2% from the third fiscal quarter of 2023.

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

("DTS") products in the AMS and Transportation markets.

The year-over-year decrease was primarily attributable to decreased revenue in the Steel and the Transportation markets.

Overall gross profit margin in the second fiscal quarter of 2024 decreased 1.5% as compared to the first fiscal quarter of 2024 and decreased 0.7% from the second fiscal quarter of 2023.

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

In the Sensors reporting segment, sequentially, the higher gross profit margin was primarily due to improved operational efficiencies.

In the Weighing Solutions reporting segment, the sequential decrease in gross profit margin was primarily due to lower volume.

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

Compared to the second fiscal quarter of 2023, the Measurement Systems reporting segment had higher gross profit margins, while the Sensors and Weighing Solutions reporting segments had a lower gross profit margin.

The Sensors reporting segment had a lower gross profit margin due to lower volume partially offset by improved efficiencies and cost reduction programs .

The Weighing Solutions reporting segment had a lower gross profit margin as compared to 2023 primarily due to lower volume.

In the Measurement Systems reporting segment, the gross profit margin was slightly higher as compared to the second fiscal quarter of 2023 primarily due to favorable product mix.

The year-over-year decrease was primarily attributable to decreased revenue in the Steel, Transportation, and in our Other markets.

Overall gross profit margin in the third fiscal quarter of 2024 decreased 1.9% as compared to the second fiscal quarter of 2024 and decreased 1.9% from the third fiscal quarter of 2023.

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

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

In the Weighing Solutions reporting segment, the sequential decrease in gross profit margin was primarily due to lower volum and unfavorable product mix.

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

Compared to the third fiscal quarter of 2023, the Measurement Systems reporting segment had a higher gross profit margins, while the Sensors and Weighing Solutions reporting segments had lower gross profit margins.

The Sensors reporting segment had a lower gross profit margin the third fiscal quarter of 2024 as compared to the third fiscal quarter of 2023 mainly due to lower volume.

The Weighing Solutions reporting segment had a lower gross profit margin as compared to the third fiscal quarter of 2023 primarily due to lower volume and unfavorable product mix.

In the Measurement Systems reporting segment, the gross profit margin was slightly higher as compared to the third fiscal quarter of 2023 primarily due to favorable product mix, partially offset by lower volume.

Optimize Core Competence

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As a sign of our commitment to these businesses, we signed a long-term lease for a state-of-the-art facility that has been constructed in Israel.

We fully transitioned to this facility in the third quarter of fiscal 2021.

Our design, research, and product development teams, in partnership with our marketing teams, drive our efforts to bring innovations to market.

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We believe acquired businesses will benefit from improvements we implement to reduce redundant functions and from our current global manufacturing and distribution footprint.

On September 30, 2024, the Company acquired Nokra Optische Prueftechnik und Automation GmbH, a Germany-based, privately held maker of precision measuring and testing equipment for manufacturing.

Please see our Current Report on Form 8-K dated September 30, 2024, for more information.

Research and Development

Research and development will continue to play a key role in our efforts to introduce innovative products to generate new sales and to improve profitability.

Research and development (“R&D”) will continue to play a key role in our efforts to introduce innovative products to generate new sales and to improve profitability.

We expect to continue to expand our position as a leading supplier of precision foil technology products.

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Effects of Foreign Currency Exchange Rate on Operations

For the fiscal quarter ended June 29, 2024, exchange rates decreased net revenues by $0.7 million, and decreased costs of products sold and selling, general, and administrative expenses by $0.7 million, when compared to the comparable prior year period.

For the six fiscal months ended June 29, 2024, exchange rates decreased net revenues by $0.9 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 fiscal quarter ended September 28, 2024, exchange rates increased net revenues by $0.0 million, and increased costs of products sold and selling, general, and administrative expenses by $0.2 million, when compared to the comparable prior year period.

