Vishay Precision Group, Inc.

Good morning and welcome to the VPG fourth quarter 2021 earnings call. All participants will be in 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 questions. To ask a question, you may press star, then one on your 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 Steve Cantor, Senior Director of Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Welcome to VPG's 2021 Fourth Quarter Earnings Conference Call. In addition to our Q4 press release and accompanying slides that have been posted on our website, vpgsensors.com, yesterday, We also issued a press release announcing a change in our strategy and business segmentation. We will be discussing both on today's call. 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 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, CFO. And now I'll turn the call to Ziv for some prepared remarks. please refer to slide three of the quarterly presentation. Steve?

Thank you, Steve. I am pleased to report we delivered another strong quarter, which capped a successful year for VPG. 2021 was one of the best years in VPG history. As we grew our sales by 17.8%, achieved an adjusted diluted EPS of $1.87 and improved our adjusted EBITDA margin to 15.7% from 14.1% recorded in the prior year. Moving to slide four, before providing more color about our financial results, I'm excited to announce today some important changes for VPG which we believe will bring us into our next phase of growth and profitability. This is a momentous time for VPG. We are a leader in precision measurement sensing technologies, focusing on an expanding array of applications in which accuracy, reliability, and repeatability makes the difference. Our deep engineering and application expertise help our customers to make their product safer, smarter, and more productive. Moving to slide five, over the past several years, we have seen the need for precision measurement sensing solutions evolve and expand into new markets and applications requiring levels of precision that were not needed before. These trends have converged with our own core competencies, such as technology, innovation, and market presence, as well as investments we have made over the past few years. The result is the emergence of new applications for VPG's product beyond our traditional focus on legacy markets, such as industrial, processing, avionics, military and space, and steel production. Compared to five years ago, we believe we are much better positioned to address these new promising opportunities. In fact, greater portion of our 2021 sales were in new or expanded areas. For example, our precision resistors are used in more semiconductor test and production equipment to meet the global demand for increasingly complex generation of microchips. Our load cells are helping new precision agriculture equipment optimize seed planting depth to produce higher crop yields. Our overload monitoring systems are keeping our roads safe by enabling trucks and vans operators and drivers to stay within load limits and regulations. Our miniaturized data acquisition systems and data loggers are used in safety testing of new cars and vans. We've seen growing number of applications emerge in consumer markets, an area we did not address just a few years ago. We are addressing these new consumer applications not only with our advanced sensor business, but in our other businesses as well. Moving to slide six, I am pleased to announce the next phase of VPG's evolution. In the first phase of our journey as an independent public company from 2010 to 2016, we focused on streamlining our organization and operations and instituted vertical integration structure and strategy for our products and technology. In the second phase from 2017 to 2021, we made critical investments leveraging our vertical integration structure in operational excellence and several growth initiatives, including our advanced sensors and truck runway. Today, we are moving into a new phase of our growth. As the need for precision measurement technologies continues to accelerate and transform, driven by the development of higher functionality in our customers and products, we are changing our operating strategy, and business reporting segments. In order to capitalize on the expanding market opportunities and our strong competencies, we are applying strategy and structure that we believe will accelerate our long-term organic growth and optimize our operating leverage as well as to acquire additional high-value businesses. Moving to slide 7. As a fundamental part of this evolution, we have moved from a strategy of vertical integration to an operationally diversified company. That is to say, one structure built around three distinct business pillars. Sensors, weighing solutions, and measurement systems. This structure will enable us to create value in our businesses by leveraging our strong corporate competencies, shared resources, investments, and organizational culture. Each segment pillar has its individual growth strategies built on complementary operational technology and competitive capabilities to address the expanded market opportunities and customers' growing needs. Moving to slide eight, as you can see on slide eight, each of the new segments has its own growth and margin profile and capital requirement to support its growth strategies. We believe the combination of these businesses will continue to provide both resilience and accelerated growth. The sensor segment is comprised of two businesses, precision resistors and stringages, which include our advanced sensors. The sensor segment had in 2021 sales of 127.9 million. Our weighing solution segment is comprised of four sensors, overload monitoring solutions for trucks and other vehicles, and process weighing solutions for specialized weighing systems. In 2021, this segment had sales of $125.4 million. The measurement system segment is comprised of four businesses. KELX, highly specialized measurement systems for steel production, DSI, metal alloy development tools, Pacific Instruments, data acquisition systems, and DTS safety testing solutions. Each of these businesses has strong established brands and have built reputation for providing the highest performing products in their categories. The measurement system segment recorded 64.7 million of sales in 2021. Beginning today with Q4 and 2021 results, and going forward, we are reporting our financial results based on our new reporting segments. Investors can find eight quarters of sales and gross margin data for the new reporting segments in the appendix of today's presentation slides and on our website. Moving to slide nine. As we embrace this next phase in our evolution, the underlying foundation will continue to leverage our corporate competencies to create value. We will continue to drive operational excellence across all our businesses as well as to build strong brands and management teams. Apply manufacturing focus and innovation expand our relationship with top-tier Fortune 1000 customers and allocate capital to seek maximum returns. Most importantly, we believe this framework will enable us to build our growth and profitability, which can result in a long-term target of revenue growth in the low double-digit, including M&A, an adjusted gross margin of 45%, an adjusted operating margin of 18%, and an adjusted EBDA margin of 22%. Moving to slide 10, turning to the fourth quarter of 2021, we reported record sales of 90 million, which increased 9.8% from the third quarter of 2021. and delivered an adjusted earning per diluted