Vishay Precision Group, Inc. Aktie

Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to VPG First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Steve Cantor, Senior Director of Investor Relations. You may begin.

Thank you, Bella, and good morning, everyone. Welcome to VPG's First Quarter 2026 Earnings Conference Call. Our press release and slides have been posted on our website. An audio recording of today's call will be available on the Internet for a limited time and can also be accessed on the VPG website. Today's remarks, including the targets described in our updated operating model 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 will 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. And now I'll turn the call to Ziv for some prepared remarks. Ziv?

Thank you, Steve. I will begin with some commentary on our results and trends for the first quarter. Bill will provide financial details and our outlook for the second quarter of 2026. We will also discuss our revised target operating model. Moving to Slide 3. To summarize our Q1 results, we delivered a strong start to the year with first quarter revenue of $84.4 million, up 18% year-over-year, reflecting broad-based growth across all 3 segments.

Orders were particularly robust at $102.1 million, growing 26% sequentially, driving a book-to-bill of 1.21, our strongest since 2022. We increased backlog, particularly in the Sensors segment, which positions us for continued growth into the second quarter and for the second half of the year. Gross margin improved from the fourth quarter and the prior year, and we continue to implement additional cost reduction programs.

Despite ongoing macroeconomic uncertainty from geopolitical tensions, booking trends remained strong. Demand was driven by precision resistors from semiconductor equipment and for data center and fiber optics equipment, supporting the build-out of AI data centers. Orders in avionic, military and space markets also improved. In addition, orders generated from our business development initiatives totaled $10 million in the first quarter, putting us on track to meet our 2026 goal of $45 million.

With our new Chief Business and Product Officer and Chief Operating Officer organizations now in place, we are focused on disciplined execution of both our near-term priorities and long-term strategic plans. While there is still work ahead, we are already seeing improved visibility into our sales funnel and stronger alignment across VPG. During the first quarter, we continued to launch new marketing programs and further sharpen our focus on priority markets, key customers and our most important growth drivers.

I'll now review business performance by segment. Moving to Slide 4. Beginning with our Sensors segment, first quarter revenue increased 10% sequentially and 23% year-over-year. Compared to the fourth quarter, we had higher sales of precision resistors in the Test and Measurement and AMS markets and higher sales of strain gages in the general industrial market. Bookings in the sensors were particularly strong, totaling $45.2 million, up 29% sequentially and representing the highest level in 15 quarters. This resulted in a healthy book-to-bill ratio of 136.

The sequential growth in bookings reflected strong broad-based demand driven by the industry-wide ramp-up in AI adoption. With sensors, we saw particularly robust demand related to AI infrastructure. Orders grew for precision resistors used in semiconductor front-end and back-end equipment, supporting the manufacturing and testing of AI-related chips and systems as well as in data centers and fiber optics equipment.

Bookings were strong for precision resistors in defense applications. We also continue to see demand for strain gages used in humanoid preproduction prototypes. With sensors backlog reaching its highest level since Q1 of 2023, we accelerated hiring and training of additional manufacturing personnel to support our planned production ramps.

Turning to humanoid robotics. We shipped approximately $600,000 of product to humanoid makers in the first quarter. In the second quarter, we expect to more than double that amount. Given our customers' forecast for a more significant ramp of production in the second half of the year, we have increased our internal projection for 2026. Nonetheless, the precise timing and scale of production ramps remain unclear. In addition, we began early discussions with a fourth humanoid maker, a start-up developing humanoid platforms for defense, home use and industrial applications.

Moving to Slide 5. Turning to our Weighing Solutions segment. First quarter sales grew 9% from the fourth quarter and 14% from a year ago. The sequential increase was primarily due to higher sales in our other markets for medical equipment, precision ag equipment, consumer bicycles and in our transportation market for heavy use trucks. Weighing Solutions orders were up 17% sequentially to $32.9 million, resulting in a book-to-bill of 1.09. Orders included annual bookings of onboard weighing systems and higher bookings in our industrial weighing and general industrial markets.

Moving to Slide 6. Turning to our Measurement Systems segment. Revenue trends were mixed in the first quarter as revenue of $21 million decreased 7% sequentially but was 14% higher than a year ago. Sales of DTS ruggedized miniature data acquisition modules reached a record high, driven by defense missile test projects. This was offset by lower sales to the steel market. First quarter Measurement System orders of $24 million increased 32% from the fourth quarter and resulted in a book-to-bill of 1.15.

