Vishay Precision Group, Inc.

Welcome everyone. The VPG fourth quarter 2025 earnings call will begin shortly. In the meantime, if you would like to pre-register to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. Thank you. Hello everyone and thank you for joining the VPG fourth quarter 2025 earnings call. My name is Claire and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two on your telephone keypad. I will now hand over to Steve Cantor, Senior Director, Investor Relations at VPG to begin. Please go.

Thank you, Claire. Good morning, everyone. Welcome to VPG's 2025 Fourth Quarter Earnings Conference Call. Our Q4 press release and slides have been posted on VPG's website. 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, 2024, 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.

Ziv? Thank you, Steve. I will begin with some commentary on our results and trends for the fourth quarter and on our strategy. Bill will provide financial details in our outlook for the first quarter of 2026. Moving to slide three. To summarize our Q4 25 results, Q4 marked our fifth consecutive quarter with a book to bill over one led by sensors. While Q4 gross margin reflected the number of headwinds, we expect gross margin to improve in Q1. With sensors ramping and backlog at the multi-year high, we expect higher shipments beginning in Q2 and continued progress on our growth initiatives. Specifically, fourth quarter revenues of 80.6 million was up 11% year over year and 1% sequentially. reflecting solid execution across the portfolio. We achieved another quarter of a positive booking trends as our consolidated orders of 81.3 million grew 2% sequentially. This resulted in a book to bill of 1.01, the fifth consecutive quarter of book to bill of one or better. We continue to make good progress across our business development initiatives, including humanoid robots and semiconductor equipment. These efforts generated 11.8 million in orders during the fourth quarter, bringing total orders from these initiatives to 37.8 million for the full year of 2025, which exceeded our goal of 30 million for the year. Our fourth quarter adjusted gross margin of 37% was impacted by 3 million of headwinds, including unusual unfavorable product mix, inventory reductions, and discrete inventory and manufacturing impacts. We expect gross margin to improve in Q1. We are currently ramping production of sensors products and expect to realize higher sales in the second quarter. I will now review the business performance by segments. Moving to slide four, beginning with our sensor segment, fourth quarter revenue declined 4% sequentially, but was 18% higher than a year ago. Compared to the third quarter, continued strength in test and measurement related to semiconductor equipment was offset by softer sales to the AMS and the general industrial market. Booking for sensors continued its positive trend and reached its highest level in 13 quarters. Sensor bookings rose 4% sequentially and were 30% above a year ago, resulting in a book-to-bill of 1.15. The bookings growth from the third quarter was driven by higher orders in general industrial, our other markets for consumer electronics, and AMS. In addition, we are pleased with the demand related to the test and measurement market, particularly for semiconductor test equipment applications. Total sensors orders were up 18% in the second half of 2025 compared to the first half, with sensors backlog at the highest level since Q3 of 2023. We are currently hiring to ramp up production to meet demand, which should lead to increased sales beginning of Q2. A key highlight continues to be our growing momentum with humanoid robots developments in Q4. We received $800,000 in humanoid-related orders, including a follow-on bookings for our first two customers and an initial prototype order for the third. This new customer is an emerging robotics company developing humanoids to enhance productivity and streamline daily operations in both homes and warehouse environment. In addition, in January, we received a follow-on orders from one of our initial two humanoid customers of approximately $1 million. 2026 is expected to be a pivotal year for the overall humanoid robotics market as leading companies move decisively from prototype into early production and real world deployment. Technical challenges remain, but they play directly to our strength and create strong demand for our high value, high performance solutions that solve their problems to advance dexterity, stability, responsiveness, and safety. While the timing and scale of production ramps across the humanoid robot market remains unclear, we expect 2026 to bring continued momentum for VPG. Our infrastructure and supply chain teams are prepared to support customers' production demands. Moving to slide five, turning to our weighing solution segment. Fourth quarter sales increased modestly from the third quarter and grew 7.8% from prior year. The sequential increase was primarily evident in our industrial weighing market. Weighing solutions orders were up 14.9% sequentially to 28.2 million resulting in a book to bill of 1.02. Specific areas of strength were in our other markets for precision ag, medical, construction, and e-bike applications. Orders were also higher in the transportation for onboard weighing systems for heavy use trucks. While there are signs that some of these end markets have reached their cyclical bottom, we continue to see mixed trends across our OEM customers. Moving to slide six, turning to our measurement system segment, revenue in the fourth quarter of $22.4 million increased 9% sequentially and 6% from a year ago. The sequential increase reflected a record high sales for DSI R&D tool for development of new metal alloys. We also had higher sales in AMS for testing new avionics platforms. Fourth quarter measurement systems orders of 18.1 million declined 16% from the third quarter and resulted in a book-to-bill of 0.81. Lower orders in our steel market which mostly reflected the timing of projects in the middle of a soft global steel market, offset stronger sales of DTS products used in crash safety testing. Our pipeline remain healthy, and given the timing of customers' projects, we expect to return to a positive book to build in Q1. Moving to slide seven, Looking at the year in total fiscal 2025 was a year of transformation for VPG. While our revenues of $307.2 million grew slightly from the prior year, sales in the second half were up 9% from the first half. In addition, we had a steady improvement in orders through the year, particularly in the sensor segment. Our performance in our business development initiatives of 37.8 million in 2025 exceeded our goal of 30 million for the year. We also delivered 4.5 million of targeted cost reductions as part of ongoing cost efficiency plans. Moving to slide eight, most significantly during 2025, we took steps to position VPG for its next phase of accelerated growth. Over the past several years, we strengthened and streamlined our operation to support higher volume opportunities and sharpen how we develop and track our growth initiatives. Those efforts have prepared us to move into the next phase, which involves a fundamental rewiring of our business. As we announced in November, a key component is the creation of the two new senior executives positions and corresponding organizations. The office of the chief business and product officer and the office of chief operating officer. Each organization has a clear mandate. The CBPO's focus is on accelerating growth by refining our internal sales and product development processes. thus expanding our opportunity set and increasing our conversion rate with both new and existing customers. The CEO organization is supporting this accelerated growth by driving improvements in operational efficiency and readiness while also reducing our cost structure. Creating this cross-divisional center of excellence organizations marks a major shift from the diversified operating structure that define much of our history. The reason is simple. The opportunities ahead are being driven by large mainstream market and technology trends and are bigger and more significant than ever. As we enter Q1 transition period, the new organization will work on the core and cross-company processes redesigning them into standardized, scalable, unified, and up-to-date global processes, while also implementing industry best practices. The new processes will be fully placed in Q2. We expect an additional $3 million of SG&A costs in 2026 to support the new organizational structure as well as new IT platforms. as a result of the new organization. We expect 2 million in savings through cost reduction initiatives. The net effect is 1 million to support the new organization. A key trend driving our long-term opportunities is the emergence of physical AI technologies. Physical AI is the class of AI systems that perceives the real world, makes decisions, and drive physical actions to machine or control systems. It sits at the intersection of AI and machine learning, sensors, controls, and humanoids. As physical AI gains broader adoption, certain types are expected to have bigger, longer-term impact than others. VPG is looking to provide solutions in the humanoids and autonomous logistics. As a result, we are excited about our growth prospects. We have set an internal goal this year to grow our top line in the mid to high single digits as we anticipate a stronger second half reflecting strengthening economic trends and capital investments, as well as continued progress with our ongoing growth initiatives. Given our current pipeline, from business development initiatives, we are setting a target of 45 million for 2026, which represents a 20% increase from 2025. Before turning the call to bill, I would like to thank our employees for their dedication, their past year, and their embrace of the changes we are making. I want to thank our customers for their trust and confidence as we continue to work hard to exceed their expectations. I will now turn it over to Bill Clancy. Bill?