For the nine fiscal months ended September 28, 2024, exchange rates decreased net revenues by $0.9 million, and decreased costs of products sold and selling, general, and administrative expenses by $1.3 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

June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Fiscal quarter ended Nine fiscal months ended

September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

Costs of products sold 60.0 % 58.1 % 58.2 % 57.9 %

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Income before taxes 0.7 % 10.2 % 6.7 % 11.2 %

Net earnings 6.0 % 9.2 % 6.6 % 8.5 %

Net (loss) earnings (1.8) % 7.4 % 3.9 % 8.2 %

Net earnings attributable to VPG stockholders (1.8) % 7.3 % 3.9 % 8.1 %

1 unchanged sentence

Net revenues were as follows (dollars in thousands) :

Fiscal quarter ended Six fiscal months ended

June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Fiscal quarter ended Nine fiscal months ended

September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

Net revenues $ 75,727 $ 85,854 $ 233,869 $ 265,520

9 unchanged sentences

Net change (11.8) % (11.9) %

During the fiscal quarter and six fiscal months ended June 29, 2024, net revenues decreased 14.8% and 12.0%, respectively, as compared to the comparable prior year periods, due to lower volume across all three reporting segments.

During the fiscal quarter and nine fiscal months ended September 28, 2024, net revenues decreased 11.8% and 11.9%, respectively, as compared to the comparable prior year periods, due to lower volume across all three reporting segments.

Gross Profit Margin

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

Fiscal quarter ended Six fiscal months ended

June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Fiscal quarter ended Nine fiscal months ended

September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

Gross profit margin 40.0 % 41.9 % 41.8 % 42.1 %

The gross profit margin for the fiscal quarter ended June 29, 2024 decreased 0.7% and for the six fiscal months ended June 29, 2024 increased 0.4% as compared to the comparable prior year periods.

The gross profit margin for the fiscal quarter ended September 28, 2024 decreased 1.9% and for the nine fiscal months ended September 28, 2024, decreased by 0.3% as compared to the comparable prior year periods.

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

For the six month period ended June 29, 2024, the Measurement Systems and Weighing Solutions reporting segments had higher gross profit margins, while the Sensors reporting segment had a lower gross profit margin.

For the nine fiscal months ended September 28, 2024, the Measurement Systems

reporting segment had higher gross profit margins, while the Sensors and Weighing Solutions reporting segments had a 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

June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Fiscal quarter ended Nine fiscal months ended

September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

Net revenues $ 28,201 $ 32,532 $ 86,484 $ 105,524

9 unchanged sentences

Net change (13.3) % (18.0) %

The Sensors segment revenue of $28.9 million in the second fiscal quarter of 2024 decreased 20.4% from $36.3 million in the second fiscal quarter of 2023;

sequentially, revenue decreased 1.9% compared to $29.4 million in the first fiscal quarter of 2024.

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

Sequentially, the decrease primarily reflected lower sales of precision resistors in the Test and Measurement market, partially offset by increases in advanced sensors sales in the Other markets, mainly for consumer applications.Sequentially, the decrease primarily reflected lower sales of precision resistors in the Test and Measurement market, partially offset by increases in advanced sensors sales in the Other markets, mainly for consumer applications.

The Sensors segment revenue of $28.2 million in the third fiscal quarter of 2024 decreased 13.3% from $32.5 million in the third fiscal quarter of 2023;

sequentially, revenue decreased 2.3% compared to $28.9 million in the second fiscal quarter of 2024.

The year-over-year decrease in revenues w as primarily attributable to lower sales of precision resistors in the Test and Measurement and AMS markets.

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

Fiscal quarter ended Six fiscal months ended

June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Fiscal quarter ended Nine fiscal months ended

September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

Gross profit margin 31.0 % 35.9 % 35.3 % 39.2 %

Gross profit margin for the Sensors segment was 38.3% for the second fiscal quarter of 2024.

Gross profit margin decreased compared to 40.1% in the second fiscal quarter of 2023, and increased compared to 36.5% in the first fiscal quarter of 2024.

The year-over-year decrease in gross profit margin was primarily due to lower volume, partially offset by improved efficiencies and cost reduction programs.

Sequentially, the higher gross profit margin was primarily due to improved efficiencies.

Gross profit margin for the Sensors segment was 31.0% for the third fiscal quarter of 2024.

as compared to 35.9% in the third fiscal quarter of 2023, and decreased compared to 38.3% in the second fiscal quarter of 2024.

