Participants

Steve Cantor; Senior Director Investor Relations; Vishay Precision Group, Inc

Ziv Shoshani; Chief Executive Officer and President; Vishay Precision Group Inc

Bill Clancy; Chief Financial Officer; Vishay Precision Group Inc

John Franzreb; Analyst; Sidoti & Company, LLC

Griffin Boss; Analyst; B. Riley Securities

Presentation

Operator

Good morning, everyone and welcome to the EPG 4th quarter fiscal 2024 earnings call. My name is Ezra, and I will be your coordinator today. (Operator Instructions)
I will now hand you over to Steve Kor, senior director of investors relations, to begin. Steve, please go ahead.

Steve Cantor

Thank you, Ezra, and good morning, everyone. Welcome to VPG's 2024 4th quarter earnings conference call. Our Q4 and full year press release and accompanying slides have been posted on our website.
Today's remarks are governed by the safe harbour provisions of the 1,995 Private Securities Litigation Reform Act. Our actual results may vary from forward-looking statements. For a discussion of the risks associated with BPG's operations, we encourage you to refer to our SEC filings, especially the form 10K for the year ended December 31, 2023, 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. Please refer to slide 3 of the quarterly presentation. Ziv.

Ziv Shoshani

Steve. I'll begin by reviewing our sales and business trends for fiscal 2024 and the fourth quarter and then provide an update on our 2025 priorities, particularly our business development activity. The Bill will provide financial detail for the fourth quarter and for our Q1 guidance.
Beginning with our 2024 performance, it was a challenging year for VPG.
Revenue of $306.5 million reflected continued macroeconomic and encyclical headwinds.
Moving to slide 4, these headwinds impacted our fourth quarter revenue, which declined 4% sequentially. Revenues were lower in avionic military and space or AMS, test and measurement, and in other markets, mainly consumer.
On the other hand, our consolidated orders grew 5.5% sequentially and resulted in a book to bill of 1.0. This marked the first quarter of a positive book to build in 8 quarters and a return to a sequential order growth after 6 consecutive quarters.
Booking in our sensors and weighing solution segment grew to the highest quarterly level of the year while measurement systems booking reflected cyclical softness and a push out of 5 million of orders, of which 2 million is expected to be booked in 1 of 25.
Although near term visibility remains limited.
We are encouraged by this other trends and believe they may signal the beginning of the recovery and support our increased optimism for 2025.
I'll now review the business segment performance.
Moving to slide 5, beginning with our sensor segment, fourth quarter revenue declined 8.7% sequentially. However, it's important to note that censor bookings grew 7.0% sequentially, resulting in a book to bill of 1.04.
The older growth reflected higher demand for precision resistors in the test and measurement for semiconductor back end equipment, and in AMS all the trends for advanced sensor ranges were stable.
Moving to slide 6 in the weighing solution segment, fourth quarter sales increased 2.2% from the third quarter.
The increase was driven by higher revenue in the industrial wine market and for precision agriculture and construction applications. This offset lower sales in the transportation market.
We solution orders of 28.9 million. Group 14.5% from the third quarter resulting in a book to bill of 1.12 bookings were higher for general industrial.
And for transportation applications as well as in our other markets, mainly in the medical and construction.
Moving to slide 7.
In the measurement system segment, revenue in the fourth quarter of 21.2 million declined 5.3% sequentially.
The sales decline reflected lower BSI sales, which offset approximately 1 million of added sales related to the acquisition of Nora at the end of September.
We are pleased to report that the integration of Nokra is proceeding on track.
Nora differentiated laser-based thickness measurement technology broadens our health product offering in the steel market.
We believe we can grow this business to 6 million in 2025 as we continue to leverage's brand and the sales channels.
In the fourth quarter, measurement systems orders declined 8.9% sequentially, which includes 5 million in customer pushouts, of which 2 million is expected to be booked in 1 of 25. This change was primarily related to orders of DTS products in the AMS market and DSI systems for the steel market which offset the additional orders for Nora. As a result, booked to build for measurement systems of 0.78 declined from 0.82 in the third quarter. Moving to slide 8.
Our priorities for 2025 are clear.
First, our business development activity is focused on securing design wins in new applications and new customers in robotics, consumer, data centre, medical, and aerospace and defence.
These opportunities are being driven by mega trends such as industrial automation and electrification.
In 2024, our business development projects contributed about 18 million in revenue. While we are pleased with the early momentum of these efforts, the potential is significant. Typically, the design cycle and lead time for our projects from the initial customer discussions to revenue can be as much as 30 months.
Over the next 3 to 4 years, we believe that these new opportunities may contribute $100 million of revenue in aggregate across our business segments. We expect to further broaden our business development funnel over this period of time.
I want to highlight a couple of the current initiatives.
Our project with a leading developer of a humanoid robot to provide advanced sensor states continues to proceed well. The project reflects our ability to utilize our extensive expertise in deep engineering design and manufacturing to create high performance solutions. In the 4th quarter, we received additional prototype orders from this customer.
Since the beginning of this project, we have received approximately 1.5 million in prototype revenue.
With the project now moving to the pre-production phase, we believe this opportunity could generate millions of dollars in revenue annually as the humanoid robots are expected to be deployed in larger numbers over the next 2 to 3 years.
As I indicated last quarter, we are also in the process of providing prototypes to more humanoid robotic developers.
In January we announced a partnership with the University of Alabama to test new DSI system for testing and developing ceramic materials.
This innovative system builds on our flagship simulation tool utilized in metal alloy testing and marks our entry into the new and untapped market for VPG.
It's focused on the testing of ceramic and composite nonconductive materials which require extremely high temperatures. Since we do not address the ceramics test market today, this represents a significant growth opportunity that could potentially double the size of DSI over time.
Another priority for 2025 is to continue to implement our long-term efficiency initiatives. This effort in 2024 yielded approximately 5 million net improvements resulting from manufacturing efficiencies and higher selling prices.
In 2025 we have put in place a minimum of $5 million for additional annual cost reductions.
A focal point of our strategy is optimizing our facility in India which supports high volume business development initiatives. And plays a vital role in our manufacturing consolidation. As a result, our manufacturing footprint in China is dedicated to supporting the Chinese domestic market to improve efficiency. We are moving most of our shared functional services to the India facility.
This transition.
Expected to take about 18 months should save us an additional 1 million annually once completed.
M&A continues to be an important complement to our organic growth initiatives. Our strong balance sheet provides us with the means to acquire larger businesses with recognized brands and growth paths.
Before turning the call to Bill for additional comments, I want to thank our employees and our customers around the world for their continued commitment and dedication. I will now turn it over to Bill Clancy, Bill.