Bill Clancy Thank you, Ziv. Referring to slide nine and the reconciliation tables of the slide deck, our fourth quarter of 2025 revenues were $80.6 million. Adjusted gross margin of 37 percent in the fourth quarter decreased from 40.5 percent in the third quarter, was impacted by $1 million related to unfavorable product mix and $1 million due to inventory reductions. In addition, we incurred approximately $1 million of discrete inventory and manufacturing impacts, as well as a $400,000 impact from unfavorable foreign exchange. Sequentially by segment, Adjusted gross margin for sensors of 28.5 percent declined due to lower volume and unfavorable product mix and foreign exchange rates. The weighing solutions gross margin of 33 percent decreased from the third quarter, primarily due to one-time manufacturing fixed costs, a reduction of inventory, and higher logistics costs. Adjusted gross margin for the measurement systems of 53.3 percent increased from the third quarter due to higher volume, partially offset by discrete inventory adjustments. Moving to slide 10, our adjusted operating margin was 2.3%, which excluded restructuring costs of $697,000 and $110,000 of purchase accounting adjustments. Selling general and administrative expense for the fourth quarter was $27.9 million, with 34.7% of revenues, which was modestly higher than Q3, reflecting hiring for the new organizational structure and higher travel and commission costs. Unfavorable foreign exchange rates impacted adjusted operating margin in the fourth quarter by $600,000 and for the full year of 2025 by $4.7 million. Our net loss was $1.9 million or 14 cents per diluted share. Adjusted diluted ETS was seven cents. The gap tax rate for the full year was 39%. For 2026, we are assuming an operational tax rate of approximately 26%. Moving to slide 11. Adjusted EBITDA was $6 million or 7.5% of revenue compared to $9.2 million or 11.5% of revenue in the third quarter. CapEx in the fourth quarter was $3.5 million and was $8.5 million for the full year. For 2026, we are forecasting $14 million to $16 million for capital expenditures. We generated adjusted free cash flow of $1.3 million for the fourth quarter which compared to $7.4 million in the third quarter. As of the end of the fourth quarter, our cash position was $87.4 million and our long-term debt was $20.6 million. The resulting net cash position of $66.8 million and the unused portion of our credit facility provides ample liquidity to support our business requirements and to fund M&A. Regarding the outlook, for the first quarter of 2026, we expect net revenues to be the range of $74 million to $80 million, assuming constant fourth fiscal quarter 2025 exchange rates. In summary, quarterly bookings exceeded $80 million for the first time since the second quarter of 2023 and resulted in a book-to-bill of 1.01. We exceeded our 2025 goal for orders from business development initiatives and are targeting a 20% increase in 2026. And we entered into a new phase with key organizational and strategic changes focused on accelerating growth and cost efficiencies. With that, let's open the lines for questions. Thank you.

