Good morning, and thank you all for joining us. My name is William Schallmeyer, and I'm an account manager here at Three-Part Advisors. I want to thank you all for joining us for our 17th annual Southwest Ideas Conference, Day 2. Presenting first is Vichay Precision Group, which trades on the New York Stock Exchange under the ticker symbol VPG. Representing the company today is their Senior Director of Investor Relations, Steve Cantor.

Great. Thank you. Good morning. everyone it's nice to be in here in Dallas on a rainy morning I want to thank the three-part advisors group for putting this on this happens to be a really good conference series of conference for us so I appreciate that so first to begin with about VPG I will be making some forward-looking statements today so you should read our filings carefully at our core if you're not familiar with VPG we are a sensor company and as we all know sensors are proliferating and they continue to proliferate it's a large global market some estimated to be about 250 billion dollars annually growing in the high single digits we play in a corner of that market really we're measuring weight and force and torque and pressure are really critical and we've been doing this for for quite a bit uh what we do for our customers in doing that is really focus on the highest performance the most premium solutions for those needs and so even though we address as i'll show in a minute a broad array of markets it's really focused on providing that kind of high value to really make our customers products and processes safer smarter and more productive. And we really are ubiquitous. You may not see VPG in your daily life, but you're probably exposed to it almost in ways you can't even imagine. For example, last night at the reception, I had the opportunity to meet a couple other management teams from companies presenting here at the conference and two actually were either one was a customer and one was a company that we actually our products work in in close tandem with one was a producer of these large rollers which are rolling steel into sheets and our products actually control the pressure that those rollers are applying on that steel ingot and another was a manufacturer of cranes and so So our products are used to ensure the safety of that kind of equipment. As I mentioned, we address a broad array of applications and markets, again, niche markets. This slide is showing our revenue by end market. And you can see here it is quite diverse. We think perhaps the most diverse for a sensor company our size. but you'll see we dress traditional industrial markets we also address such as manufacturing and industrial weighing and steel but we also address tech driven markets such as test and measurement which includes semiconductor equipment which is a key market for us and then in the other category are things like precision ag equipment construction equipment medical equipment and even consumer electronics so it's really a broad array in each of these again we focus on the niche premium niche within that category and in general we have number one or number number two share within that segment we we operate in three segments sensors weighing solutions and measurement systems so I think of these as sensors being components which go into your modules or systems, things like precision resistors that we provide or strain gauge sensors which is a form of sensor that is measuring weight. It's perhaps the most highest performance precise technology to do that. Weighing solutions are modules so in many cases they actually incorporate a sensor such as ours or others. And those modules go into OEM equipment for medical construction and and precision AG and then measurement systems and these are really standalone systems they're doing one thing but really first very specific purpose or application so this gives you our financial highlights but I think what's more probably more interesting for you is really what's on the right hand side of the slide which are long term financial targets and as you can see we are looking to grow the business in the low teens and that's a combination of organic and inorganic growth you can think of that as about half and half and if we do that we think we can achieve these kinds of operating results 45% gross margin operating margins of 18% and EBITDA margins of 22% so we've had these targets now for for the last couple years, and as you can see, we still have some work to get there, although I think we feel confident that we will, and we actually have come close on a quarterly basis over the past couple years. But really what's, I think, important here is that we now believe we can achieve these targets at lower quarterly revenue levels than we did when we first put these numbers together and that is a function of a lot of the investment and work we've done on the operating side to really improve our operating capability and efficiency and I'll talk a little bit more about that in a moment so how do we grow organically and I think we've been seeing over the past few years here some interesting trends that I think are changing our opportunity set and these These are really larger volume opportunities that are now coming to us that are requiring the level of precision that we can provide where they didn't need to in the past, or totally new applications. And there's a few ones that we'll talk about in a minute, but such as humanoid robots. This is a totally new technology, which is really requiring the kinds of levels of precision and reliability that we provide. So that's, I think, the exciting part. A lot of these opportunities are being driven by some macro trends, and these are not new to you. These have been actually around for a few years, but we see the continued opportunities emerge from them. So things like electrification, digital transformation, industrial automation, and of course, defense and space technology, which is not really a trend, it seems to be a need that continues to grow. So first, let me talk a little bit about, and what we've done here is we've kind of taken a lot of applications and we've kind of put them in the context of some of these trends just to give you a flavor. For example, in electrification, we're not really involved on the EV, but we're involved in the testing