Bill Clancy

Thank you.
Referring to slide 9 and the reconciliation tables of the slide deck, our fourth quarter of 2024 revenues were %72.7 million.
Adjust the gross margin of 38.3% in the fourth quarter compared to 40% in the third quarter of 2024.
This includes a $700,000 impact from unfavourable product mix as well as $200,000 of one-time material adjustments.
Sequentially by segment, gross margin for sensors of 32% increase as improved manufacturing efficiencies offset the impact from lower volume.
Weighing solution's gross margin of 34.1% declined from the third quarter, primarily due to higher material costs and a reduction in inventory which was partially offset by the higher volume.
Adjusting for acquisition related accounting impact, adjust the gross margin for measurement systems of 51.2% declined sequentially.
Primarily due to lower volume and unfavourable product mix.
Our operating margin was 0.3% for the fourth quarter of 2024, and adjusted operating margin was 0.8%, excluding $378,000 of adjustments as outlined in the reconciliation tables.
Selling general administrative expense for the fourth quarter of 2024 was $27.3 million or 37.5% of revenues as compared to $26.3 million with 34.8% of revenues for the third quarter of 2024.
The increase included approximately $400,000 related to the Nora acquisition.
And one time cost of $300,000 for measurement systems, R&D projects, and $200,000 of other fees.
The GAAP tax rate for the full year of 2024 was not a meaningful number given the geographic mix and the level of income.
We are assuming an operational tax rate of approximately 27% for the full year of 2025.
The adjusted net earnings for the fourth quarter of 2024 were $400,000 or $0.03 per diluted share compared to $2.5 million or $0.19 per diluted share in the third quarter of 2024.
As I mentioned, our results were impacted by unfavourable product mix and one-time cost.
Combined on a tax effective basis, these impacted our fourth quarter of 2024 diluted EPS by $1.1 million or $0.08 per share.
Adjusted IBEDA with $5.1 million or 7% of revenues as compared to $8.1 million or 10.7% of revenue in the third quarter.
Caps in the fourth quarter was $2.2 million.
Total cap backs for 2024 was $9.2 million or 3% of revenues.
For 2025 we are budgeting 10 to $12 million for capital expenditures.
We generated just a free cash of $4.6 million for the fourth quarter of 2024 as compared to a negative $2.3 million in the third quarter.
The improvement was driven by a $4 million dollar reduction in inventory in the fourth quarter.
Our stock repurchase program expired in August of 2024.
For the full year of 2024, we repurchased $7.8 million of common stock for 188 413,000 shares. Moving to slide 10.
We ended the fourth quarter with $79.3 million of cash and cash equivalents and total outstanding long-term debt of $31.4 million.
We believe that we have a strong balance sheet and ample liquidity to support our business requirements and to fund M&A.
Regarding the outlook.
For the first fiscal quarter of 2025, at constant fourth fiscal quarter of 2024 exchange rates, we expect net revenues to be in the range of $70 million to $76 million.
In summary, our fourth quarter of bookings grew sequentially, resulting in a book to bill of 1.0 for the quarter.
We are excited about the potential for our business development initiatives, and we continue to implement additional efficiency programs which expand our operating leverage as revenue strengthen.
With that, let's open the lines for questions.
Thank you.

