Vishay Precision Group, Inc.

Good morning and welcome everyone to the VPG second quarter 2026 earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I'd like to turn the conference over to Steve Cantor, Investor Relations and Corporate Communications. Please go ahead.

Thank you, Audra. Good morning, everyone. Welcome to VPG's second quarter 2026 earnings conference call. Our press release and slides have been posted on our website at vpgsensors.com. 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. Before beginning the call, 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, and there can be no assurance that such results, including the targets described in our updated operating model, can be achieved. 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, 2025, 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. Ziv?

Thank you, Steve. I will begin with some commentary on our results and trends for the second quarter. Bill will provide financial details and our outlook for the third quarter of 2026. Moving to slide three. To summarize our second quarter results, we delivered another quarter of a strong order momentum, highlighting the continued success of our strategy to increase our exposure to secular growth markets. orders were 95.5 million, driven by sustained strength in our sensor segment and continued demand from AI-related markets, including semiconductor equipment, data center, infrastructure, and aerospace and defense applications. We generated 11.6 million in bookings from our business development initiatives in the second quarter and 21.6 million in the first half of the year. This puts us on track to reach our goal of 45 million for the year. As a result, our consolidated book-to-bill ratio was 1.14, marking our seventh consecutive quarter at or above 1.0. Within Census, Book to Bill was very strong, 1.44, reflecting robust demand across our key growth markets. We continue to add manufacturing capacity and personnel to support future growth and address rising customer demand. During the quarter, we received an official vendor nomination letter from our initial humanoid robotics customers. This is an important milestone that positions us to support their expected production ramp beginning in the second half of 2026. Revenue was 83.9 million, essentially flat sequentially and up 12% year over year. Second quarter revenue was negatively impacted by the temporary delay in approximately 3 million of shipments at our CELC business. This delay was due to supply chain challenges that resulted from the implementation of a new ERP system. The ERP issue have been addressed and production has increased to a normalized level. We expect to ship the delayed orders by the end of the fourth quarter. Operating profit was down $200,000 sequentially as a result of unfavorable product mix and an unfavorable foreign exchange, which were partially offset by manufacturing efficiencies. FX remained a significant headwind, reducing operating profit by approximately $900,000 sequentially and $3.3 million compared with the prior year period. Our operational improvements initiatives are beginning to gain traction. We generated nearly $1 million of cost savings during the second quarter and remained on track to achieve approximately $6 million of savings this year. As a reminder, these actions represent the first phase of our three-year plan to deliver approximately 20 million of cost reductions through manufacturing footprint optimization, increased automation, and procurement efficiencies across our global supply chain. Most importantly, our strong order trends and backlog support our positive outlook for the year. We expect fiscal 2026 organic growth to exceed the 8% to 10% annual growth target outlined in our three-year plan. I'll now review the performance by segment. Moving to slide four. Beginning with our sensor segment, second quarter revenue of $33.4 million was approximately flat sequentially and grew 26% from a year ago. Our backlog remained at a very high level as we continued to hire manufacturing personnel to increase our output. Sequentially, the increase primarily reflected in higher sales of precision resistors in the test and measurement and AMS markets, which was partially offset by lower sales of stringages in the test and measurement markets. Bookings of 48.1 million remained robust but grew 6% sequentially to an all-time quarterly record. This resulted in a book-to-bill ratio of 1.44, reflecting continued momentum in our largest growth markets. Demand continued to be driven by investments in AI-related infrastructure. We recorded strong orders for our precision resistors products sold to semiconductor OEM equipment makers as well as to semi-device makers for their own custom test systems. Bookings for manufacturers of long-haul high-speed fiber optics transmission equipment remained elevated supporting the build-out of data center infrastructure. We also saw continued good demand for avionics and defense applications given sustained demand from both established and next-generation defense programs. Humanoid-related bookings were approximately 500,000 and sales were 320,000 in the second quarter. We received a vendor nomination letter from our initial humanoid developer customer. This marks an important step as the customer moves from a prototype development to early production ramp in the second half of fiscal 2026. It also reflects more than two years of engineering collaboration, product development, qualification work, and Operational Reviews. Based on this customer's forecast demand, we are adding additional capacity. At the same time, we continue to make progress with other humanoid robotics developers and we are actively engaging additional potential customers. Our record orders, elevated backlog and expanding manufacturing capacity reinforce our confidence in the long-term growth trajectory of the sensors business.