share of 56 cents. Book to bill was 1.06, reflecting sustained strength in order patterns across the majority of our markets. Operationally, during the quarter, we made significant progress in addressing the labor challenges we experienced in the third quarter. While the majority of our open positions have been filled, our operating performance in the sensor segment was impacted by inefficiencies as the new employees were brought on board and trained. In terms of other global supply chain constraints, we are continuing to effectively manage the supply of key components, although this continues to require close attention. We are implementing price increases to mitigate higher labor costs, higher material prices, and logistics costs. Looking at our business segment performance, we grew revenue in the fourth quarter across all three business segments as we continued our focus on accelerating long-term growth across the company. Moving to slide 11, Beginning with our sensor segment, which is comprised of our advanced sensors products and our precision resistors, fourth quarter revenue of $34.1 million grew 11.2% sequentially and 7.1% from a year ago. The sensor segment had a book-to-bill of 1.11% as sequentially higher orders in consumer and general industrial markets were offset mainly by the timing of orders in the test and measurements. I'm pleased to report that we continue to make progress in our strategic growth initiatives in the sensor segment. In the fourth quarter, advanced sensors revenues and orders grew 10% and 30% respectively from the third quarter, resulting in a book-to-bill of 1.41. We continue to engage new customers for this product in the range of new applications, including consumer and PC board testing. For our precision resistors product line, we are pursuing several new opportunities, beyond our traditional applications in such areas as EV battery testing and the testing of optical data network to support 5G infrastructure, among others. To support this growth, we are expanding manufacturing capacity, new automated processes for precision resistors. Similar to the approach with advanced sensors, we believe this additional capacity, which is anticipated to be ready by the end of this year, will allow us to address new higher volume opportunities. In terms of operating results for sensors, the adjusted gross margin in the fourth quarter of 34.8% included approximately 1.2 million of negative impacts from three factors, unfavorable foreign exchange, labor inefficiencies, and wage increases. The weaker dollar continues to be a significant headwind to margin, impacting censors results by 600,000 compared to the third quarter and 1.4 million compared to a year ago. Labor inefficiencies, which resulting from the hiring and training of new employees, had a $400,000 impact versus Q3. And lastly, COVID-related wage increases, which we put in place to fill open positions, increased our expenses by $200,000 sequentially and $500,000 compared to a year ago. While we don't control the exchange rate, we believe... the labor inefficiencies are temporarily. If we adjust for the exchange rate and the labor inefficiencies, gross margin for sensors would have been approximately 40%. Moving to slide 12, turning to our weighing solution segment, which is comprised of our four sensors on both weighing and process weighing businesses. Fourth quarter sales of $32.1 million increased 4.5% from $30.7 million from the third quarter of 2021. We are pleased with our four sensors OEM initiatives as OEM revenue grew approximately 35% on a sequential basis as well as 16% on a year-over-year basis. The weighing solution segment had a book-to-bill ratio of 0.98 in the fourth quarter of 2021. Our strategic priorities in the weighing solution segment includes expanding our OEM sales of four sensors and growing our sales of onboard weighing solutions to enable truck and van operators to meet vehicle overloading regulation in Europe. For force sensors, we continue to address new applications beyond our industrial ones. In such areas as consumer and medical. As an example, our force sensors are now being used in electric bikes by sensing how hard a rider is pedaling these sensors to improve battery efficiency in the new generation of electric bikes by providing real-time feedback to the motor. In spite of these successes, our truck-way, van-way products continue to be impacted by the lack of availability of new trucks and vans in Europe due to the global semiconductor shortage. While demand for our solutions for the large trucks has improved, we are currently estimating that the supply shortages of the new vehicles will start to ease in the second half of this year. Weighing Solutions adjusted gross margin of 34.0% in the fourth quarter, declined from 37.6% in the third quarter. The sequential decline in adjusted gross margin was primarily due to unfavorable product mix, reduction of inventory, and higher material costs partially offset by an increase in volume and price increases. Moving to slide 13, turning to our measurement system segment, which is comprised of our calc, DSI, DTS and Pacific Instrument businesses. Revenue in the fourth quarter of $23.8 million increased 15.6% sequentially, reflecting higher CELC and DTS sales. The increase in sales year-over-year was 69.7%, primarily due to the acquisition of DTS in June of 2021. Book-to-bill for measurement systems was 1.08, reflecting sequential order growth in steel, avionic military and space, and consumer, which offset lower orders in transportation. Our measurement systems businesses are strong market leaders in their respective niches, Demand in these businesses is largely project-driven, as these systems generally have a longer selling and delivery cycle and higher ASPs. Within these niches, there are a number of attractive avenues for growth. For example, DTS is working on NFL-related projects in sports safety. In addition to its core applications, in the auto and military safety. DSI is expanding its market opportunity for its metal alloy development tool by introducing new configuration of its market leading systems. KELC is augmented in its products offering for its productivity systems used in steel manufacturing. Adjusted gross margin in the fourth quarter for measurement systems was 56.8%, adjusted for purchase accounting related to the DTS acquisition, and declined from 59.2% in the third quarter, mainly due to unfavorable product mix and inventory reduction, partially offset by higher volume. At our priorities for our capital deployment for VPG as a whole, we intend to continue making investments to support growth and margin expansion and to acquire additional high quality businesses. For fiscal 2022, we expect CAPEX to be in the range of 30 to 33 million, the highest level in our history. Approximately $10 million is a carryover from 2021, which had been pushed out due to COVID-related matters. Approximately half of our purchases are infrastructure-related to support additional capacity expansion for growth initiatives for precision resistors in the sensor segment and for sensors in the weighing solution segment. The other 50% CAPEX is mainly for equipment for expansion and cost reduction, mainly in the sensor segment. Before turning the call to Bill for additional financial detail, I want to thank our employees and our customers around the world for making 2021 a successful year for VPG. The passion, dedication, and focus of VPG team on our customers are the engine of our success. I will now turn it over to Bill Clancy for more details. Bill?