Question and Answer Session

Operator

Thank you very much. (Operator Instructions)
Our first question comes from John Franz rev with Sidoti & Company, LLC. John, your line is now open. Please go ahead.

John Franzreb

Good morning, everyone, and thanks for taking the questions.
These, I guess I want to start with the census segment. Can you talk a little bit about, what's going on in the test and measurement and avionics markets there and when do you expect to see a turnaround in in the sensor business?

Ziv Shoshani

Good morning, John.
If we look at the sense of business, you see that the book to bill is over one for Q4. We already started to receive larger semi-annual orders in Q4 for AMS business. We also see a recovery in the back-end equipment for. I see cheap testing. It doesn't, it didn't yet come at the front end, but already in the back end, which is a strong indication that we start to see the semiconductor continues to go back. So, we believe that. In all, given the sensor bookings, we should expect to see a positive trend in net bookings in the sensor segment in Q1 and 2, and for the rest of the year. I would say that the expectation is that there would be an acceleration. Of all the intake in the second half, but already we see those positive signs and it's very encouraging regarding semiconductor equipment and regarding AMS business, and we still expect to see the front end equipment bookings to come in the next coming quarters.

John Franzreb

Good, that's good to hear.
And actually, rather than ask you a blanket question about tariffs, I'm actually curious about the steel market in particular.
Did you see any meaningful revenue spend during the last 2018 steel tariffs? Anything you can kind of share about the history of the steel market and tariffs based on your experience?

Ziv Shoshani

Regarding tariffs, as our main manufacturing facilities in India, and we are sourcing most of our steel and aluminium from India suppliers. So, tariffs were, tariffs from China were not a significant impact. We did not see any significant impact as the new administration has increased the tariffs from 25 to 35%. Our footprint in China is very limited. Most of our Chinese operations, we are selling into the Chinese domestic market, so the cost of the excess effect on VPG P&L regarding future tariffs on goods coming from China is going to be extremely limited at best around $200,000 in 2025 given current volume. We hope and we do expect to see a nice backwind by getting more market share on our in our business in the United States, given the fact that there are very few manufacturers that have non-Chinese operational based like we do in India, while most of them.
Our manufacturing in China, so I think that the additional 10% tariffs is going to Give us a nice backwind in terms of bookings in regards to Tariffs or steel. I, if I would say that.
If the tariffs would, I believe that we should expect to see more manufacturing from US-based steel manufacturers that should also give us a positive backwind for keel products which are sold into US suppliers.

John Franzreb

Yeah, that's what I was kind of curious about what you'd see in kelp and the little sensors and everything.
Just curious on those thoughts there.

Ziv Shoshani

Yes.

John Franzreb

We have a question, I guess I go ahead.

Ziv Shoshani

No, sorry.
I'm just saying we didn't see the effect yet, given the fact that the tariffs have been implemented or put in place a while ago, very short time, but we do believe it will happen in the coming months. We should expect to see an effect.

John Franzreb

Understood regarding the $5 million in cost savings, can you talk a little bit about the expected timings of realizing those cost savings via either is it a mix of pricing and productivity, or is it just pure productivity? Any colour would be.

Ziv Shoshani

Helpful.
When we are looking about cost reduction or I would say a minimum of additional cost reduction of $5 million in 2025 in respect to 2024, we are looking at. Continuation of moving from high level countries to low level countries. By now our India facility is the largest facility for VPG, and it takes a much bigger role in our future. We are speaking about more automation.
In the, I would say in some of the facilities. So, all in all, it's all about yield and efficiency improvements in the, in all our larger manufacturing base.
Locations.

John Franzreb

Okay. And just one last question, I'll get back in the queue. Regarding Nora, it's about $1 million of revenue contribution. Were they accretive to the operating income line? Can you any kind of colour there would be helpful?

Ziv Shoshani

No in Q4 was a net zero effect in Q4, but the expectation is that we are planning to sell $6 million of Nora products in 2025, which is at least a 50% higher rate than the complete 2024, which definitely would provide us with very nice margins. Positive margins naturally.
Okay.

John Franzreb

I appreciate you taking my questions. I'll get back into the queue.