of new EV models for safety. We're also involved in the testing of EV batteries. But beyond that, we've seen opportunities related to helping to test new electric aircraft, what are called eVTOLs, electric, vertical and takeoff aircraft. It sounds a little bit kind of science fiction, but they are coming. And I think the industry is expecting to see commercial deployment of these things in the next year or two. We're also on things like e-bikes, where our force sensors in our weighing solution segment actually work on an e-bike to measure how hard the human is pedaling and taking that information and using it to modulate the battery so that you actually can extend the range of your e-bike. in in terms of industrial automation clearly robotics is important application for us it's not just industrial robots but includes medical and surgical robots and as I mentioned one of the more exciting opportunities that we're addressing today involves humanoid robots we've been supplying technology for manufacturing automation for many years and that continues to be a area where we see continued demand particularly as more and more manufacturing becomes automated and then in precision agriculture this is an interesting area though even though today that whole market is probably cyclically soft for a number of reasons the innovation of that equipment continues to to move forward at a fairly aggressive pace and so you know today's combines are very very sophisticated technology pieces of equipment in terms of defense about nine percent of our revenue last year was what we call avionics military and space about half of that is in space and so one of the applications as an example is we were involved in testing these parachute reentry systems for leading rocket company we're also involved with satellite communications both in terms of the command and control systems for precision resistors and even on the satellite itself and we've participated and continued to participate in missile systems including new hypersonic missile systems that are being developed and and will be deployed fairly fairly soon and then unmanned drones both land sea and air we've been involved with the testing of those platforms digital transformation it's kind of a broad category but so things even things like consumer electronics we have product on a consumer electronics platform semiconductor equipment Both test and front end is a key market for us, and so what we're doing there is actually selling, providing precision resistors, which are a critical part of making sure that that equipment performs the test from one test to another consistently, which is a critical specification for that piece of equipment. And then data center fiber optics. This one is interesting because I think it does exemplify what I was describing before as emerging needs that are requiring the level of performance and precision that we provide that didn't exist before. So we have historically served that market, data center equipment, particularly fiber optics equipment, but now we're seeing that actually pick up, we think in part because of demands that are being driven by AI computing. What we do with that is so our precision resistors control the bias, which is the current flow of current into that laser source and making sure that that current is stable over time. And this is really important because there are other components of competitors that can do the same thing. But our product, again, remember, is built to be reliable and stable across all kinds of environmental conditions and time. So the value proposition now has become more attractive to these laser source companies, or tunable laser source companies because they can we believe they can have less calibration requirements also the equipment doesn't need to be replaced as often and of course is more reliable so that's hopefully gives you a flavor of some of the high-level top top and trends that are driving our opportunities but on the other side of kind of what we've been doing internally is really focusing on increasing our operational capability and we're building off of some of these what we think are core competencies of the company such as our ability to innovate our technical expertise in the areas that we we serve the fact that we we do have acquisition track record which we're proud of and then our focus on operational excellence and the operational excellence piece um is not is not trivial for for vpg i i always uh say with with actually quite seriousness this is a company that is operationally focused and financially driven and so we've invested a significant amount of capital in terms of upgrading our manufacturing building a state of the art facility perhaps the as i mentioned perhaps the the most sophisticated facility of its kind that produces strain gauges that of the type that we provide we've invested 53 million dollars of capital in 21 through 23 and and that also involves moving manufacturing from higher cost centers to lower cost centers so the the the result is of course you know this all comes down the result is that we now have a more efficient operating platform and we're able to achieve gross margins at lower revenue levels than we did before we actually achieved a gross record gross margin in 2024 on a quarterly basis one of our segments just this past quarter achieved a record gross margin so we're already seeing the results of these investments and we're we're not finished and we continue to to implement additional cost reductions and operating efficiency programs this year a second business development this is an area really of increased focus for the company it's really going after new customers and new applications with existing customers in ways we didn't before i'll talk a little bit more about that and then of course acquisition strategy we think we have a really excellent platform we are in a net cash position on our balance sheet certainly have capacity to borrow and we continue to look for high quality businesses to add to our platform that are growing that are profitable and and that can provide synergies so just in terms of our business development I'm showing here on this slide a partial list of some of the opportunities that we consider to be business development initiatives again these are new