The sequential growth reflected higher DTS and PI orders in AMS for the testing of military jet engines and for hypersonic missiles. Demand for measurement systems used in steel rolling mills softened despite pockets of growth in India and North America. Orders grew for DSI's R&D tool used for development of new metal alloys.

One of the technology highlights for DTS and Measurement Systems this quarter was the Artemis II launch to the Moon, which included DTS data loggers on board. DTS data loggers were used to measure extreme forces for the astronauts experienced during the launch and reentry that can't be fully replicated on earth. In addition to NASA projects, DTS modules have been used in similar tests for SpaceX Dragon crew capsule as well as for Blue Origin platforms.

Moving to Slide 7. This quarter, we are pleased to introduce our updated target operating model, which reflects a path to faster organic revenue growth, higher profits and cash flow and significant creation of long-term stockholder value. Under the new model, we are targeting compounded annual organic growth of 8% to 10% over the next 3 years, which is higher than our previous model for organic growth. We expect our Sensors and Measurement Systems businesses to grow at or above these rates.

Our model target a gross margin of 46.5% and operating margin of 14.5% to 15.5% and an EBITDA margin of 18.5% to 20.5%. This model includes approximately $5 million of annual incremental cost related to the new CBPO and COO organizations, IT investments and new incentive comp plans. At the upper end of the model, we have the potential to deliver 50% flow through EBITDA on each incremental dollar revenue.

Moving to Slide 8. The top line of our model is driven by 2 factors. First, we are increasingly aligned with the attractive secular growth areas where VPG has differentiated high-performance technology. These opportunities are being driven by advancements in industrial automation systems. which rely on accurate, reliable and highly precise sensing and measurements. That requirement directly aligns with VPG core strength and our long-term history supporting mission-critical applications.

While adoption is still in the early stages, we are already supporting emerging use cases across multiple markets, including advanced robotics, semiconductor equipment used in AI processing and data center and fiber optics infrastructure. For humanoid robots, specifically, our model assumes that revenue growth approximately 50% annually from 2025 levels. We are building capacity and infrastructure today to support the potential for much higher levels of growth.

Second, our sales and marketing and business development operating model is now being transformed into cross-company processes, IT platforms and execution discipline, which are expected to support the growth of both cyclical and secular growth markets. In addition, we continue to see durable long-term opportunities in aerospace and defense. While demand can fluctuate quarter-to-quarter, investment trends remain solid. Technical requirements are increasing, and these markets continue to align well with VPG differentiated capabilities.

Operating leverage is a core element of our model. Under our COO-led operating structure, we have a clear plan to deliver more than $20 million of cost reductions and efficiency improvements over the next 3 years. These operational excellence initiatives are targeted at creating structurally more competitive cost base, not just in near-term margin improvements.

Our cost programs focused on manufacturing footprint optimization, increased automation and procurement efficiencies across our global supply chain. Importantly, these initiatives also support increased market share by improving execution, shortening lead times and enabling efficient scaling as demand increases.

In summary, our operating model reflects faster organic growth and attractive profitability, supported by differentiated technology, durable secular demand drivers and a more focused and efficient organization. We believe this positions VPG well to create long-term value for our customers and stockholders.

I will now turn it over to Bill Clancy. Bill?

Thank you, Ziv. Referring to Slide 9 and the reconciliation tables of the slide deck, our first quarter 2026 revenues were $84.4 million. Gross margin of 39% in the first quarter improved from the fourth quarter. Sequentially by segment, gross margin for Sensors of 34.8% increased primarily due to higher volume, favorable product mix and manufacturing efficiencies, partially offset by unfavorable foreign exchange rates and higher personnel costs.

Weighing Solutions gross margin of 34.2% increased from the fourth quarter, mainly due to higher volume and favorable foreign exchange rates. Gross margin for Measurement Systems of 52.6% decreased from the fourth quarter, primarily due to lower volume and wage increases, partially offset by favorable product mix.

