Vishay Precision Group, Inc.

Good day and welcome to the VPG second quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing 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 now like to turn the conference over to Stephen Cantor. Please go ahead.

Thank you, Betsy, and good morning, everyone. Welcome to VPG's 2021 Second Quarter Earnings Conference Call. Our Q2 press release and accompanying slides have been posted on our website. An audio recording of today's call will also be available on the Internet for a limited time and can be accessed on the VPG website. 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 our discussion of the risks associated with VPG's operations, we encourage you to refer to our SEC filings, especially the Form 10-K for the year ended December 31, 2020, and our other recent SEC filings. On the call today are Ziv Shoshani, CEO and President, and Bill Clancy, Chief Financial Officer. And now I'll turn the call to Ziv for some prepared remarks. Please 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 the second quarter. Bill will provide financial details and our outlook for the third quarter of 2021. Slide three, we are pleased with our results for the second quarter. We achieved solid sales performance of 75.3 million. We ended the quarter with a book to bill of 1.4 as we grew our orders 23.3% sequentially to 105.4 million reflecting strength across our businesses and end markets and the inclusion of DTS backlog. We executed well operationally and grew adjusted gross margin to 42.3%, adjusted operating margin to 12.2%, and our adjusted EPS to 49 cents. We also generated strong cash flow and adjusted EBITDA margin of 16.6%. We are excited about the acquisition of DTS, which we completed in June. And we are in the final stages of completing the move of advanced sensors manufacturing to our new facility. Moving to slide four, looking at the second quarter sales results in more detail. Sales grew 27.4% from a year ago and 6.7% from the first quarter. On a sequential basis, business trends were positive, and we ended the second quarter with a book-to-bill above 1.2 in all three reporting segments. In each of our end markets, we had a book-to-bill above 1%, and with the exception of industrial weighing, all the end markets were at 1.3 or higher. The individual end markets performed as follows. In the test and measurement market, sales grew 12.9%, demand in this market remained at strong levels, as orders were at sustained levels compared to Q1, which reflected ongoing strength related to the semiconductor process control and test equipment. Sales rose 24.9% in the transportation market, and orders increased 45.3% due to the inclusion of the DTS backlog. Sales to the steel market grew 8.6% sequentially, reflecting increased customer activity and improved project-driven demand. Steel-related orders continued to rebound and grew 21.4%. While sales in general industrial was up modestly, orders grew 40.2% driven by oil and gas and general tooling. Sales and orders to the industrial wing were flat. In the avionics, military, and space market, sales declined by 2.6%, while orders grew 85% from Q1, which included approximately 3 million from DTS backlog. The net result of these trends was a book-to-bill of 1.4 for the second quarter and a backlog of 130.9 million, an increase of 30.2 million from the first quarter of 2021, which includes 7.1 million of backlog from DTS. Moving to slide five, turning to the results by segment. Foil technology product second quarter sales of 33.3 million were 1.8% higher sequentially, primarily due to higher sales of precision foil resistors and pacific instrument systems. Compared to a year ago, FTP sales grew 4.8%, primarily driven by advanced sensors. While advanced sensor second quarter sales were 22.6% higher than a year ago, revenue moderated from Q1 due to the transition to the new manufacturing facility. we incurred $1.2 million of startup costs related to this transition in the second quarter. We expect the transition impact on revenue to extend to Q3 as we anticipate completing the move to our new facility in the third quarter. Demand for those products continued to grow, increasing approximately 19% sequentially. Backlog for advanced sensors grew more than 16% sequentially, which positions us for a good post-transition run rate. Adjusted gross margin for FTP was 42.6%, increasing from 40.4% in the first quarter as a result of higher volume manufacturing efficiencies and higher inventory levels. Book-to-bill for FTP was 1.37 in the second quarter, which reflected a 17.5% sequential increase in orders. The strength in demand was driven by precision foil resistors for AMS as well as for advanced sensors. The four sensors segment reported another quarter of strong performance. as it continued to manage well through COVID-related challenges facing India. Second quarter sales of 17.2 million improved 1.7% from the first