customers we didn't have before or new applications with existing ones and so there's really three takeaways I want to leave you with about this so first is it's really a broad list so each of our business units has their own set of business development initiatives there are a handful that are quite large and but most of them are actually almost around $100,000 or so opportunities but in aggregate they represent a significant potential business for us the second is that we're now approaching this in a different way than we did before so not only are these programs more formalized We're putting more resources to them, but there's also greater accountability and visibility all the way up to the board level on these activities. And then third, we had a target this year of generating $30 million of orders from these new business initiatives. Through the third quarter of 2025, we were able to book $26 million of orders. So we're well on the way to achieving our annual target. And I expect that you'll see more and more, we'll have a lot more to say about this in the coming year. So I just want to highlight a couple of these new opportunities. The first relates to humanoid robots. so um i heard uh elon musk this week talking about how uh you know why why wouldn't ever anybody want a uh an r2d2 a 3po you know running around their house uh he also said that um we won't need a currency anymore and no one will have to work but that's a different a different vision um but it's real it's real in a sense that there's a huge amount of capital that's being put to work to develop these and they're really hard to develop to make a inanimate piece of steel move and act and even think like a human has enormous technical challenges so we've been able to work with thus far with two humanoid developers. We've been working with one. Unfortunately, we can't disclose their names, but we've been working with one for more than two years. And to give you a sense of how aggressive its development is, just this year in 2025, through the third quarter, we generated $3.6 million of orders just for prototypes. And I have to tell you, in the history of the company and all our engagements with customers that is unusual and that gives you hopefully a sense of how aggressive the development is and that and the depth of the technology challenges on the first customer we are working with them on what are called torque sensors which go into the joints of the robot essentially giving its stability its ability to move and sense its environment. And with the second customer, we've been working on the tactile sensors, essentially giving the robot its sense of feel and touch. And now we've just started some initial technical conversations with a couple other developers. So we think this could be quite substantial for VPG. Obviously, today, as we look at this market, We have yet to see a real-world deployment of these robots. We think that's coming in 2026. And when that happens, I think we feel that the value of these robots to a number of use cases is going to be significant and could drive substantial growth. The second opportunity, business opportunity, relates to testing of new kinds of ceramics. So just to give you a little background, we make a leading testing tool that tests a new metal alloy. So if you're an engineer or you're a researcher and you're working on developing a new alloy for either a vehicle or for 3D metal printing, you either have used our tool or know of our tool or want to use our tool. It is considered to be the best of class of that kind of equipment. We've now taken that, and we've now adapted that to test non-conductive materials, such as ceramics. And ceramics is an interesting material because it has a lot of emerging use cases, including in defense, such as hypersonic missile, or energy, or space. And if you think about a hypersonic missile, the heat that's generated as that missile travels at Mach 5 speeds is really intense. And so if the material at the cone of that missile is not constructed correctly to withstand that heat, that missile is not going to end up where it needs to go. So ceramics clearly is an important emerging technology. we've developed a platform that can increase the test throughput we think by a factor of 10 and that is really significant think about the kinds of ceramics that are being tested they have to be tested at really high temperatures so your testing tool has to be able to heat up to 2,000 degrees Celsius and then cool down quickly so that you can put another sample in a test so our technology can actually do that a lot quicker. It uses technology, if any of you have an inductive stovetop at home, you put the pot on the stove and it immediately boils within seconds. Essentially that's kind of what we've developed. So that allows that testing chamber to be heated and cooled very quickly, which allows the researcher to perform more tests. So this is an exciting area. We now have two betas going on with universities, one with the University of Alabama, and then we just announced a second beta with the Stony Brook University. And there's clearly more interest behind that. So we hope as 2026 comes along and those betas get implemented and we'll see some additional interest in this product and be able to commercialize that by the end of 2026. So just a few comments before, if we have time for Q&A. Just on our last quarter, we thought it was a solid quarter. We had year-over-year in sequential growth. We had our fourth consecutive quarter of Book2Bills over one, and that came after nine quarters of book two bills below one so it shows you that our core business has improved and is improving and then we achieved a record gross margin for the weighing solution segment on revenue which was certainly not you know it not not top revenue so all in all a good a good quarter and and we hope that we'll see some additional improvement in some of our core businesses as we go into 2026 so with that hopefully I gave you a sense of what we're doing our prospects for growth both organic and inorganic and also our focus on our operational excellence and execution which is really helping us to address some of these larger volume opportunities that we didn't have before so with that I'll be happy to take any questions so it's It's probably, and