The year-over-year decrease in gross profit margin was primarily due to .lower volume.

Sequentially, the lower gross profit margin was primarily due to lower volume and temporary operational and labor inefficiencies.

Weighing Solutions

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

Fiscal quarter ended Six fiscal months ended

June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Fiscal quarter ended Nine fiscal months ended

September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

$ 25,174 $ 28,970 $ 81,466 $ 92,090

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Net change (13.1) % (11.5) %

The Weighing Solutions segment revenue of $27.4 million in the second fiscal quarter of 2024 decreased 12.2% compared to $31.3 million in the second fiscal quarter of 2023 and was 4.8% lower than $28.8 million in the first fiscal quarter of 2024.

The year-over-year decline in revenues was mainly attributable to lower sales of load cells in our Other markets, primarily for precision agriculture and medical applications, and in our Industrial Weighing market.

Sequentially, the decreases in revenues was primarily attributable to lower sales in the Transportation market.

The Weighing Solutions segment revenue of $25.2 million in the third fiscal quarter of 2024 decreased 13.1% compared to $29.0 million in the third fiscal quarter of 2023 and was 8.3% lower than $27.4 million in the second fiscal quarter of 2024.

The year-over-year decline in revenues was mainly attributable to lower sales in our Transportation and Industrial Weighing markets, as well as in our Other markets primarily for precision agriculture and medical applications.

Sequentially, the decrease in revenues was primarily attributable to lower sales in the Industrial Weighing, Transportation, and Other markets.

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

Fiscal quarter ended Six fiscal months ended

June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Fiscal quarter ended Nine fiscal months ended

September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

Gross profit margin 35.1 % 38.7 % 37.3 % 37.4 %

Gross profit margin for the Weighing Solutions segment was 37.6% for the second fiscal quarter of 2024, which decreased compared to 38.7% in the second fiscal quarter of 2023, and decreased compared to 39.1% in the first fiscal quarter of 2024.

The year-over-year and sequential decrease in gross profit margin were primarily due to lower volume.

Gross profit margin for the Weighing Solutions segment was 35.1% for the third fiscal quarter of 2024, which decreased compared to 38.7% in the third fiscal quarter of 2023, and decreased compared to 37.6% in the second fiscal quarter of 2024.

The year-over-year and sequential decrease in gross profit margin were primarily due to lower volume and unfavorable product mix.

Measurement Systems

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

Fiscal quarter ended Six fiscal months ended

June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Fiscal quarter ended Nine fiscal months ended

September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

Net revenues $ 22,352 $ 24,352 $ 65,919 $ 67,906

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Net change (8.2) % (2.9) %

The Measurement Systems segment revenue of $21.0 million in the second fiscal quarter of 2024 decreased 9.6% year-over-year from $23.3 million in the second fiscal quarter of 2023 and was 6.6% lower than $22.5 million in the first fiscal quarter of 2024.

The year-over-year decrease was primarily attributable to decreased revenue in the Steel and the Transportation markets.

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

The Measurement Systems segment revenue of $22.4 million in the third fiscal quarter of 2024 decreased 8.2% year-over-year from $24.4 million in the third fiscal quarter of 2023 and was 6.2% higher than $21.0 million in the second fiscal quarter of 2024.

The year-over-year decrease was primarily attributable to decreased revenue in the Steel, Transportation, and in our Other markets.

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

("DTS") products in the AMS and Transportation markets.

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

Fiscal quarter ended Six fiscal months ended

June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Fiscal quarter ended Nine fiscal months ended

September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

Gross profit margin 56.8 % 53.6 % 55.8 % 53.1 %

Gross profit margin for the Measurement Systems segment was 52.4%, compared to 51.8% (or 52.0% adjusted to exclude $41.0 thousand of purchase accounting adjustment related to the DTS and DSI acquisitions), in the second fiscal quarter of 2023, and 58.1% in the first fiscal quarter of 2024.

The year-over-year adjusted gross profit margin* was slightly higher due to product mix.

The sequentially lower adjusted gross profit margin reflected lower volume with an unfavorable product mix.

