Vishay Precision Group, Inc. 2026 Q2 Earnings Call

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. 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 Sensors 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 Sensors, 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 customer. 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 KELK 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 thousand 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 thousand 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 backlogs support our positive outlook for the year. We expect fiscal 2026 organic growth to exceed the 8%-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 Sensors 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 strain gages in the test and measurement market. 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 Solutions 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 U.S. 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 basis points from the first quarter to 37.3%, reflecting cost reductions and a favorable product mix. Moving to slide six. Turning to Measurement Systems, 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 KELK 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 order trends in our key growth markets remains 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 strain gages 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.