Good morning and welcome everyone to the VPG third 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, Senior Director, Investor Relations. Please go ahead.

Great. Thank you, operator. Good morning, everyone. Welcome to VPG's third quarter 2026 earnings conference call. Our press release and slides are available on our website, vpgsensors.com. An audio recording of today's call will also be available on our website. on the call today. Today's remarks are governed by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from our forward-looking statements, and there could be no assurance that the results discussed today, including the targets in our operating model, will be achieved. For a discussion of the risks associated with BPG's operations, please refer to our SEC filings particularly our Form 10-K for the year ended December 31, 2025 and our other recent SEC filings. We also present certain GAAP and non-GAAP measures in our press release and on this call and we believe these measures provide useful information about the operating performance of our business and should be considered together with the corresponding GAAP measures. Before beginning the call, I want to note that we received $2.3 million in tariff refunds from the U.S. federal government, and we intend to pass those refunds on to our customers. GAAP net revenue for the third quarter was $85.1 million. Third quarter adjusted net revenue was $87.4 million, excluding $2.3 million of refunds that had no impact on gross profits. Under GAAP, these refunds are reflected as reductions to revenue and cost of products sold. Unless otherwise noted, all third quarter financial measures discussed today exclude these refunds, including adjusted gross margin. The refunds have no impact on prior periods. Joining me on the call today are Ziv Shoshani, President and CEO, and Bill Clancy, Chief Financial Officer. I'll now turn the call over to Ziv for his prepared remarks. You can read of the quarterly presentation. Ziv?

