Hello, everyone. I'm Jake Mutchler, Research Analyst at Noble Capital Markets. I'd like to welcome Vishay Precision Group. The stock symbol is VPG, a developer of measurement and sensing technologies. With us today is Steve Cantor, Senior Director of Investor Relations, and Bill Clancy, Executive Vice President and CFO. Following the company's presentation, there will be a brief Q&A session, which I will moderate. If you have a question, please send it in the chat, and we will answer them if there's enough time. A replay of the presentation would be available on channelcheck.com following its conclusion. And now I'll pass it over to Steve Cantor and Bill Clancy from Viché.

Thank you, Jake, and good morning, everyone. It's a pleasure to be here virtually at the Novo Emerging Growth Conference and to tell you a little bit about VPG. Before we do, I do want to remind everyone that we will be making forward-looking statements, so we encourage you to read our SEC filings carefully to understand all the risks associated with those statements. So with that, this is an exciting time for VPG. We're targeting larger and faster-growing opportunities that are emerging, such as humanoid robots, which are requiring new levels of sensing technologies. These potential opportunities are being driven by major technology trends, such as what's being called physical ai and i'll talk more about that in a moment and we've made some fundamental changes to our organization recently which are designed to accelerate our growth and really to put us in a position to capture more of these exciting new opportunities and to scale effectively as we invest in implementing these changes we're continuing to be disciplined in our financial focus and in our inorganic growth strategies So, at the highest level, we are a sensor company. We make a specialized form of sensor and other components, which are used in a whole variety of applications to measure force and weight, torque, and current. And so what we do for our customers is really to focus on the highest performing categories within our product portfolio or within the market to really focus on the most premium solutions for their needs. And so even though we address this, I'll show you in a minute, a broad array of end markets, it's really focused on providing that kind of high value to really make our customers' consumer's products and processes safer, smarter, and more productive. Our products are often the first part of the data value chain where real-world data is acquired and then processed. And for applications such as those where safety is involved or which are mission critical, our products often play an important and critical role. And while you may not see VPG in your daily life, you're probably exposed to it almost in ways you can't even imagine. So before getting into the business a little bit, I just want to walk through some of our recent highlights. Q1 was another quarter of revenue and order growth. Orders were particularly strong. They reached $102 million, which is the third highest in our company's history. And they represented a growth of 26% sequentially and resulted in a book-to-bill of 1.21, which is very strong. Our order growth was driven by our sensor segment, which grew 29% from the fourth quarter to the highest level it's been in 15 quarters. And this reflects AI-related demand in applications and semiconductor data center fiber optics equipment and in avionics military space. We also continue to see progress in the emerging humanoid robot market we started working with a fourth customer and we're preparing for a potential ramp in the second half of this year as our initial customer is expected to move from pre-production to early production volume we launched an updated target model which reflects the potential for higher organic growth that is being driven by these emerging faster growing markets and also being facilitated by our recent organizational changes and given our targeted cost reductions and efficiencies we can believe we believe we can deliver substantial flow through to ebitda and together these elements form a very strong foundation for our next phase of growth so looking at our markets you can see here on this slides as i mentioned it's quite a diverse group of end markets we serve. It really spans traditional applications, which you see on the left-hand side, and those include things like industrial applications and steel manufacturing and selling key components that go into agriculture and construction equipment. On the right-hand side, we're addressing emerging and growth applications, which include things like semiconductor test equipment as well as in avionics military and space and across these categories we generally hold the number one or number two positions in our specific niches which speaks to the trust customers place in our technology this balance across both traditional and emerging applications we believe creates a resilience in our business model. This slide shows how we operate in three segments. First, sensors, second, weighing solutions, and third, measurement systems. I think of these as sensors being components, weighing solutions being modules, and measurement systems being application-specific systems, essentially doing something very specialized in a certain application. Each of these segments serves a distinct set of customers, but they share a common theme. They address applications where precision is essential. And across these areas, our value proposition is built on a combination of deep engineering expertise and our ability proven over many years to tailor our technology solutions to their customers' very specific requirements. I'll touch on a few of the applications just to give you a flavor of what our products are doing. So first, in humanoid robotics, this is one of the fastest moving areas. We're supplying both torque and tactile sensors that are helping these humanoid developers really solve fundamental engineering challenges around stability and dexterity and also providing the robot its sense of feel and touch. In semiconductors, our precision resistors are essential for test applications and for really ensuring consistent and accurate results in chip testing, a need that's only growing as AI drives more complex chips and equipment. And in fiber optics, we're seeing renewed interest in our components is because they help improve the