Moving to slide five.

Turning to our weighing solution segment. Second quarter revenue of $30.3 million was essentially even with the first quarter and 3% higher year over year. Sequentially higher sales in the transportation and General Industrial Markets and OEM Construction, which offset lower revenues in industrial weighing and in our other markets for precision ag and medical equipment. Orders of 28.6 million declined 13% sequentially from a strong first quarter to normalized level, resulting in a book-to-bill ratio of 0.94. Demand was stable but mixed across our markets for weighing solutions. We saw positive trends in consumer e-bike applications as well as continued strengthening in construction equipment in the US and Europe. This was offset by lower orders in the transportation market which was impacted by higher oil prices and softer demand in our industrial markets. Despite the flat sales, we grew our gross margin 300 base points from the first quarter to 37.3%, reflecting cost reductions and a favorable product mix. Moving to slide six, turning to measurement systems. The second quarter revenue decreased 3% sequentially, but increased 5% from prior year. The sequential decrease was primarily due to lower sales in the AMS and transportation markets, which were partially offset by higher sales in the steel market. While reported revenue was impacted by 3 million of shipment delays associated with the ERP implementation, Customer demand remained intact and the delayed orders remained in the backlog. As I indicated, our operations are now increasing production and we expect to complete the delayed shipments by the end of the year. Orders of approximately 19 million declined 22% sequentially. This reflected the timing of DSI customer projects In addition, for our kelp business, the global steel market remained challenging, despite solid demand in the U.S. from reshoring of steel capacity and growing opportunities in India. Nonetheless, our DTS business saw continued order growth in the second quarter, driven by strength in the aerospace and defense markets. We also were pleased to have DTS named Supplier of the Year by Automotive Testing Technology International, which is a leading global publication covering the auto test market. Moving to slide seven. Our strategic initiatives continue to gain traction, and all the trends in our key growth markets remain positive. A core part of our strategy is increasing our exposure to attractive secular growth markets, including semiconductor equipment, AI infrastructure, fiber optics communication, aerospace and defense. In addition, we see early-stage physical AI applications starting to emerge. While these projects will take time to fully materialize, We are currently in the early technical discussions with several potential customers. Moving to slide eight, as we expand our presence in the humanoid robotics market, we believe we are well positioned based on six core strengths. First, our foil-based stringages technology provides a high level of accuracy and reliability required for advanced force sensing applications. Second, we have a scalable manufacturing platform capable of supporting volume production while maintaining quality and cost competitiveness. Third, our engineering team work closely with customers in the early Thank you very much. Thank you very much. We remain focused on executing our strategy, expanding our presence in attractive growth markets, improving operational performance, and creating sustainable long-term value for shareholders. Given the strength of our order trends and backlog, we are confident we can deliver organic revenue growth for 2026 above the target in our three-year model. I will now turn it over to Bill Clancy. Bill?