Moving to Slide 10. Our first quarter operating margin was 0.4%. Adjusted for $449,000 of restructuring costs and $837,000 of stock-based compensation, adjusted operating margin was 1.9%. The restructuring costs primarily relate to severance costs from the implementation of our new CBPO and COO organization and the adjustment for stock-based compensation expense reflects our evolving compensation structure due to these recent organizational changes, including the hiring of senior executives and the expansion of equity-based incentive programs to attract and retain key talent.

Selling, general and administrative expense for the first quarter was $32.1 million or 38% of revenues, which was higher than Q4, reflecting hiring for the new organizational structure, incentive compensation accruals for 2026 and unfavorable FX. Unfavorable foreign exchange rates impacted adjusted operating margin in the first quarter by $800,000 compared to the fourth quarter and $1.3 million from a year ago.

GAAP loss was $319,000 or a loss of $0.02 per diluted share. Adjusted net earnings was $907,000 or $0.07 diluted share adjusted for restructuring costs, stock-based compensation and the impact of foreign currency exchange rates on our balance sheet. The GAAP tax rate for the first quarter of 2026 was 81.2% and operationally, it was 31.5%. For 2026, we are assuming an operational tax rate of approximately 26%.

Moving to Slide 11. Adjusted EBITDA was $5.9 million or 7% of revenue compared to $6.2 million or 7.8% of revenue in the fourth quarter. CapEx in the first quarter was $3 million. For 2026, we are forecasting $14 million to $16 million for capital expenditures. Adjusted free cash flow was a negative $3.7 million for the first quarter due to the GAAP net loss and the higher working capital required to support higher demand. This compares to a positive $1.3 million in the fourth quarter.

As of the end of the first quarter, our cash position was $82.5 million, and our long-term debt was $20.6 million. The resulting net cash position of $62 million and the unused portion of our credit facility provides ample liquidity to support our business requirements and to fund M&A. Regarding the outlook, for the second quarter of 2026, we expect net revenues to be in the range of $85 million to $90 million, assuming constant first fiscal quarter 2026 exchange rates.

In summary, quarterly bookings exceeded $100 million for the first time since 2022 and resulted in a book-to-bill ratio of 1.21. We continued our progress with our business development initiatives, including the humanoid robots, and we are excited about the potential of our new organization, which is reflected in our new target model.

With that, let's open the lines for questions. Thank you.

[Operator Instructions] Your first question comes from the line of John Franzerb with Sidoti & Company.

Congratulations on a good start to the year. I'd like to start with the guidance. It's been a while since we've been at that kind of a revenue threshold. Can you kind of talk about how we should think about the profit profile of that kind of revenue? Should it be in line with historical gross margins? Or should we think about it in terms of incremental operating margin contributions like we had in the past?

So let me start by saying that the guidance is already based on the new model. The new model is setting a new baseline in respect to the higher organic growth, higher organic growth than the prior model in addition to a much more robust and significant cost reduction over $20 million over the next 3 years. In addition to that, we are taking into account the new investments in respect to the new organization, the CBDO and COO, which would increase the SG&A by $5 million.

The scalable model where we should see incremental operating margin based on higher revenues would remain, but the baseline would change. The historical financials were based on the old model, while the new guidance is based on the new model. But the incremental, as I indicated before, the incremental -- by having incremental revenue, we should see a more substantial incremental operating margins as we did before.

That's great to hear. That's great to hear. And you pointed this out in your prepared remarks, the bookings profile takes us back to the -- when coming out of the post-COVID bookings when we had a bunch of quarters of substantial book-to-bills. We're halfway through the second quarter. Do you see that kind of scenario unfolding in the current year that we're going to have sustained booking profile after, I guess, 3 years of averaging under 1.0?

Yes. So you are correct. The bookings, the absolute bookings mainly reminds what -- or maybe in a way, similar to what we had in 2022, but the bookings profile are different than before. Currently, the bookings are strong in demand for Test and Measurement, semiconductor equipment, data center, fiber optics and avionic, military and space in addition to general industrial. So what we see is very strong demand around AI infrastructure in addition to defense. While in 2022, the general industrial were much stronger. So the net bookings could be similar, but the profile is very different.

Regarding your other question, we are optimistic regarding how the year is going to look like. And at this point in time, despite our short visibility, we do see and believe that we will see a continued positive trend also moving into Q2.