Thank you, Steve. I will begin with commentary on the third quarter. Bill will then review our financial results and provide our outlook for the fourth quarter of 2026. Moving to slide four, third quarter highlights, booking and sales. Our third quarter reflected continued strong demand, improving revenues and margins, and ongoing progress in our strategic initiatives. Adjusted revenue was 87.4 million, our highest quarterly level in three years, increasing 4% sequentially and 10% year over year. Adjusted orders of 103 million were driven by continued record demand in our sensors segment from AI-related markets, including semiconductor equipment, data center infrastructure, as well as aerospace and defense applications. Bookings from our business development initiatives totaled 11.9 million in the third quarter and 33.5 million year-to-date, keeping us on track to achieve our 45 million full-year goal. Our consolidated book-to-bill ratio was 1.17, marking the eight consecutive quarter at or above 1.0 and underscoring continued positive demand trends. Led by the Essenso's book-to-bill ratio of 1.35, all three segments achieved ratios above 1.0. This sustained order momentum is driving a growing backlog and increasing our visibility into 2027. We continue to add manufacturing capacity and personnel to support our growth, particularly in sensors. Our order momentum in key markets and our growing backlog set the stage for potential revenue growth of 10% to 12% in 2027. which is above the annual target rate in our three-year plan. Adjusted gross margin improved to 39.3% from 38.6% in the second quarter. Third quarter cash from operations was 11.1 million and free cash flow was 5.5 million. Adjusted EPS of 14 cents reflected an adjusted 48% The higher tax rate reduced adjusted EPS by approximately 3 cents per diluted share. Regarding our operational improvement initiatives, we delivered nearly 4.2 million of cost savings year-to-date and remain on track to achieve approximately $6 million of savings this year. These actions represent the first phase of our three-year plan to deliver approximately $20 million of cost reduction initiatives to manufacturing footprint optimization, increased automation and procurement efficiencies across our global supply chain. I'll now review performance by segment. Moving to slide five, sensors third quarter highlights. Beginning with our sensor segment, third quarter revenue of $38.4 million grew 15% from the second quarter and 21% from a year ago. The increase from the second quarter primarily reflected higher sales to the test and measurement market. Bookings of 51.7 million remained robust, increasing 8% sequentially to a second consecutive all-time quarterly record. This resulted in a book-to-bill ratio of 1.35. Demand continued to be driven by investments in AI-related infrastructure. We recorded strong orders for precision resistors sold to semiconductor front-end, back-end, and process control equipment manufacturers. Bookings for manufacturers of high-speed fiber optic transmission equipment remained elevated, supporting the continued build-out of data center infrastructure. We saw continued positive trends in avionic and defense applications with sustained demand from both established and next generation defense programs. Turning to humanoid robotics, we remain highly optimistic about the long-term opportunity. While the market is still in its early stages, the engineering complexity, demanding performance requirement, and the need to scale sophisticated supply chain create an attractive opportunity for VPG. Humanoid-related bookings were approximately 200,000 and sales were 300,000 in the third quarter. As our initial customer shifted the start of its production ramp to Q4, citing the challenges of scaling a highly complex supply chain, we are prepared to support customer plan production volume and now expect orders to increase gradually with volume accelerating further through 2027. We also received an investment from this customer to support our capacity expansion related to humanoid, which we view as a solid endorsement of our value proposition and their commitment to VPG as a supplier. Regarding customer number two, discussions continue to progress well, and the potential revenue opportunity could be larger than we previously anticipated. We are also supporting several other humanoid robotics customers as they advance from prototype development to commercialization, while expanding our engagement with the additional prospective customers across the market. Moving to slide six, Wayne Solution third quarter highlights. Turning to our weighing solution segment, third quarter adjusted revenue of $26.9 million, which excludes $2.3 million of tariff refunds to customers, declined 11% from the second quarter and was down 2% from a year ago. The sequential decline reflected seasonal softness in Europe, mainly for process weighing products. Adjusted orders of $28.6 million were flat with the second quarter, resulting in a book-to-bill ratio of 1.06. Trends in the industrial weighing market and the medical market were mostly stable. Bookings declined for consumer e-bike applications following a large semi-annual order in the second quarter, which was offset by a higher demand I am pleased to note that our products are now standard options for onboard weighing on off-highway heavy-use trucks for leading European manufacturers, designed to improve efficiency and safety. These solutions are integrated into the vehicle to measure payload during the loading and operations in a harsh environment and such as mining and construction. Moving to slide seven, measurement systems, third quarter highlights. Turning to measurement systems, third quarter revenue increased 10% sequentially and 8% year over year. The sequential increase was driven by higher sales of DSIs, thermal mechanical simulation test systems, for the steel market. Kelk production continued to recover from the second quarter. Because these products operate in a demanding environment and play a mission-critical role in optimization yields and productivity for steel products, we continue to focus on execution, product quality, and customer service. Orders of approximately 22.2 million increased 19% sequentially, which reflected a 40% increase in steel-related orders. We also had another strong quarter of DTS as bookings related to automotive crash safety testing reached their highest level of 2026, and orders for aerospace and defense applications remained strong. Moving to slide eight. Priorities and Focus Our key priorities remain centered on two areas, accelerating commercialization and growth, and driving operational execution and excellence. On the commercial side, we completed the first phase of our company-wide CRM rollout for the sensor segment, with deployment across the remaining business plans for the fourth quarter and 2027. We rolled out a system and processes for lead management and opportunity management for sensors. And we have initiated targeted marketing programs in the humanoid robotics market. We also refreshed our corporate website and started the first phase of our plan to accelerate and streamline the new product development processes. Operationally, We achieved $4.2 million of our targeted $6 million in cost savings for 2026. We continue to optimize and relocate manufacturing for key products to support our long-term cost and productivity objectives. At the same time, we are expanding production capacity to adding personnel and equipment at key sensors facilities. Importantly, our manufacturing and supply chain capabilities are in place to support the initial production ramp for humanoid robotics customers. As we look ahead, given the strong order trends, growing backlog, continued execution on our growth strategies, we see potential to achieve revenue in the first quarter of 2027 of $90 million or better. This supports our potential to grow our revenues 10% to 12% in 2027, which is above the targeted annual growth rate in our original three-year plan. I will now turn it over to Bill Clancy. Bill?

