Vishay Precision Group, Inc.

Good day and welcome to the VPG 2020 Q2 results conference call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask a question. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Steve Cantor, Senior Director of Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Welcome to VPG's 2020 Second Quarter Earnings Conference Call. Our Q2 press release and accompanying slides have been posted on our website, vpgsensors.com. An audio recording of today's call will be available on the Internet for a limited time and can also be accessed on our website. Today's remarks are governed by the safe harbor provisions of the 1995 Private Securities Litigation Reform Act. Our actual results may vary from forward-looking statements. For a discussion of the risks associated with BPG's operations, we encourage you to refer to our SEC filings, especially the Form 10-K for the year ended December 31, 2019, and our other recent SEC filings. On the call today are Ziv Shoshani, CEO and President, and Bill Clancy, CFO. I'll now turn the call to Ziv for some prepared remarks. Please refer to slide three of the quarterly presentation.

Thank you, Steve. I will begin with some commentary on VPG's consolidated financial results and sales trends for Q2 and an update on the impact of the COVID-19 pandemic on our business. Bill will provide financial details on our third quarter outlook. Moving to slide three, despite the challenges presented by the COVID-19 pandemic on our businesses, We executed well in the second quarter. We achieved sales in the mid-point of guidance with strong results in our technology product segment, driven by advances in precision quality systems. We achieved a solid margin in EPS on a lower revenue compared to Q1, reflecting positive product commitments, cost control, and manufacturing efficiency. We generated positive adjusted free cash flow even as we continued our investment in our new advanced sensor manufacturing facility. And we adjusted our operations effectively to meet local COVID-related restrictions and continue to take precautions and measures to protect our employees during this epidemic. Moving to slide four, sales in the second quarter were 59.1 million, reflecting the impact of COVID-related closure and restrictions around the world. Although the greatest impact was on our force sensors business, which I will discuss in more detail shortly, the majority of our operations were able to adjust and to operate effectively. In terms of sales, by N markets in Q2 compared to Q1. Sales to avionic, military, and space market continued to be driven by defense spending, and sales to the semiconductor test portion of the test and measurement market were strong. In addition, we had higher shipments of kelp products to the steel industry, and sales increases in some of our other markets such as consumer and medical equipment. This contrasted with lower sales in industrial weighing, transportation, and general industrial markets. Yet, we saw clear signs of softer orders across several end markets, which contributed to an overall book-to-bill of 0.95. Moving to slide five, turning to our Turning to our trends by segment, for foil technology products, second quarter sales of 31.8 million grew 4.3% sequentially, driven by strength in the precision foil resistors for defense-related customers and advanced sensors in the consumer and medical markets. We were pleased with the performance of advanced sensors which grew in sales by 36% from Q1 of 2020. This offset by a weaker sales of other FTP products used in industrial applications. Gross margin for the FTP adjusted for COVID impacts was 41.7%, which improved from 36.7% in the first quarter due to higher volume and improved manufacturing efficiency. Book to bill for FTP was 0.85 in the second quarter, reflecting a softening in orders in the test and measurement and general industrial markets, while advanced sensors recorded another consecutive quarter of significant orders. The demand for advanced sensors products have required us to operate our current manufacturing at a near maximum capacity to meet customer commitments. This validates the traction we were seeing in the market for these products, and it underscores the need for our new FTP manufacturing site to support future growth. Given the production demand on the existing manufacturing site, as well as vendor delays in installing and qualifying new equipment due to the pandemic, we expect to be fully operational in the new facility in 2021. For the four sensor segment, it was a challenging quarter. Second quarter sales of 8.9 million declined 39.3% from the first quarter of 2020 due to COVID restrictions mandated across much of India, which caused our facility there to operate as partial capacity during the second quarter. This resulted in a revenue shortfall for four sensors in Q2 of about 6 million from pre-COVID run rate. The lower revenue impacted in the second quarter, operating profit by approximately 2.5 million. Nonetheless, as of July 1st, we received approval from the local Indian authority to operate without limitations. This has allowed us to accelerate efforts to ramp up production to pre-COVID levels, which we expect to achieve in Q4, bearing any unforeseen issues. Given the timing of ramping the India facility for the third quarter, We expect four sensors' revenues to be adversely impacted by approximately $3 million to $4 million from pre-COVID-19. We expect to be impacted by approximately $1 million to $1.5 million due to lower revenue. Reflecting the abnormally low sales in Q2 and softer orders, Book-to-bill for four sensors was 1.58. Demand trends were mixed as strength demand for loaders used in medical applications was offset by global demand for industrial applications. and Ziv Shoshani. and shutdowns hindered some customers from receiving our systems, which contributed to lower sales. In addition, pandemic-related shutdowns impacted our onboard weighing sales to transportation customers both in Europe and in North America in the second quarter. Software orders for WCS in the second quarter resulted in a book-to-bill of 0.82. Gross margin in the second quarter for WCS was 47.3%, adjusted for COVID impact, and declined modestly from 48.0% in the first quarter due to lower volume partially offset by our cost control measures. Regarding our TrackWay one-way initiatives, the European Union finalized its pending overload protection regulations, with most EU member states opting for the weigh-in-motion platform rather than an on-board weighing solution. While this means the OEM opportunity for us will be less than we expected, the traction we had achieved pre-COVID in the aftermarket in the UK and France gives us confidence in opportunities for our solution. As an aftermarket sale, our truck-way, van-way solution is complementary to the way-in-motion platform since it helps fleet operators to optimize the safety and efficiency of their fleet and avoid potential regulatory fines. Moving to slide six. Given the uncertainty regarding the arc of the pandemic in the US and around the world, we are continuing with our measures to protect our employees, including workplace distancing and enabling employees to work remotely if their jobs permitted. In terms of the impact of the P&L, In addition to the revenue impact I described earlier due to COVID-19, we incurred a net expense of approximately $443,000 related to employment costs and workplace adjustments. Overall, beyond the short-term measures to control our costs, we are continuing our long-term strategic initiatives across the businesses. We believe that these steps will serve us well to not only contend with the COVID impact, but also to maximize our profitability and achieve the margin leverage in our target model when our markets fully recover. At the time, we are continuing to invest in the company's future The new FTP facility is an example of our strategic investment and represents a meaningful portion of our expected capital spending of approximately $30 million for 2020. We are also continuing to look for opportunities to build additional shareholders' value to attractive M&A. Before Bill provides more details on the second quarter financials, I would like to thank the VPG employees around the world for their dedication and customer focus during these challenging times. I will now turn it over to Bill Clancy for an additional financial details. Bill?