Got it. And one more question, I'll go back in the queue and someone else take the lead. But I do want to go back to the quarter you just reported. Revenues came in somewhat better than expected. When you look back at what your initial expectations were versus the revenue profile for the quarter, where was the biggest upside?

The biggest upside -- okay, so let me say the following. Since we have longer lead items in respect to shorter lead items, what we have seen naturally on the shorter lead items, higher demand than what we have anticipated. So to that respect, I think it was avionic, military and space in the measurement systems where we have a shorter cycle time.

[Operator Instructions] Your next question comes from the line of Josh Nichols with B. Riley.

Great to see big milestone bookings over $100 million for the quarter. I wanted to dive in a little bit more just on the humanoid aspect. Like one, you mentioned there's -- now you're in early discussions with fourth humanoid developer. Just at a high level, can you characterize, one, like the size and tier of that potential customer? And just as one follow-on, you mentioned like the humanoid assumption was it you'd be growing humanoid business at like a 50% CAGR through '26, '27 and what that kind of implies from a revenue perspective?

Sure. Absolutely, Jo. So let me first take your first question regarding the fourth humanoid -- potential fourth humanoid customers. So we are speaking about the start-up companies, which are in the very early stage in defense, home use and industrial application where we have reached to them. And I could say that we are in the very early engineering design discussions.

But as you know, it's -- with those customers, it's a fairly long cycle time. So it's good that we are there. They believe they have a strong business, I would say, prospects -- and we are there to help them solve their problems in -- or their challenges in respect to sensors.

regarding humanoid, we have -- the adoption rate is still fairly low. There is a lot of discussion. There is a lot of hype around humanoid prospects. We still believe this is a very good market to be in.

I could say that within the 2 customers where we have a more established, I would say, footprint, we are still in the preproduction levels. We did booked I would say, or we have recognized revenue of $600,000 in Q1. We do believe that we could potentially more than double the revenues for humanoid revenues in the second quarter. And we are, I would say, much more optimistic regarding the second half of the year in respect to volume of volume -- production volume.

I would say that there are some discussions regarding already lower volume and higher production run rates. We have the infrastructure to support -- well, we have the infrastructure, and we are setting all the related supporting systems in order to support a much quicker, I would say, upside or demand from our customers. But we are still, I would say, very optimistic regarding this trend.

Regarding the model, since we wanted to provide the 3 years model, and naturally, we do believe that this is a strong sector, but we had to take certain assumptions. So we did not want to -- in order to be in our, I would say, in a more -- in a zone where we believe at this point, based on our own internal estimation since we have no visibility, we decided to take 2025 as a baseline. And based on that, to go for 50% year-over-year increase, which we believe it's reasonable and feasible. It could be much higher than that. But at this point, we don't want to speculate. So this was kind of a baseline assumption for the 3-year model, which we wanted to announce.

Yes. It sounds like you're targeting for this year like $5-plus million for humanoids, so growing that could be like maybe low teens millions of revenue on the out year. But as you mentioned, based on some of the production ramps that some of these companies are talking about, you're using pretty conservative assumptions that are quite achievable, I would guess. Is that a fair assessment?

Let me say that the math you calculated sounds right. I think that at this point in time, I would say that this is what we believe could be a reasonable assumption. We do hope that things would turn quickly. But at this point, we have to put assumptions, and we feel comfortable with this assumption. But anything can happen. Yes.

Fair enough. Just last question for me. A lot of organizational investments, you have the CBPO, the COO, of course. Could you give a little bit more color on like how these new functions have already been impacting the company's like go-to-market capabilities and these operational excellence initiatives that you had underway. I'm curious to hear a little bit more there.

Okay. Good. So let me start with the COO. With the COO, we already established a global procurement multiyear manufacturing footprint, streaming line manufacturing footprint and also a team dedicated for efficiency and -- improvement of efficiency and automation. I think that to at least our model calls for over $20 million, over $20 million savings in 3 years.

This is a number which exceeds significantly our historical savings or improvements to that extent. So we feel strong and they are -- and by the way, I will touch base on that in a second on the CBDO, but they are cross-company, I would say, operating units, which are looking at the complete company and are setting those projects.