Thank you, Ziv. Referring to slide 9 and the reconciliation tables in the slide deck, Third quarter of 2026 gap net revenues was $85.1 million after $2.3 million of tariff refunds passed through the customers with no impact on gross margin. Excluding these refunds, adjusted revenue was $87.4 million. Adjusted gross margin improved sequentially to 39.3% from 38.6% in the second quarter, excluding $141,000 of startup costs related to expanded production capacity. This was an improvement from 38.6% in the second quarter. Sequentially by segment, sensors adjusted gross margin increased to 32.6%, primarily due to higher volume, partially offset by higher manufacturing costs. Weighing solutions adjusted gross margin to 34.6% declined, mainly due to lower volume. Measurement Systems gross margin increased to 56.5%, primarily reflecting higher volume and a favorable product mix. Moving to slide 10, our third quarter operating margin was 3.2%. Excluding the aforementioned startup costs, as well as restructuring, stock-based compensation, and severance costs, adjusted operating margin was 4.9%. Selling general and administrative expense for the third quarter was $31.2 million with 35.7% of revenue down from second quarter levels due to lower sales commissions and reduced incentive compensation accruals. Foreign exchange rates continued to represent a significant headwind to profitability. Unfavorable exchange rates reduced third quarter adjusted operating profit by $3.4 million compared with the prior year period. Year-to-date, unfavorable foreign exchange has reduced operating profit by $8.1 million. Gap net earnings were $559,000, or $0.04 per diluted share. Adjusted net earnings were $1.8 million, or $0.14 per diluted share. As Ziv noted earlier, the gap tax rate for the third quarter of 2026 was significantly higher than the run rate through the first half of the year. for a full year of 2026, we are assuming an operational tax rate of approximately 45%. Moving to slide 11. We also made meaningful sequential progress in EBITDA and cash flow. Adjusted EBITDA increased to 8.2 million or 9.4% of revenue from 5.2 million or 6.5% of revenue in the second quarter. Capital expenditures were $5.6 million in the third quarter and $10.6 million for the first nine months of 2026. For full year 2026, we expect capex of approximately $14 million to $16 million. We improved receivable collections during the quarter, which drove adjusted free cash flow to $5.5 million, a $6.9 million sequential improvement from negative $1.4 million in the second quarter. At the end of the third quarter, cash was $80.9 million and long-term debt was $15.7 million, resulting in net cash of approximately $65 million. Regarding the outlook, for the fourth quarter of 2026, we expect net revenues of $84 million to $91 million, assuming constant third quarter of 2026 exchange rates. Our guidance excludes expected fourth quarter tariff refunds to customers which are profit neutral. In summary, order momentum remains strong led by record demand and sensors and continued strength in AI-related markets. Our financial performance is improving with sequential gains in adjusted gross margin, adjusted EBITDA, and free cash flow while we continue to execute our cost reduction initiatives. And our growing backlog, expanding capacity, and commercial 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 queue. If you would like to withdraw your question, simply press star 1 again.

and our first question comes from Jason Smith at Lake Street Capital.

Hey guys, thanks for taking my questions. Just curious if you could disclose what new business development revenue was in Q3 and I guess relatedly, are you still on track to hit that $45 million goal for the year?

Yes, good morning, Jason. So, yes, we did report a BD for Q3. The BD contribution is $12 million in orders, and for the first nine months, it's $33.5 million, and we are on track to hit our $45 million target for 2026. Okay, perfect.

And then looking at 2027, obviously you guys feel pretty confident on next year. Just curious if you could rank order the growth drivers that are giving you the confidence in the 27 outlook.

So as we look into 2027, first we see a very solid backlog. For the end of this quarter, we are running at the backlog of 151 million. The expectation is that the order run rate for Q4 will be similar to the third quarter, given the business environment. We do see a continuation from a demand standpoint from our end markets regarding AI-related infrastructure and applications, as well as AMS. We do see also some signs in the industrial market in terms of recovery. Therefore, we are optimistic regarding our projection for 2027, which we expect to be 10 to 12% higher revenues in respect to 2026. Okay.