quarter and were 93.1% higher than a year ago. Recall that in the second quarter of 2020, this segment was adversely affected by COVID-related production limitations at our facility in India. While COVID infection rates remain an ongoing issue across many parts of India, we continue to operate at full capacity given our exemption from COVID restrictions due to the critical nature of our product. The strategic growth initiatives to expand Foresensor's OEM business continues to perform well as its OEM revenue grew 7.5% sequentially. Financially, Foresensor's adjusted gross margin of 35.4% in the second quarter declined modestly from a high level of 36% in the first quarter but improved significantly from 19.6% a year ago. The sequential decline was primarily due to unfavorable foreign exchanges, partially offset by higher inventories and volume. As we discussed in May, we expect gross margin for four sensors at comparable revenue levels and product mix to be 30% or above given higher costs related to expanding our China manufacturing and the expected impact of tariffs for our China production products. At levels of 30% plus, this is a step function improvement over the average margins we recorded for this business over the last several years. The book-to-bill for four sensors of 1.223 reflects order momentum in our other markets, mainly precision agriculture and consumer. Sales of weighing and control systems in the second quarter of 24.8 million increased 18.5% sequentially and 34.5% from a year ago. Sequentially, the higher sales reflected the addition of approximately 3 million of sales from DTS, as well as higher sales of process weighing solutions and calc products. Sales from our truck weigh and van weigh initiatives grew 123.7% from a year ago, but softened 9.5% sequentially, reflecting slower industry production of trucks and vans due to IC and component shortages. We have seen increased customer interest in our solution since new EU overloading regulations went into effect in May of 2021. And we expect this interest to translate in orders as the availability of new vehicles improves. and the EU countries continue to ramp up their enforcement of the new regulations. Adjusted gross margin in the second quarter for WCS was 46.6%, which includes adjustments for acquisition-related costs as well as COVID impacts, and improved from 44.3% in the first quarter, mainly due to the addition of DTS and higher revenue of WCS products. In terms of order trends in the WCS segment, orders grew 41.3% sequentially, reflecting the addition of DTS as well as continued demand recovery for our steel-related products. As we have discussed previously, orders for KELT and DSI are generally driven by customer CAPEX projects, which in case of kelk, typically have a two-quarter lag relative to inflection in the steel market. With regards to the steel market, the book-to-bill combined for kelk and DSI was 1.72, which is a positive indicator for revenue in the second half of this year and in 2022. The result of this WCS order trend in the second quarter was a book to bill of 1.56. Moving to slide six, before turning the call to bill, I will make a few additional comments. In terms of COVID, all our facilities are currently open and operational. Given the rise in COVID cases around the world, we continue to be proactive in taking measures where needed to protect our employees and our customers. On behalf of the Board and our management team, I want to thank all of VPG's employees for their dedication and customer focus during this current wave of the pandemic. I also want to comment on one of the key highlights for the quarter the acquisition of DTS on June 1st. DTS is a leading manufacturer of data acquisition systems and sensors for product and safety testing. It is an established niche market leader with a strong brand and superior technology, as well as talented management team with a deep business and technical knowledge. DTS not only adds complementary technology to our platform, but it brings unique engineering capabilities centered on miniaturization, data acquisition, and system integration with sensor technology for critical testing applications. As a major supplier of embedded data acquisition and logging capabilities for crash test dummies, DTS will give us a presence in the automotive market as well as add to our offering in the avionic military and defense market, we believe DTS will continue to benefit from the global need for specialized safety testing technology that is expanding from the automotive and avionic sectors to sports applications. Over the next 12 months, we believe that DTS has the potential to generate $30 million or more in revenue with an adjusted EBITDA margin over We are continuing to look for attractive acquisitions, opportunities that will further accelerate our growth and profitability. I will now turn it over to Bill Clancy for additional financial details. Bill?