On the CBDO, we have now a unified, I would say, a unified marketing team. We have started to use much more marketing automation tool. We are moving into a unified CRM. We are moving into, I would say, a more unified data system, which is going to streamline or consolidate all the data from all the systems in the organizations, ERP, CRM, so on and so forth. We have already established a sales operation team, cross company, which are looking at lead times, service level, demand management. So we are moving ahead with a more holistic approach to provide, I would say, cross-company dashboards in order to set in line best practice processes and capabilities.

[Operator Instructions] Your next question comes from the line of Jaeson Schmidt with Lake Street Capital.

Just want to look at that updated 3-year target model. At a high level, do you expect the segment mix to be relatively stable compared to how it is today?

Well, if you look at the 3-year target model, you will see that the Sensor segment as well as the Measurement Systems segment outperformed -- growth outperformed Weighing Solution. So as we are looking for those segments to be -- to grow faster, we should expect also to see a more favorable so-called segment mix from a profitability standpoint. But we do believe that at this point in time, the emerging growth engines are coming from Sensors and Measurement Systems.

Got you. That makes sense. And maybe I missed it, but the $45 million in orders that you're targeting for new business development in 2026, is that still the target? Or do you think there's upside to that just given the traction you're currently seeing in Q1 and Q2?

As we indicated before, we booked in Q1, $10 million of business development projects. I think that at this point in time, since we are -- I would say that at this point in time, since we are only reporting Q1, I would say that $45 million is still the target. It may change, of course, as we move ahead. But at this point in time, the $45 million was the original target, and I believe that it's achievable.

[Operator Instructions] And now we will take John Franzerb from Sidoti & Company.

Just a follow-up. The targets, the 3-year target, what's the slope you expect of achieving those targets? Is it going to be -- is it going to progress linearly? Or is it going to be back-ended?

I'm sorry, John, if we speak about -- you speak about 2026 or the 3-year target?

The 3-year target, sir.

At this point, again, given the visibility, we just assumed a linear baseline. Again, it's really -- it's 3 years. So we have assumed a linear.

Got it. And in light of some of the investments that you're undertaking, how does that change or does it change the CapEx budget starting with this year? And how should we think about it on a go-forward basis?

So in a way, it's a very good question given the fact that the significant over $20 million operational excellence, which would relate also to streamlining of manufacturing would require CapEx. At this point in time, we believe that -- I would say that 15% to -- okay, let me say it differently. I still believe that we could meet the 4% to 5% of revenue from a capital spending standpoint and achieve the necessary or the targeted operational excellence initiatives. So it would be between 4% to 5% of revenue.

Understood. And you just kind of touched on this. You're talking about streamlining to low-cost manufacturing sites. Does that mean moving within your existing footprint or adding to it?

We have a very large infrastructure, and we believe that we would be able to continue and consolidate within our own manufacturing footprint.

Got it. And just one last question, circling back to the robotics, humanoid robotics comments. There's -- I guess the first question is the baseline from what I remember for 2025 was $4 million in revenues from humanoid robotics. That's the starting point.

This is correct.

Okay. I just wanted to double check that. And that there's been a lot in the press about downward pricing on vendors in humanoid robotics because the competitive level is getting pretty sizable out there. Are you seeing that? Can you just walk us through the pricing model and how that's playing out relative to maybe what you thought, I don't know, 3 to 6 months ago?

Naturally, this is -- in a way, we cannot get to too much details in respect to the moving parts, pieces, but I could say that on a high level, no doubt, it's a very competitive market. And we believe that we are -- that we can play in that market. I would say that if we are speaking about -- on a high level, if we are speaking about tens of robots per week on a high level, the content of all the sensing parts within the robot would be between 400 to 500, while if the volume moves to many hundreds or more than that, we believe -- again, there is no solid or final negotiation with anybody, but we believe that the expectation is to go to the round about, I would say, 150 to 250 levels.

There are no questions at this time. I will now turn the call back over to Steve Cantor for closing remarks.

Thank you, Bella. Before concluding, I would like to note that we will be participating in the B. Riley Investor Conference this month and the Three Part Advisors and the Nobel conferences in June. We look forward to updating you next quarter. Thank you, and have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect. Everyone, have a great day.

Good morning, everyone. We are going to allow a few seconds for the rooms to populate. Our next presentation for today is Vishay Precision Group, ticker VPG.