Thank you. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from John Fernandez from Sodoti & Co. Your line is now open, John. Please go ahead.

Hi, everybody, and thanks for taking the questions. I actually want to start with the revenue guide. I'm curious about... to achieve the mid to high single digit guide that you're putting out there, how biased is that towards the census segment given the recent bookings profile?

Well, John, good morning. First, we are fairly optimistic regarding the recovery in the marketplace. We have seen many, many signs. It started, the initial sign was in the censors, but we're also quite positive about also positive signs regarding weighing solutions. Also for measurement systems, some of the segments we started to see early signs of recovery. Still, the steel market is fairly soft, predominantly in China, but overall we are optimistic regarding the business environment. In addition to that, we are also expecting additional book-to-bill above one in the second quarter. Now, regarding execution and revenues, this is correct that while we are working on ramping up production for sensors, we would expect to see higher revenues mainly in sensors as of the second quarter, but you are correct in order to achieve the mid to high single digit, the second half of this year we are looking to achieve higher revenues than the first half, since we are in a ramp up mode currently.

Got it. And regarding the gross margin impact, you know, my back of the envelope number was that, was roughly, would have been 41% in the quarter. Is that right to assume X some of those, we'll call it one-time items, if you will? And I'm curious if any of them lingered or are lingering into the first quarter of 2026.

So we have identified kind of an unusual effect in the fourth quarter at the level of $3 million, as I indicated, which were related to year-end closing and also to, I would say, launching new ERP systems at one of our sites. Those so-called...

Ziv, I lost you.

Apologies. It seems we've lost connection with Ziv. The call will commence shortly once we re-gank.

Can you hear me?

I can hear you now, sir.

Can you hear me, John? Sorry, for somehow I heard you. Okay, what I was saying is that at least the $3 million we do not expect to see in the next quarter. Therefore, we should see an improved gross margin moving into Q1.

Got it. And regarding these structuring actions, then I'll get back into Q, you expect $6 million. Is that $6 million expected to be realized in 2026, or is that an exit velocity coming out of the year?

The $6 million of cost reduction are expected to be realized in 2026 and are expected to be in the 2026 P&L. So all the cost reduction initiatives in regards to efficiency, productivity improvement, streamlining of manufacturing locations, and all other related activities would result in a $6 million cost savings which we expect to see in 2026. Thanks, Eva. I'll get back into queue.

Thank you, sir. Thank you.

Thank you. Our next question comes from Josh Nichols from B Reilly. Your line is now open. Please go ahead.

Yeah, thanks for taking my question. I want to dive in, you know, some pretty significant organizational changes here that you touched on during the call. What does this mean? You think, I guess, one, you know, betting on the company's growth prospects overall, and then two, it's been some time, but I think you used to put out some longer term financial targets about operating leverage and what the company could achieve with these new changes. Could you touch on those two aspects and if you plan to put any updates out on those potentially?