Thank you, Ziv. Referring to slide nine and the reconciliation table to the slide deck, our second quarter of 2026 revenues were $83.9 million. Gross margin was 38.6% in the second quarter, basically flat from the first quarter. Sequentially by segment, Gross margin for sensors of 31.5% decreased primarily due to unfavorable foreign currency exchange rates, higher material costs, and wage increases as we hired additional personnel to increase our production output. Wang Solutions' gross margin of 37.3% increased from the first quarter, mainly due to cost reductions and favorable product mix. Gross margin for measurement systems of 52.5% was essentially the same as in the first quarter as manufacturing efficiencies offset lower volume and unfavorable product mix. Moving to slide 10, our second quarter operating margin was a negative 0.4%. Adjusted for restructuring costs, stock-based compensation, and severance costs, adjusted operating margin was a positive 1.7%. Selling general administrative expense for the second quarter was $32 million, with 38.1% of revenues, which was similar to Q1. As Ziv indicated, unfavorable foreign exchange rates were a significant headwind to operating margin, which impacted second quarter adjusted operating margin by $900,000 compared to the first quarter and $3.3 million from a year ago. Our GAAP loss was $1.7 million, or a loss of 13 cents per diluted share. Adjusted net earnings was $586,000, or 4 cents diluted earnings per share, adjusted for restructuring costs, stock-based compensation, severance costs, and a $1.2 million effect of foreign currency exchange rates on our balance sheet. The GAAP tax rate for the second quarter of 2026 was 8%, and for 2026, we are assuming an operational tax rate of approximately 30%. Moving to slide 11, adjusted EBITDA was $5.5 million or 6.5% of revenue compared to $5.9 million or 7% of revenue in the first quarter. CapEx in the second quarter was $2 million and for the first half of 2026 was $5 million. For 2026, we are forecasting 10 to 12 million for capital expenditures. Adjusted free cash flow is a negative 1.4 million for the second quarter, which improved from a negative $3.7 million in the first quarter. As of the end of the second quarter, our cash position was $75.7 million as we pay down $5 million of our outstanding debt which will reduce our net interest costs by approximately $300,000 annually. With the pay down, our long-term debt was at $15.6 million, bringing our net cash position to $60 million. Regarding the outlook, for the third quarter of 2026, despite seasonal impacts in our European operations, we expect net revenues to be in the range of $84 million to $89 million. This assumes constant second fiscal quarter 2026 exchange rates and excludes expected third quarter tariff refunds to customers, which are profit neutral. In summary, we had another quarter of strong orders driven by strength in our AI-driven markets. We achieved a key milestone with our initial humanoid developer customer as we prepare for an anticipated ramp in the second half of 2026. And while we had some headwinds to revenue and earnings in Q2, we've remained confident in the underlying momentum of our business and look forward to delivering double-digit revenue growth for the full year. With that, let's open the lines for questions. Thank you.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queues. If you would like to withdraw your questions, simply press star one again. We'll take our first question from Jason Smith at Lake Street.

Hey, guys. Thanks for taking my questions. Just curious if you could expand a little bit on that humanoid pipeline, how many engagements you currently have and where that is compared to maybe where you were at the end of 2025?

Yes, absolutely, Jason. So let me review the humanoid situation at the company. Let me start with the first customer. So as we said earlier, we have received the formal vendor nomination letter from our initial humanoid customer. At this point in time, the initial customer indicated the expectation of a production ramp up in the second half of the year from tens of boats per week up to hundreds and even thousands per week by the end of the year. The company is ready and have already hired personnel which are in training. We made the capital investments for the capacity and we have ordered the raw material. So based on the nomination letter, the company is prepared for the initial volume and later the ramp up regarding the first humanoid customer. The second humanoid customer has decided to reevaluate and refine its designs. So they are looking at the existing designs while also we have been given an opportunity wrote new applications on new designs within the second humanoid customer. We continue to provide prototypes to the third and fourth humanoid customers. We have identified on our heat map around 150 potential humanoid suppliers which we have started to act on and to provide some initial contacts. In some of them, we are in a more advanced contact. In some of them, we are in an early contact. But we have a very structured plan how we should reach every and each one of them.

Gotcha. That's really helpful. And you might have answered what my second question was going to be on the capacity expansion. Is this primarily related to the demand pull you're seeing in the humanoid sector, or is it broad-based demand amongst your other sensor customers as well?

Well, the production expansion is mainly in the sensors. Now, as you have seen, we have another very strong order intake. The production extension is at this point, which the information we have provided is related to AI infrastructure, data center, defense, and I would say all AI-related markets. The humanoid, at this point in time, we have the planning in place, but at this point, the capacity is more designated to this initial customer who have provided us with an indication regarding their Okay, that's helpful. I'll come back to you. Perfect. Thanks a lot, guys.

We'll go next to Josh Stickles at B. Reilly.

Yeah, thanks for taking my question. Just to work through a little bit of math, I know there were a couple items impacting the quarter, but if you strip out the FX, you know, I think it works out EBITDA would have been like $8.8 million roughly, and then, you know, you have to make some assumptions, but if you also factor in the ERP delay of like $3 million, that could have got you to like Thank you very much.

I would say that the FX effect is 900,000. Then we had a very unusual product volume mix based on higher contract pricing, which we don't expect to repeat itself. It was around 800,000 altogether. Now 1.7. In addition, if you add the $3 million of our Calc business at a contribution margin of 1.5, So the total comes to, I would say... Yeah, close to 9 million.