stability of tunable laser sources used in data centers and telecom applications to really move the huge amounts of critical data both within the data center and also in long-haul transmissions. So these products generally are a small part of the overall bill of materials within the equipment that we customers develop and sell, but they really provide an outsized value in terms of function, reliability, and safety. One of the themes we've been talking more and more about is what's called physical AI, which is essentially AI interacting with the real world through robotics and autonomous systems. And so the one way you can think about this is today in our manufacturing logistics and many other environments, there's a lot of automation, but that automation still requires human involvement. It requires somebody to either press a button, check a gauge, calibrate a piece of equipment. And I think what we see and others see as well is in the next few years that there'll be a conversion of those automated systems to truly autonomous systems which are much more efficient provide higher levels of productivity and greater returns and in order for that to happen you really need highly accurate real-time data to make safe and reliable decisions for these new autonomous systems and that's partly the role our sensors play and as these applications scale the sensing layer becomes even more important and that's of course an area where vpg is well positioned we think the world is really on the cusp of a fundamental revolution you have people like jensen wang and nvidia who talk a lot about physical ai and sort of the next wave of ai being not in terms of llms but in terms of applications of AI in real world environments. And really, that's what we are working towards and we hope to certainly benefit from. One of the more exciting applications is the humanoid robots. So just to give you a quick background on that, we've been working with four humanoid developers, two of which are two of the leading companies, which are well along in their robot development programs, and then two additional startup developers we have just started working with. Since we started working with these humanoid developers, we've generated about $6 million of revenue just in prototype components. And I have to tell you, that's very unusual in our history and certainly reflects the aggressive nature of the development programs at these at these customers. For customer number one, we're selling torque and linear sensors and we are expecting that customer to move from prototype versions of their robot to early production volume of their robot by the end of this year. Customer number two, we're selling tactile sensors which go into the fingertips of that robot which give it its sense of feel and really make an inanimate object turn into something that actually acts and responds like a human. Longer term I think one of the critical aspects of these humanoid robots will be safety and reliability. And consider this, that these robots will be working either alongside of humans or interacting with humans. And so any unpredictable move on the part of that robot could actually have a very adverse outcome for that human. So safety, reliability, consistency, These are key attributes which we believe our premium, high-performance technology can deliver to these humanoid developers. We also launched an updated target operating model in May, and this outlines a clear path to faster organic growth, improved profitability, and stronger cash generation. We're now targeting 8% to 10% compounded annual organic growth over the next three years, and that's a higher rate of organic growth than we had in our earlier target model. And importantly, we expect our sensors and measurement systems businesses to perform at or above this range, and that's really driven by their positioning right now in some of these higher value applications. From a profitability perspective, we're targeting gross margins of 46.5%, operating margins of 14.5% to 15.5%, and EBITDA margins of 18.5% to 20.5%. At the high end of this model, we see the potential for approximately a 50% EBITDA flow through on incremental revenue, highlighting the operating leverage that we believe we have in our business. And just maybe digging a little bit deeper. So first, you know, talking about what's driving this greater view on growth. It's really two factors. One is the attractive secular growth markets that are being fueled by industrial automation, requiring precision, reliability, accuracy. So we've mentioned a few of those in this presentation. And then second driver is really the organizational changes we made, which are truly transforming our sales and marketing and business development model into more and more integrated cross company approach supported by enhanced processes, IT platforms and execution discipline. And we believe together this can not only drive share and growth in these new markets, but also make sure that we're capturing all the share we can in our traditional ones. The other side of this coin is really on the operational front and under our chief operating officer. We now have a clear plan to deliver more than $20 million of cost reductions and efficiency improvements over the next three years. And really, these initiatives are focused on creating structurally more competitive cost base, not just short-term margin gains. And so the programs that we are i've started to put in place and will put in place include manufacturing footprint optimization increased automation procurement efficiencies really across our supply chain and most importantly these actions will support our growth by improving our execution shortening our lead times and enabling efficient scaling as demand increases so with that um to put everything together we think the long-term thesis for vpg is clear we're aligned more and more with major technology and industrial trends including automation ai advanced materials semiconductor innovation we're investing to build a stronger organization and a more efficient operating platform and we're really broadening our opportunity set through a disciplined approach approach to business development. And so from our perspective, the company is really entering a period where our capabilities and the emerging market needs are becoming increasingly aligned. And with that, Bill and I will be happy to take your questions.