Yes, absolutely. If you can recall, Josh, in November, we we announced an organizational changes in the company. The organizational changes was around two main new organizations was the COO and the CBPO. The purpose was to develop a new organization, which is cross divisional organization, which would allow us to standardize unified and improve and apply best practice processes. So to that extent, we are in the process of implementing the changes which we are going to see starting to take into effect in the second quarter. The changes regarding the COO organization would be mainly around procurement, you know, general, I would say centralized procurement would be around supply chain, supply chain, and also I would say a much better organizational focus or operational focus around cost reduction execution and around supporting our business organization. On the other hand, the CBPO, the purpose is to create one centralized sales operation function centralized marketing, and centralized business development in order to optimize our opportunities. Now, in addition to that, I would like to say that we are launching a data project, an IT, I would say, data project, which would allow everyone to operate on one system, which we are going to introduce more advanced BI and AI tools. So all in all, the whole organization's focus is on execution from the cost side and to support the business on the other side, support the business in terms of better lead time. I would say better lead time, shorter, better quality, business development, or I would say to enhance business development initiatives, also from a cross-divisional, and centralized marketing. We see already that the new organization from a cost standpoint, as we are building the foundation or as we are moving ahead with the foundation, we are expecting, as I indicated, the $6 million. We have even a bigger target for the next three years to achieve a certain cost reduction, while also we have set internal goals for business development, for example, a 20% year over year, moving to a $45 million business development target for 2026. As you indicated, now we are in the process of changing the model in order to fit the new cost and the new financial, to set a new financial model. So I would say that in the coming weeks, we are going to introduce a new model which will be based on the new organization.

Yeah, good to hear that that's going to be updated. You know, good. Also, you know, new third humanoid development customer here that you're getting some initial orders from. I know you provided some very high level detail about using humanoids at home and also for manufacturing. Anything you could tell us about the size of the customer relative to the other two and Uh, potential timelines are they looking to scale up to to larger scale production in in 26 or is, are they still in the earlier stages of development overall?

The only thing I could say, since we are under a very strict that this is a smaller customer than the other 2, they are still in the design configuration stage. And we are continuing the journey of engineering discussions with these customers in order to provide them with the best solution. I think that all in all, in the humanoid ecosystem, the ramp up is really depends on the customer commercialization and adoption of the humanoid related application we don't know when they are expecting to to start pre-production or even ramping up but i think that the important piece is that our infrastructure and supply chain are prepared to stop to support them once they make the decision

Thanks. And the last question for me, you know, this has been a big topic. You see a lot of humanoid CES and other events overall. Is it fair to say that you're in discussions with multiple other humanoid developers also and, you know, potentially we could see some additional customers now throughout 2026? Or what is your expectation on that front on building out your humanoid customer base?

We do have a list of many humanoid manufacturers, which we started a dialogue with them. At this point, we don't report that in our earnings call since they have not requested the prototype orders. So the fact that there is a whole list of humanoid manufacturers in different parts of the world, We hope that we will be able to report that we are going to ship or to start a more serious dialogue and to ship prototypes to others. Yes, but no doubt they are on our screen and we are looking at many more humanoid manufacturers. Yes. Appreciate it. Thank you. Thank you.

Thank you. Our next question comes from Jason Smith from Lake Street Capital Markets. Your line is now open. Please go ahead.

Hey guys, thanks for taking my questions. Just following up on that line of questioning, beyond humanoid robots where it seems like you guys are seeing some really nice momentum, can you talk about which verticals in your new business initiatives are outperforming your original expectations?

So, As you know, in the past, we were looking at the ultra-high temperature ceramics, which is one of our products. We were also looking at some designs of precision resistors in the semiconductors. And very recently, we have also started a dialogue with what we call physical AI applications, which are which are, let's call it those type of autonomous logistics, which are based on AI, which are based on AI platforms, which I would say some large manufacturers are looking at that. I would say this is kind of an adjacent application to the humanoid. but also based on AI. So we started a dialogue also with one or two customers regarding autonomous logistics.

Gotcha. And then following up on your comments on kind of additional hiring within the sensor segment, is this to mainly just build out that infrastructure more, or are you seeing demand pull from specific verticals or end markets that are necessarily driving this?

So hiring the people at this point in time, the sensor business main focus I would say the end sectors that are driving the demand are test and measurement, avionic, military, and space, and some general industrial applications. Those are the end markets that we did see some signs of recovery. We have seen much stronger order intake, and we are hiring direct employees and ramping up production. We don't believe that this is a short-term recovery. We believe that we should expect to see also this recovery in the coming months.

Perfect. Really helpful. Thanks a lot, guys.

Thank you. As a reminder to ask a question, please press star followed by 1 on your telephone keypad now. We will now pause for any questions to be registered. As a last reminder to ask a question, please press star followed by one on your telephone keypad now. We currently have no further questions and I would like to hand back to Steve Cantor for any closing remarks.

Great. Thank you, Claire. Before closing, I do want to note that we will be at the Roth Investor Conference in March. And of course, we look forward to updating you next quarter. Thank you all for joining the call today and have a great day.

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.