Yep. Got it. Thanks for clarifying that. That's helpful. And then, you know, look, the census business has been exceptionally strong, order activity, book to bill, right? You're setting records there. I just want to touch on, when you just look at, like, the little bit softness in weighing and measurement systems, Is that something you think is going to stay around these levels or potential to improve in the back half? How should we think about the cadence for those two divisions?

Sure. So let me start with measurement systems. We started Q1 with a fairly strong order rate. I think that for DSI, we had record orders. This is a project-driven business, which was fairly soft. in the second quarter, but we expect an improved order intake in the third quarter. Our DTS business has been enjoying good tailwind from the AMS, and Ziv Shoshani. I do believe that based on the situation, we should see an improved second half of the year, but I'm not sure if there are enough indication to show a much stronger improvement, or I would say a much more rapid order intake in the second half of the year. But I think that at this point in time, there is higher likelihood for an improved and Ziv Shoshani.

Yeah, I know, you know, it wouldn't be an impact of profit, but just the cash balance, like, can you quantify what you're expected back in terms of, like, tariff reimbursement? Is that material?

No, so, Josh, for that, obviously, you know, through the second quarter, we did not receive anything. In the third quarter, I mean, material, I mean, so far, we received roughly about $1.5 million, you know, so... that need not to be material. Obviously, that'll be a reduction in revenues, but we'll also have the reverse in COGS, so it'll be profit neutral.

Got it. Thanks. I'll hop back in the queue.

And as a reminder, if you would like to ask a question, please press star one. We'll take our next question from John Franzreb at Sedonia Company.

Good morning, guys.

Thanks for taking the questions.

Can you talk a little bit about your ability to raise prices considering having higher input costs both on the material and labor side?

So let me first talk a little bit about the labor cost. So the labor cost is we do have an increase in labor cost, but part of that is also learning curve due to the fact that we have to hire in a more extensive way and to get many more people skilled up with the higher capacity. Regarding material cost, yes, given some inflationary pressure, we have seen material cost increases. And I would say, given the fact that we, beyond our contracts, We already started to put in place a few months ago price increases in some selective product lines and products, which I believe we should start seeing the benefits in the P&L in the second half of the year.

That's good to hear. Can you give us a sense of magnitude?

I think that it will be at this point in Q3, it could be in the hundreds of thousands of dollars and maybe slightly higher than that. Given the fact that we have a very large backlog, our backlog has increased by 10 million or by 11 million from first quarter to the second quarter to 135.8. Any price increases, we would be able to place only with new orders, not with existing backlog. Therefore, I would say that at this point in time, we will not, given the large backlog, we will not be able to see a much more meaningful effect on the ASP increase in the P&L. But we did put in place a price increase program.

Got it. And regarding the deferred calc order, Is that going to be balanced between Q3 and Q4, or is that totally a Q4 event?

We are going to, as we indicated, as we are increasing the capacity, we will see some improvements in Q3, but in Q4, we would see the larger output coming to the revenue level at CELC.

And Ziv, I'm curious, adding capacity to address the humanoid robotics market, can you give us a sense of how much capacity you're adding and how much of incremental revenue you could address with the additional capacity?

Currently, we are putting in place capacity based on our customers' projections. As I said, we made already significant capital investments based on their projection, and we would be able to support with the investment that we made. I believe we would be able to support thousands of bots per week once we get the orders. Got it. Once we get the authors, yeah.

Gotcha. And one last question on the cost savings. I think you said it was $1 million achieved in this quarter. Can you give me the year-to-date number and the balance of the $6 million? What is that? How does that play out in the second half of the year?

Okay. In Q1, we achieved $600. Second quarter, $100. H1, 1.6, and we are planning to complete the missing, the other part to reach the 6 million in H2.

Okay. All right. Thanks for taking my questions. I'll get back in the queue.

And a final reminder, if you would like to ask a question, please press star 1. We'll pause just a moment. and with no further questions in the queue, I would like to turn the conference back over to Steve for closing remarks.

Before concluding, I want to let everyone know that we will be participating in two upcoming virtual investor conferences, the Oppenheimer Annual Tech Conference on August 13th and the Needham Semiconductor and Semicap Conference on August 20th. You can contact me for more information or speak to your representative at those firms. We look forward to updating you on BBG next quarter. Have a good day. Thank you.