Operator

Thank you very much (Operator Instructions)
Our next question comes from Griffin Boss with B Riley Securities. Griffin, your line is now open. Please go ahead.

Griffin Boss

Hi, good morning and thanks for taking my question. So, since the last earnings call was in November, there's perhaps a bit more, well, setting aside tariffs, there's perhaps a bit more macro certainty regarding interest rates in the US, and now we have the US Presidential election in the rearview mirror. So, I'm just curious seeing, sensors and weighing solutions book to bill pushing, above 1. Are you seeing any customer trends that might suggest that capital spending and demand is now picking up given, less macro uncertainty, or are the increased orders you're seeing today, or I guess in the 4th quarter more so inventory replenishment?

Ziv Shoshani

Well, good morning. We have a couple of effects. Our optimism for the first half, I would say more of a positive or more moderate optimism while we are looking for an accelerated uptick in the second half is based on the fact that we see a continuation of reduction of interest rates by the EU central bank. And we do see more demand coming from European customers, especially on the on board weighing and process weighing on the weighing solutions, which also applies for some customers also in the industrial sensor segment. We are also looking at Continued depletion of our customer inventories.
And also early result of our business development initiatives which are now picking up and we do see the additional business being generated by those business development initiatives. So, all of the three effects we feel much more confident regarding the order intake and the demand going forward.

Griffin Boss

Okay, got it.
Thank you for the call Earn. I did just want to jump back to the $5 million dollar additional cost savings you're aiming to achieve in 2025 and beyond. I'm curious how much of that is, we should look at it as sustainable for the long term. So, you mentioned the $1 million dollar annual. Savings from moving, functional services from China to India, but I'm curious about the additional, 4 million plus.
Is that sustainable cost savings at higher revenue levels or is this more so optimizing for, the current revenue profile of the business?

Ziv Shoshani

The $1 million shared services we are looking at G&A cost, consolidation of GNA cost from higher labour countries into India, and this is kind of a permanent cost once the system is in place. Regarding the other 4 million and here it's minimum 4 million, we are looking at further consolidation.
Mainly in the sensor segment and in the weighing solution segment, which are more operationally driven by nature of further consolidation of products to our India facility while also adding more automation.
In some other high labour manufacturing facilities, so we are looking at permanent cost savings regardless of volume in a way we are just reducing the cost base of our products, of our cost of goods sold regardless of volume. This is just Putting in place more efficiency.
Initiatives.

Griffin Boss

Excellent. Okay, thank you, appreciate it and thanks for taking my questions.

Operator

Thank you very much. (Operator Instructions)
We have our next question from John Franzreb with Sidoti & Company, LLC, John, your line is now open. Please go ahead.

John Franzreb

Yeah, just a question about the new product development. I think you said there was $18 million of revenue recognized from new product development in 2024. And I think you alluded to $100 million of new product opportunity. I didn't catch the timeline on that. What's the timeline on that? And does it manifest, more likely in one year versus another? What kind of visibility do you have on that?

Ziv Shoshani

Sure.
So John, we are here about business development. Business development, our definition for business development, we are looking at new products as well as existing products at new customers or new part numbers. So that's in essence business which the company did not have in respect to products or customers. The initiative of the BD teams and The infrastructure has been put in place around 1,818 months to 24 months, and we have teams that started to fill a BD funnel in a much more consistent way. When we are looking into the funnel, given the design cycle that I've indicated earlier that may take up to 30 months, we have realized that 180 million.
Of revenues has been realized in 2024 due to new business development initiatives. Our target for 2025 is 30 million.
And when we are speaking about an additional 100 million, we are speaking about 3 to 4 years, which means from 2025 to 2027 to 2028 up to in aggregate for an additional 100 million of new business with new products or new customers that the company did not have before.

John Franzreb

And is it fair to assume that the margin profile of the new products is at least as good as the current gross margin profile, or, well, you tell me.

Ziv Shoshani

So, I would say that the The profit profile should be similar or better than the existing profile.
The fact is that on one hand our business initiatives goes for.
Smaller scale opportunities at higher margins, but when we also speak about significant volume, we also need to be cost competitive. So overall it could be with slightly lower margins, but overall, it should be at least the same or much better than our current average gross margin.

John Franzreb

Great, I appreciate the clarity.
Thank you.

Ziv Shoshani

Thank you.

Operator

Thank you very much. We currently have no more questions.
I will now hand back over to Steve for any closing remarks.

Steve Cantor

Thank you. I want to note that we will be participating in the Sidoti conference in March, and we look forward to updating you on BPG next quarter.
Thank you all and have a good day.

Operator

Thank you very much, Steve, and thank you to Bill and for being our speakers today. That concludes our conference call. We appreciate everyone for joining. You may now disconnect your lines.