Q1 2024 Earnings Summary
- VPG's Measurement Systems segment saw a significant increase in orders due to a multimillion-dollar award from a new eVTOL (Electric Vertical Takeoff and Landing) aircraft developer in North America. The company expects the eVTOL market to grow at least 20% year-over-year, presenting a substantial growth opportunity.
- In the Avionics, Military, and Space (AMS) market, VPG has designed in their DTS products for military applications, specifically crash dummies, which are high-ticket items valued at $1.5 million to $2 million per item. The products have been approved by the U.S. Army and NATO, and the company expects large orders to be placed in the second half of the year, pending the release of funding.
- VPG achieved a record gross margin of 43.4% in Q1 2024, ahead of their long-term target of 45% gross margin. The company believes this higher gross margin is sustainable due to favorable exchange rates, product mix, and sales revenue, and expects to continue improving to meet their long-term targets.
- Delayed recovery in demand impacting revenue growth: The company expects recovery in demand to be "pushed out to the latter part of this year", indicating ongoing challenges in key markets and potential impacts on revenue growth.
- Soft demand and cautious ordering patterns from customers: Bookings for precision resistors were "soft as distributors and OEM customers continue their cautious order patterns", affecting the Sensors segment's performance.
- Behind schedule in hiring for growth initiatives: The company is "a little bit behind the curve" in hiring for business development and engineering resources needed to accelerate organic growth, which may delay the impact of their growth strategies.
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Gross Margin Outlook
Q: Are gross margins expected to remain structurally higher going forward?
A: Management confirmed that their target of 45% gross margin is still viable and they are currently a bit ahead of plan. They believe that given the exchange rate, product mix, and sales revenue, this gross margin is sustainable, and they expect to continue improving it to meet their longer-term targets. -
Operating Expenses and Growth Investments
Q: What are the expectations for growth investments and OpEx projections?
A: Management noted that they started hiring personnel to accelerate organic growth but are a little behind schedule. They still expect to meet their targets to ensure accelerated growth. This year's OpEx investments are mostly expected to support cost reduction initiatives, some already realized in Q1, and to support high-volume expansion product lines with orders expected next year. -
Measurement Systems Growth and eVTOL Market
Q: Is the eVTOL customer a new client, and what's the outlook for Measurement Systems?
A: The eVTOL sector is a new area for their DTS products. They expect this market to grow at least 20% year-over-year, currently representing a couple of million dollars, with expectations to grow as the market expands. They've been designed into key customers who are conducting prototype testing. -
Avionics, Military, and Space Orders Outlook
Q: What are the order trends in the AMS segment heading into the second quarter?
A: For AMS, they sell precision resistors and DTS products. The precision resistor projects are sustainable with orders being placed. For DTS products like crash dummies for military applications, they have been designed into key projects approved by the U.S. Army and NATO. They are waiting for funding to be released, expecting large orders of around $1.5 million to $2 million per item to be placed in the second half of the year.
Research analysts covering Vishay Precision Group.