Vishay Precision Group, Inc.

Hello and welcome to the VPG's second quarter fiscal 2023 earnings call. My name is Elliott and I'll be coordinating your call today. If you'd like to register a question during today's event, please press star followed by one on your telephone keypad. I'd now like to hand over to Steve Cantor, Senior Director of Investor Relations. The floor is yours. Please go ahead.

Thank you, Elliott. Good morning, everyone. Welcome to VPG's second quarter of 2023 earnings conference call. Our Q2 press release and slides have been posted on our website at vpgsensors.com. An audio recording of today's call will be available 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 Security Litigations 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, 2022, and our other recent SEC filings. On the call today are Ziv Shoshani, CEO and President, and Bill Clancy, CFO. And I'll now turn the call to Ziv for some prepared remarks. Please refer to slide three of the presentation. Ziv.

Thank you, Steve. I will begin with some commentary on VPG's consolidated financial and sales trends for the second quarter. Bill will provide financial details about the quarter and our outlook for the third quarter of 2023. Moving to slide three, We achieved another strong quarter for VPG. We grew revenue year over year and sequentially. We performed well financially as we increased adjusted gross margin, adjusted operating margin, and adjusted diluted EPS from Q1. We generated $16 million of adjusted EBDA, $9.8 million of cash from operations, and $6.4 million of adjusted free cash flow. which supports our capital allocation strategy to grow stockholders' value. Orders grew sequentially, and we have a solid outlook for the third quarter driven by our backlog. Customer engagement remains high as we continue to extend on long-term strategic growth initiatives to capture expanding and broadening opportunities for our precision measurement and sensing technologies. Moving to slide four, looking at the second quarter results in detail. We reported sales of 90.8 million, which was 2.5% higher than a year ago and 2.2% higher sequentially. Orders of 85.6 million grew 3% from the first quarter. This reflected higher sequential bookings for all three business segments. and resulted in a book-to-bill ratio of 0.94. In the current macro environment, our customers are maintaining lower inventory levels. Nevertheless, given the custom nature of our products, we anticipate we will see bookings improvements approximately in Q4 of this year to early 2024. As I indicated, we improved our adjusted gross margin to 42.7% from 41.9% in the first quarter, driven by higher sales, higher selling prices, and a favorable impact of FX. This was partially offset by unfavorable product mix in our measurement system segment. Our supply chain continued to improve compared to a year ago. We incurred higher material costs which we were able to offset to higher selling prices. The redesign of one of our DTS products due to insufficient availability of key component is complete and we are on track to ship the redesigned product in the fourth quarter. In terms of our organic growth strategies, we continued our focus on key strategic initiatives to capture emerging opportunities for our precision measurement and sensing technologies. As we have discussed before, we have seen broadening of emerging opportunities in new markets and applications that can benefit from our high-performance, high-precision solutions. During the second quarter, we continue to expand our engagement with existing customers as well as develop innovative products to meet their emerging requirements. These engagements are in the range of markets, including industrial automation, robotics, space and defense, precision agriculture, fiber optics data center networks, medical equipment, and consumer. We made progress in many of these markets over the past few years and we are optimistic about their potential to contribute to our long-term organic growth. I'll touch on some of these initiatives as I now review our business segments performance for the second quarter. Moving to slide five. Beginning with our sensor segment, second quarter revenue of $36.3 million declined 10% from a year ago, and was 1.3% lower sequentially. Compared to the first quarter, sales of our precision resistors were slightly lower, as sales for these products to the test and measurement market were flat, and sales to the AMS market were lower as customers continued to work down inventories. Sales of advanced sensors were flat with the first quarter. for sensors of 30.6 million were 2.3% higher sequentially, which resulted in a book-to-bill of 0.84. For precision resistors, order were flat to the semiconductor test market, while orders to the AMS market were soft in the second quarter. As our distributors continue to be cautious in their ordering pattern, given the macro environment, Strategically, we have made progress in the second quarter with our initiatives to secure design-ins for new applications for our precision resistors. For example, our products were specced into a number of new space and missile defense projects. In addition, we are gaining traction with key fiber optics equipment makers with new products that provide long life stability that can contribute to a more robust network performance. Orders for advanced sensors to the consumer market improved in Q2, but have not yet returned to the 2022 peak levels. We continue to get further traction with the additional applications for advanced sensors in a number of emerging markets, including in robotics for industrial and medical applications. In terms of operating results for sensors, adjusted gross margin of 40.1% declined sequentially from 41.2%, primarily due to lower volume, partially offset by favorable foreign currency rates. Moving to slide six, turning to our weighing solution segment, second quarter sales of 31.3 million were 9.8% higher than a year ago and 1.9% lower compared to the first quarter of 2023. Sequentially, higher sales in the industrial weighing market were offset by lower sales for precision agriculture and construction applications. Book-to-bill for weighing solutions was 0.97, orders of 30.3 million grew 5.7% from the first quarter, orders grew in the transportation market for our onboard weighing products, for trucks and vans, and for construction equipment. This offset weaker demand in Europe for some legacy industrial weighing applications. We continue to be pleased with our initiatives to expand our OEM sales for weighing solutions in a number of markets including precision ag constructions medical and consumer to the first half of 2023 our oem sales grew 58 from the same period a year ago oem applications for precision ag applications have been among the most rapidly growing areas for the weighing solution in part due to the increasing precision technology being embedded in the next generation agriculture equipment and our strong brand and market position. We have also been successful in penetrating consumer applications, including both high-end road bikes as well as e-bikes. Wang's solution gross margin of 38.7% reached an all-time high and grew from 34.9% in the first quarter. The sequential increase was primarily due to favorable product mix, increasing selling prices, and cost reduction programs. Moving to slide 7, turning to our measurement system segment, second quarter revenue of $23.3 million grew 17.1% from a year ago and increased 14.8% sequentially. The sequential increase was driven by higher revenue of products in the steel market. I mentioned earlier that we expect the redesign of DTS product to begin shipping in the fourth quarter. The impact on sales of the redesign for measurement systems in Q2 was approximately 1 million, which we expect to recover in Q4. Book to bill ratio for measurement systems was 1.06, as orders of 24.7 million were essentially even with the first quarter. Sequentially, orders for our calc steel productivity system were strong. As we have discussed, order pattern can fluctuate quarter to quarter due to the timing of customer projects and the long lead times for these products. One of the existing strategic opportunities in the measurement systems is an initiative to leverage calc technology and market leadership in the role force measurement solutions used in the steelmaking process to aluminum manufacturing. This would represent a new market for our products. Adjusted gross margin in the second quarter for measurement systems softened sequentially to 52% from 54.1%, primarily reflecting the impact of approximately one million from unfavorable product mix. Moving to slide eight, before turning the call to bill, I want to highlight our strong cash flow in the quarter. We generated 16 million of adjusted EBDA and an adjusted EBDA margin of 17.6%. Our adjusted free cash flow during the quarter was 6.4 million, and we grew cash on our balance sheet to nearly 100 million, which reflects our strong operating model. With the completion of our two infrastructure-related projects in India and in Japan, expected later this year, we are in the position to see our free cash flow grow further in 2024. Given our balance sheet and ample liquidity, we can continue to support a capital allocation strategy that creates stockholders' value to organic growth, successful M&A, and a warranted stock repurchases. In closing, I am pleased with our financial performance this quarter and our high level of design in activity with customers. Our outlook for the third quarter is solid and we expect Q4 of 2023 revenues to be at the same level as Q3 2023, given a similar business environment. I will now turn it over to Bill Clancy for additional financial details. Bill?