Thank you, Steve. As a reminder, if you do have a question, feel free to put it in the Q&A box and we will answer it. So the first question here is, could you talk about the level of revenue visibility you have over the next 12 to 24 months? And how long is the lead time from early conversation to product delivery?

Yeah, so, Jacob, it's a very good question. So our policy has always been is to we give guidance over the next quarter. You know, so we gave guidance for Q2 revenues to be in the range of 85 to 90 million dollars increase from Q1. You know, our backlog has been, which leads to the second question about lead time. Our backlog has really expanded tremendously over the last six months. And I would say it varies by segment. So within the sensor segment, you know, right now the lead times are probably a bit high because our orders have been so great that Steve talked about earlier. You know, we're probably looking at like anywhere from, you know, at least 14 to 18 weeks lead time. I think within weighing solutions, it's relatively 10 to 12. And with the measurement systems, I would say this is more project driven. So lead times are probably less applicable. It's really because there are such large projects because each one of these projects could go from quarter million dollars up to a million dollars per piece of equipment. What I could say is, you know, from order to delivery could be anywhere from six to nine months or greater.

Yeah. Thank you, Bill. And could you talk about the lifespan of your different sensors and how much revenue is tied to replacement versus new platform adoption?

Yeah, in general, most of our sensors, their lives are tied to the lives of the equipment in which they're installed. So in general, our products are designed in, and in many cases, they're sole sourced. And so really what drives demand is either refreshes of our customers' products or volume or new applications, which are going to need the level of technology that we provide.

Gotcha. And another question from the audience here. What type of market size do you believe fiber optics vertical can be for VPG? Are you in discussions with more than one leading laser manufacturer?

Yeah, this is actually a really interesting application. And I think it's a great example of some of the trends that I described around an increasing need for greater precision and reliability, which fits very well with the differentiated technology that we offer. So in data center fiber optics, it's a market we've addressed for a number of years, but only in a small way. And since I would say early part of last year, the order rates for that application have grown from a few hundred thousand dollars of volume a year to now a run rate which is somewhere between three and four million dollars this year and part of that we think is coming from certainly the increased expansion and investment in fiber optics transmission technologies that that go into the data center but also are being used to tie data centers together to actually increase the compute power, but also to to transmit huge amounts of data to remote locations, which may be now relying on AI driven data. So it's an exciting market for us, and we think we're in the middle of of a of a great investment cycle here. But more importantly, again, back to what I was saying earlier, is it really represents the fact that where you have an application that is critical, there is great value to use our technology, which can deliver, again, higher performance, greater precision, greater reliability.

Gotcha. And then a second question from the same person. You covered ASPs for sensors for humanoids on the earnings call. Could you clarify if that ASP would be the same for customer two?

Yeah, so Jacob, that's a very good question. So in that perspective, it's you, I mean, we haven't talked much of it, the more the focus was on customer one, because that's the one that's closer to pre-production.

But I would say on whole for customer two as well, the prices would probably be similar. and keep in mind too uh in customer number one we're selling you know torque linear sensors and so there may be approximately 20 sensors within the robot they're in the joints of the robot giving its the robot its sense of uh stability able to allow it to navigate through different environments and adjust to different uh factors um in the second customer we're selling tactile sensors so they basically go into the fingertips so think about that around you know

10 or so sensors in customer number two gotcha and then it looks like um some people are interested on some additional color on how you're going to employ ai to connect all your existing software Jake, I think you froze.

Can you repeat the question?

Yeah, my apologies. It looks like there's a question regarding AI, just some additional color of how you might employ that in VPG and what efficiencies might be achieved there.

Yeah, I'd say it's a little early to talk about how we would incorporate AI into our own product technology that's certainly something that we've started to really dig into more and more i would say what we're seeing now is that the ai application certainly the build out in the data centers by the hyperscalers and also the ancillary technology including things like transmission systems that those are being driven by those investments and then there's also uh a derivative uh you know trend or a driver which is around the semiconductor test equipment so these test companies now are needing to develop newer test sets that can test new ai chips and boards but also are seeing demand uh from from their customers the device makers for that equipment to basically handle the capacity or the demand from customers for those chips.

Got you. Is there a manufacturing overlap between traditional sensors and some of the humanoid robotics sensing products? How differentiated are the robotic sensors and are there many competitors in that space?

Yeah, that's actually a really important question. So the first part is, so we're taking our core technology, which is around a specialized sensor that measures weight and force called the strain gauge, and we're applying it and customizing it for this specific application, as we do across all our applications for those products. So it's really taking what we do, specialized and really customizing it for this need. Now, in terms of, you know, our manufacturing, so our manufacturing doesn't really change. What we have been doing is making sure that at least we can prepare for a potential ramp from humanoid developer customers, which could be quite substantial. Now, we don't know. The world really doesn't know yet because there has not been a large-scale deployment of these humanoid robots in the world where they're actually doing things but we think that as we move through the second half we will start to see this uh beginning of the deployment and and that could also uh answer the question in terms of what the shape and and rate of growth this particular application will have gotcha and does a company have any current or plan to do any shelf registration in the future.

So, Jacob, I would say to that, you know, the board's always reviewing all various capital allocation strategies and will continue to look at all alternatives.

Gotcha. And are you the sole source sensor supplier for your laser customer? I believe for that socket, we are sole sourced currently. gotcha and one last question here once qualified into the aerospace defense or semiconductor equipment how difficult is it for a customer to switch suppliers at that point you're talking specifically for defense applications I think they're just referring to some of the mission critical applications there yeah defense and semiconductor equipment Yeah.

So again, a lot of what we do is customized for a specific customer and application. So there is obviously a switching cost in terms of that customer needing to redesign or find a replacement. So that's been a good barrier, competitive moat for our business, and also has contributed to very little ASP erosion over time for our products. We generally get good value for our products and see ASP declines of less than 1% annually.

Gotcha. And it looks like there's no further questions at this time. So I'd just like to thank you, Steve and Bill, for joining us today. And a very exciting presentation, a very exciting company. As a reminder, the ticker is VPG. and a replay of this presentation will be available on channelcheck.com. Steve and Bill, Steve or Bill, would you like to make any closing remarks?

Again, thank you for the opportunity today to tell you about VPG and we hope to update you sometime in the future.

Okay. Thank you for joining everyone. Appreciate it.

Thank you very much.