Vishay Precision Group, Inc.

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

Thank you, Matt, and thank you, everyone, for joining our call today. Welcome to VPG's 2020 Third Quarter Earnings Conference Call. Our Q3 press release and accompanying slides have been posted on our website at vpgsensors.com. An audio recording of today's call will also be available on the Internet for a limited time and can be also 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. You can refer to slide three of the quarterly presentation. Ziv?

Thank you, Steve. I will begin with some commentary on VPG's consolidated financial results and sales trends for Q3 and an update of the impact of the COVID-19 pandemic on our business. Bill will provide financial details in our fourth quarter outlook. Moving to slide three, third quarter financial highlights. I am pleased with our performance in Q3 as we continue to execute our long-term strategies while managing the challenges of the global pandemic. We achieved growth in sales, operating margin, and earnings per share compared to the second quarter and the third quarter a year ago. We generated a positive adjusted free cash flow and continued our investments in our new advanced sensors manufacturing facility. And we are now manufacturing at full capacity levels at our India facility for four sensors. Moving to slide four, consolidated results and market trends. We achieved third quarter sales of 67.5 million above the high end of our guidance, which was 14.2% higher and Ziv Shoshani. While we are encouraged by this growth, the sequential trends across this market show different levels of strength. On the positive side, strong demand for consumer applications and precision agriculture was partially offset by lower orders for medical and construction. In the steel-related market, were stronger for Dynamic Systems, Inc., or DSI, while Calc orders remained flat. Orders in the avionic military and space and test and measurement market were strong. However, trends in some end markets were mixed. In the transportation market, orders rebounded from the depressed level in the second quarter, but were still below the pre-pandemic levels in the prior year. orders in the general industrial markets recover partially, but demand in this market tends to move in line with general economic or broader GDP trends, which remain muted in many of our geographies. The net result of these trends was a book-to-bill of 0.95 for the third quarter. Moving to slide five, segment trends. We achieved sequential growth across all three business segments. For foil technology products, third quarter sales of 32.9 million grew 3.5% sequentially and 2.5% from a year ago. We were pleased with the performance of advanced sensors which grew its sales by 22% from Q2 and by 59% from Q3 of 2019. The strength in advanced sensors was complemented by higher shipments of Pacific Instruments data acquisition systems, while sales of precision foil resistors were softer for the test and measurement applications. Adjusted gross profit, adjusted gross margin for FTP was 41.6%, which was about flat with the second quarter and improved from 37.3% in the third quarter of 2019 due to manufacturing efficiencies and cost controls. Book-to-bill for FTP was 1.01% in the third quarter driven by another consecutive quarter of significant orders for advanced sensors mainly for consumer applications. We continue to get Thank you for your attention. We are able to keep up with the current demand. With regards to our new facility project, the building infrastructure has been finished and we have been completed the move of our administrative offices. As we move and install the production equipment in stages, we expect to be fully transitioned into the new facility in early second half of 2021. which will give us the needed capacity to accommodate future growth. For the full sensor segment, it was a quarter of continued recovery. Third quarter sales of 13.9 million improved by 55.5% from the second quarter of 2020, driven by our backlog and the Thank you very much. our Four Sensors team for their hard work and dedication in ramping up production even as that region faced ongoing pandemic challenges. In the third quarter, we estimate that due to the pandemic, Four Sensors revenues were adversely impacted by approximately 2.5 million from a normalized pre-COVID run rate level. And its operating income was impacted by approximately 1 million. primarily due to lower revenues. The pandemic has impacted Four Sensors revenue in aggregate for the first nine months of 2020 by approximately $10 million and by approximately $4 million in terms of its operating income from a normalized run rate. In terms of OEM-specific Four Sensors product, which is one of our key growth initiatives, Sales Group, by 94% sequentially, but were below pre-pandemic run rates. Financially, four centers performed well, achieving an adjusted gross margin of 31.2% in the third quarter, which compared to 19.6% in the second quarter and 30.4% in the third quarter of 2019. This performance reflects both short-term cost savings measures and the long-term structural cost savings initiatives that we have implemented over the past four years, including the move of the majority of the four sensors manufacturing to India. Compared to the second quarter, the sequential increase in adjusted gross margin was primarily due to higher volume. Book-to-bill for four sensors was 0.9, as ordered for generic weighing applications and OEM products for precision agriculture were higher. This was offset by lower orders for OEM-related products, mainly in the medical. Sales of the weighing and control systems in the third quarter of 20.8 million increased 12.5% sequentially and 8.8% higher than a year ago. Sequentially higher sales of DSI and our onboard weighing solutions offset lower sales of KELC systems. Sales of TruckWay and VanWay rebounded 60% from the second quarter, but were still below a normalized run rate in the third quarter of 2019. We continue to capture aftermarket demand for TruckWay-VanWay and we expect additional sales opportunities to emerge as the new EU regulations become effective in mid of 2021. Adjusted gross margin in the third quarter for WCS was 44.9%, adjusted for COVID impact and declined from 47.3% in the second quarter, mainly due to unfavorable product mix and a reduction of inventory. partially offset by higher volume. In terms of sequential trends in WCS segment, orders for DSI and onboard weighing were higher, while calc orders were flat and remained below pre-pandemic levels. The results of these WCS orders trend in the third quarter was a book-to-bill of 0.88. Moving to slide six, VPG Strategy to contend with COVID-19 impacts on its business. In terms of impact from COVID, all our businesses are now operating normally, although we are continuing with measures to protect the health of our employees and our customers. These measures include restrictions on travel and maintaining safe workplace distancing, and providing transportation assistance. Given the ongoing economic uncertainties presented by the pandemic and increase in infection rate around the world, we are continuing to maintain tight control of our costs. Nonetheless, we are continuing our long-term strategic initiatives, including deploying our capital prudently to build long-term Stockholders' Value. As such, we now expect capital spending to be approximately $25 million for 2020, of which $15.8 million has been invested through the first nine months. We are also continuing to look for opportunities to build additional Stockholders' Value to attractive M&A. Before Bill provides more details on our third quarter financials, I would like to thank the VPGs employees around the world for their dedication and customer focus during these challenging times. In summary, our business environment is currently more positive than in the first half of the year, but many of our markets have still not recovered fully to pre-pandemic levels. I will now turn it over to Bill Clancy for additional comments. Financial Details.