this is a ballpark, probably a little bit more in the U.S., of course, than Europe. No, we expect to benefit. I think what we've been seeing, at least in the near-term trends, though, is some disruption on the part of key programs that may have been a result of some of the cost-cutting on the federal government level. and then of course the the shutdown also probably contributed to some some temporary delays of those projects but we expect to fully participate and you know for us again it's these are platforms that take years to be developed and then of course once they are developed there's a very long tail but I think right now we're seeing some of the older platforms kind of phase out and we have yet to see some of the new platforms begin to become fully deployed I would say it's a nice incremental business so what we're doing with hypersonic is really two things one we're involved in the the physical testing of that missile through our dts business unit and then we're also providing resistor components which go in the go on the missile is also also in the command and control part of that platform but if you think about again the dollar value content of what we're providing it is a very very small piece of those platforms well I wish I wish I would like that you know these contracts are definitely scrutinized and and so they're the ability to raise prices is is once those platforms are established is more difficult but again back to what I was saying earlier we are premium product supplier. So we're already going in with a fairly healthy margin and also the criticality of what we do. In our view, the more important piece is that once it's designed in, it's designed in and has a long life. It's not something that can be easily replaced. Yeah, no, I appreciate that question I think that's really an important question so first in a lot of cases there isn't patent a protection on what we do we have over time built a technique for making these sensors differently which provides that level of performance, which is hard to replicate, certainly at volume. So that's one of the competitive modes. The other thing, too, is even though there may be alternative technologies that can kind of do the same thing, first, they don't have that technical robustness and reliability and precision, generally. So the customer is taking risk if he goes with that technology. And many do, right? It's a cost-benefit analysis, but also I think the thing that we can provide that customer that we're doing, for example, in the humanoid world, is that technical back and forth, that engineer-to-engineer engagement where we're helping them solve technical issues which they do not have the expertise to. And so that's why we think those customers are coming to us. And then again, it boils down to if you need that technology level, that performance, there aren't a lot of companies other than VPG that can provide it. Yeah, so, you know, based on the analysis that we've done and that we've seen, there probably are somewhere between 8 to 10 leading developers in the world. and at least a third if not a half of those are in Asia our strategy has been to focus on the North American and European developers first because we again we have to we have we have to use our resources you know effectively and so by focusing on that we think that's that's going to provide the greatest return right now again because there isn't a real-world example of how these robots are are working and also the value they're providing there's a lot of unknown so we think that even though there may be six eight to ten developers and a growing supply chain that's feeding them over time there probably will be some reduction and in those number of developers you'll have probably a fewer but maybe they're focusing on different use cases and the leading use cases would be of course in manufacturing or in warehousing but there are others you know in terms of deploying robots in applications which are inherently not safe for humans but humans are actually doing it so going down into manholes or into dangerous or dirty or dangerous environments How do you separate your research and your organization's process of development and requests coming in from the question? Yeah, another good question. So I think one of the things that we do probably better than a lot of companies is, if you think about our technology, that's fairly narrow. There's a fairly narrow set of technologies. And most of what we're doing, though, is customized work. so we take that core strain gauge technology and we change the specifications and the size and the form factor and the inputs outputs to meet a very specific need for the customer so it's really i would say more um a kind of adaptive engineering rather than fundamental engineering that that we focus on yeah so so first in terms of the investments in our operating capability and it's really the goal is really twofold one is of course we want to be more efficient to deliver to maximize our our margins but secondly now we're starting to address larger volume opportunities historically most of the opportunities were kind of smaller in terms of quantity and so our manufacturing was sort of geared to that but if you're talking about things like in consumer electronics which is a market that we've now been addressing for the last four or five years or humanoid we're talking about large volumes and so the ability to now have a more efficient operating platform allows us to make products at higher volumes but also to lower the price point to become more competitive for these larger opportunities that's I I think, the key unlocking factor in why we're doing that. Your question about organic growth, I think as I showed those end markets, you undoubtedly saw that several of them are cyclical markets, such as steel, which are certainly not anywhere near even their mid-cycle. So we expect, though, over time that will improve. and then I think also in the industrial driven markets also are a bit softer but we think that's again those recover and then on top of that you have the the the new business development the incremental opportunity so we think all in all that's that's where the organic growth is going to come from well great well thank you again for your time and and have a have a good productive