Appreciate that caller. I'll jump back into queue. Thanks a lot, guys.

We'll move next to Josh Nichols at B Reilly Securities.

Yeah, thanks for taking my question. Just curious, like looking, you know, the backlog, the order activity has been exceptionally strong. You're assuming 4Q, you know, is kind of similar to 3Q, and then there's a nice ramp assumed in 1Q and beyond. What's the right way to think about that wider revenue range that you're giving for 4Q? And what are kind of the puts and takes that would get you potentially to the higher end of that range? Is it order timing on things like humanoids or other parts of the core business like sensors?

So if we are looking at Q4 revenues, our Q4 outlook reflects really our age backlog. and the timing expected to be shipped in Q4, but it also take into account the number of working days in Q4, which is less than Q3. We are also looking at, we do continue to hire and train additional manufacturing personnel to increase our manufacturing production, mainly in the sensor segment. So all in all the Q4 Revenue projection is based on the backlog number of working days while also we increase the output per day. Based on our projected capacity increase, we do believe that we will be able to reach the 90 million or higher in Q1 in respect to revenues. and I'm sorry, what was your other question?

I was just curious because the range for 4Q was also a bit wider than you normally give. Normally it's around 5 million.

We did give larger ranges in the past. I didn't thought this is a higher range than in the past. I would say that As you said, there is a certain volatility regarding the humanoid business, given the fact that the supply chain is more complicated from our customer standpoint. The supply chain is more complicated than expected, but this is part of the, you can call it, of the buffer volatility that we also account in our range.

Got it. That makes sense. And then last question for me. I mean, the center's momentum has been exceptionally strong. Another quarter record bookings north of 51 million. I'm just curious how you're thinking about, given the influx of orders, about your capacity, lead times, and the ability of the company to really convert that backlog into revenue in a timely manner.

So naturally, given the The sizeable order intake, we had to place order to increase capacity equipment as well as hiring more people. In addition to that, we are setting, I would say, more manufacturing sites to support More manufacturing sites to support the higher capacity. So it takes time given the learning curve and the complexity of the product that we are producing. But the expectation is that in the, I would say that in the coming quarter, we are going to reduce the lead time and increase our capacity as we expand also in our other manufacturing facilities. Got it. Thank you.

And as a reminder, if you would like to ask a question, please press star one. We'll move next to John Frantzrup at Sedoti.

Good morning, everyone, and thanks for taking the questions. Ziv, I'm kind of curious, given how much AI infrastructure markets are driving demand, do we have a sense of how much that is of the revenue and or booking profile?

We didn't provide any specific information regarding the sensor segment. We did identify that all our semiconductor business, all our fiber optics data, and potentially also our humanoid business. They are all AI related. I think that at this point in time, I could estimate that, and by the way, in addition to that, I would like to state that we have also a very solid demand avionic military and space business. But if we speak about specifically about the AI, I would say that at this point in time, A rough estimation would be around the 20 to 30 percent.

20 to 30 percent of the sensor segment or company-wide?

No, no, no, of the sensor segment. Okay, got it. Thanks.

I appreciate the clarity. Thank you. And in the second quarter, there was a CELC order that was deferred at the time we're saying the second half of the year. Was that order and Ziv Shoshani. John, it looks like there was a footnote in the presentation about bookings.

Yeah, John. So the way we do our calculation, you know, it's always the opening backlog and then, you know, plus orders, let's say. I mean, so basically we back into the order numbers because the backlog is fixed. So it's just a mathematical calculation.

Okay. Thank you, Bill. I'll get back into the queue, everyone.

And as a final reminder, if you would like to ask a question, please press star one on your telephone keypad at this time. We'll pause just a moment. And we have no further questions at this time. I would like to turn the conference back over to Steve for closing remarks.

Before concluding, I want to note that we will be participating in the Roth Conference This concludes today's conference call. Thank you for your participation. You may now disconnect.