Gross profit margin for the Measurement Systems segment was 56.8%, compared to 53.6% (or 54.5% adjusted to exclude $214.0 thousand of purchase accounting adjustment related to the DTS and DSI acquisitions), in the third fiscal quarter of 2023, and 52.4% in the second fiscal quarter of 2024.

The year-over-year adjusted gross profit margin was higher due to product mix.

The sequentially higher adjusted gross profit margin reflected lower 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 Six fiscal months ended

June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Fiscal quarter ended Nine fiscal months ended

September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

Total SG&A expenses $ 26,337 $ 26,558 $ 80,232 $ 80,472

As a percentage of net revenues 34.8 % 30.9 % 34.3 % 30.3 %

SG&A expenses for the fiscal quarter and six fiscal months ended June 29, 2024 decreased $0.3 million and $0.0 million, respectively, compared to the comparable prior year periods.

SG&A expenses for the fiscal quarter and nine fiscal months ended September 28, 2024 decreased $0.2 million and $0.2 million, respectively, compared to the comparable prior year periods.

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 $0.0 million and $0.2 million of restructuring costs during the fiscal quarter ended June 29, 2024 and July 1, 2023, respectively, and $0.8 million and $0.3 million of restructuring costs during the six fiscal months ended June 29, 2024 and July 1, 2023, respectively.

The Company recorded $0.1 million and $1.2 million of restructuring costs during the fiscal quarter ended September 28, 2024 and September 30, 2023, respectively, and $0.9 million and $1.4 million of restructuring costs during the nine fiscal months ended September 28, 2024 and September 30, 2023, 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 June 29, 2024 was lower when compared with the comparable prior year periods mainly due to lower debt balance outstanding as a result of debt payments made in the second half of 2023.

Foreign currency exchange loss for the fiscal quarter and nine fiscal months ended September 28, 2024 was higher compared to the comparable prior year periods mainly due to volatility in the global currency markets and the strengthening of the U.S dollar against the Japanese yen which increased the value of yen-based liabilities relative to the dollar..

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

Fiscal quarter ended

June 29, 2024 July 1, 2023 Change

Foreign currency exchange gain $ 1,287 $ 793 $ 494

September 28, 2024 September 30, 2023 Change

Foreign currency exchange gain (loss) $ (2,912) $ 1,283 $ (4,195)

Interest income 370 543 (173)

2 unchanged sentences

$ (2,646) $ 1,671 $ (4,317)

Six fiscal months ended

June 29, 2024 July 1, 2023 Change

Foreign currency exchange gain $ 2,877 $ 855 $ 2,022

Nine fiscal months ended

September 28, 2024 September 30, 2023 Change

Foreign currency exchange gain (loss) $ (36) $ 2,138 $ (2,174)

Interest income 1,192 1,265 (73)

2 unchanged sentences

$ 915 $ 2,965 $ (2,050)

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

For the fiscal quarter and six fiscal months ended June 29, 2024, 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 Japanese Yen, the Canadian dollar and the British pound.

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

For the fiscal quarter and nine fiscal months ended September 28, 2024, 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 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 June 29, 2024 was 33.3% compared to 28.8% for the fiscal quarter ended July 1, 2023.

The effective tax rate for the fiscal quarter ended June 29, 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 effective tax rate for the six fiscal months ended June 29, 2024 was 30.7% compared to 26.8% for the six fiscal months ended July 1, 2023.

The effective tax rate for the six fiscal months ended June 29, 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 effective tax rate for the fiscal quarter ended September 28, 2024 was 343.2% compared to 27.6% for the fiscal quarter ended September 30, 2023.

The effective tax rate for the fiscal quarter ended September 28, 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 effective tax rate for the nine fiscal months ended September 28, 2024 was 41.6% compared to 27.0% for the nine fiscal months ended September 30, 2023.

The effective tax rate for the nine fiscal months ended September 28, 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.

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Additional customary fees apply with respect to letters of credit.

On August 15, 2024, the Company entered into a Fourth Amended and Restated Credit Agreement (the “2024 Credit Agreement”) among the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A.

and HSBC as joint lead arrangers and joint bookrunner, and JPMorgan Chase Bank, N.A, as agent for such lenders, pursuant to which the 2020 Credit Agreement, as amended, was amended and restated to, among other things, extend the maturity date from March 20, 2025 to August 15, 2029 and adjust the interest rate and commitment fee.

The 2024 Credit Agreement provides for a multi-currency, secured credit facility (the “2024 Revolving Facility”) in an aggregate principal amount of $75.0 million, with a sublimit of $10.0 million which can be used for letters of credit for the account of the Company or its subsidiaries that are parties to the 2024 Credit Agreement, the proceeds of which may be used for working capital and general corporate purposes, and a portion of which were used to refinance the 2020 Revolving Facility.

The Company may elect to make loans under the 2024 Revolving Facility in US Dollars, Euros, Canadian Dollars, Sterling, Japanese Yen or such other freely convertible foreign currency.

The obligations of the Company under the 2024 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 June 29, 2024.

The Company was in compliance with its financial maintenance covenants at September 28, 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 six fiscal months ended June 29, 2024, cash provided by operating activities was $13.9 million compared to $18.2 million in the comparable prior year period.

Our net cash used in investing activities for the six fiscal months ended June 29, 2024 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 June 29, 2024 was significantly higher when compared with the prior year period due to the stock repurchases made during the period.

Approximately 91% and 92% of our cash and cash equivalents balance at June 29, 2024 and December 31, 2023, respectively, was held by our non-U.S.

For the nine fiscal months ended September 28, 2024, cash provided by operating activities was $13.0 million compared to $27.1 million in the comparable prior year period.

Our net cash used in investing activities for the nine fiscal months ended September 28, 2024 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 28, 2024 was significantly higher when compared with the prior year period due to the stock repurchases made during the period.

Approximately 92% and 92% of our cash and cash equivalents balance at September 28, 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 June 29, 2024 and December 31, 2023:

June 29, 2024 December 31, 2023

See the following table for the percentage of cash and cash equivalents, by region, at September 28, 2024 and December 31, 2023:

September 28, 2024 December 31, 2023

Israel 39 % 36 %

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Europe 10 % 17 %

France 9 % 9 %

Germany 14 % 5 %

United States 8 % 8 %

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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 June 29, 2024, to be indefinitely reinvested.

Adjusted free cash flow generated during the six fiscal months ended June 29, 2024, was $9.0 million.

We consider the majority of the undistributed earnings of our foreign subsidiaries, as of September 28, 2024, to be indefinitely reinvested.

Adjusted free cash flow generated during the nine fiscal months ended September 28, 2024, was $6.7 million.

We refer to the amount of cash provided by operating activities ($13.0 million) in excess of our capital expenditures ($7.0 million) and net of proceeds from the sale of assets ($0.8 million) as “adjusted free cash flow.”

The following table summarizes the components of net cash at June 29, 2024 and December 31, 2023 (in thousands) :

June 29, 2024 December 31, 2023

The following table summarizes the components of net cash at September 28, 2024 and December 31, 2023 (in thousands) :

September 28, 2024 December 31, 2023

Cash and cash equivalents $ 81,077 $ 83,965

Third-party debt, including current and long-term:

Third-party long-term debt:

Revolving debt 32,000 32,000

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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 June 29, 2024 remains strong, with a current ratio (current assets to current liabilities) of 2.7 to 1.0, as compared to a ratio of 3.9 to 1.0 at December 31, 2023.

Cash paid for property and equipment for the six fiscal months ended June 29, 2024 was $5.2 million compared to $6.9 million in the comparable prior year period.

As of June 29, 2024 and December 31, 2023, we did not have any off-balance sheet arrangements.

Our financial condition as of September 28, 2024 remains strong, with a current ratio (current assets to current liabilities) of 4.4 to 1.0, as compared to a ratio of 3.9 to 1.0 at December 31, 2023.

Cash paid for property and equipment for the nine fiscal months ended September 28, 2024 was $7.0 million compared to $9.8 million in the comparable prior year period.

As of September 28, 2024 and December 31, 2023, we did not have any off-balance sheet arrangements.

Safe Harbor Statement

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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