My name is John Franzreb. I'm the covering analyst here at Sidoti Company. For those who not familiar at Vishay, Vishay is a manufacturer of sensor and sensor-based systems that serve the various marketplaces. We are fortunate to have with us today, CFO, Bill Clancy; and Director of Investor Relations, Steve Cantor.

Following the presentation, there will be time for Q&A, [Operator Instructions]. With that said, gentlemen, thank you for being with us today. The floor is yours.

Thank you, John. It's great to be here at Sidoti this morning and tell you about VPG. Before I do, I do need to remind everyone that we will be making forward-looking statements this morning, and our actual results can differ so we encourage all investors to review the risk factors in our SEC filings.

So this is really an exciting time for VPG. Our sensing and precision measurement solutions are finding new, larger and faster-growing markets, such as in humanoid robots which are truly revolutionary and 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 few minutes. And we've made some fundamental changes to our organization and strategy in the past few months, which are designed to accelerate our growth and to put us in a position to capture more of these opportunities as well as to scale effectively.

And as we implement these changes, we continue to be very disciplined in our financial focus and in our -- both our organic and organic growth strategies. So for those who are not familiar with VPG, essentially, what we do is provide high-value precision sensing and precision measurement technologies. And we focus on the highest performing, the most premium solutions in those areas. And even so, we address a broad array of markets, it's really focused on providing the kind of high value to really make our customers' products and processes safer, smarter and more productive.

VPG products are often at the first part of the data value chain where real-world data is acquired. And for applications such as those where safety is involved or which are mission critical, our products play a vital role. And while you may not see VPG in your daily life, I can assure you, you probably benefit from it in ways you can't even imagine.

So let me walk through some recent highlights: First, we delivered five consecutive quarters of book-to-bill at or above 1, and that's a solid indicator of improving demand. Bookings trends in our Sensors segment have been especially strong, particularly in the semiconductor test equipment market as well as in general industrial, avionics, military and space markets. Sensors bookings reached levels not seen in 13 quarters.

Second, we continue to see progress in the emerging humanoid market. We booked nearly $2 million of prototype orders from October '25 through January of this year, and it included an initial prototype order from a smaller third humanoid customer.

And third, we strengthened our organizational structure with the introduction of two new C-suite roles: Chief Business Product Officer and Chief Operating Officer. These positions are directly tied to accelerating growth and improving our operational readiness.

And finally, we continued our cost reduction initiatives, which yielded $4.5 million of savings in 2025, and also include $6 million of additional savings targeted for this year. And together, these elements, we believe, form a strong foundation for our next phase of growth. So one of our strengths as a company is the diversity of the markets we serve. Our end market mix spans traditional applications that you can see here on the left side of this slide, which includes industrial applications, steel manufacturing, agriculture and construction equipment. And on the other side, we are addressing emerging growth applications, including those in semiconductor test and avionics.

And across these categories, we generally hold the #1 or #2 position in our specific niches, which speaks to the trust customers have placed in our technology over many years. And this balance across traditional and emerging applications, we believe, creates a resilience and a strong foundation for accelerating our growth.

We operate in three segments: sensors, weighing solutions and measurement systems. I think of these as sensors being components, weighing solutions being modules, which in many cases, include our Strain Gauge Sensors. As well as measurement systems, which are application-specific products and systems that really essentially do one thing in one particular area and do it quite well. Each segment addresses a distinct set of customers but they share a common theme. They address applications where precision is critical. And across these areas, our value proposition is built on a combination of deep engineering expertise and the ability to customize or tailor our solutions for very specific customer requirements.

I'll give you a quick snapshot and a few of the applications that we address. Humanoid robots is one of the fastest moving areas we're currently serving. We supplied torque and tactile sensors that are helping humanoid developers solve really fundamental engineering challenges around stability and dexterity, essentially turning a hunter metal into something that moves like the human and feels like a human. In semiconductors, our precision resistors are essential for ensuring consistent, accurate results in chip testing, a need which is only growing as AI drives more complex chips and architectures. And in the fiber optics market, we're seeing renewed interest in our components because they help improve the stability of tunable laser sources used in data centers and long-haul telecom applications.

I've seen -- we've been discussing more and more with investors is physical which is essentially AI interacting with the real world through robotics and automated systems. And these systems require highly accurate real-time data to make safe and reliable decisions. And that's really the role our sensors play. And as these applications scale, the sensing layer becomes even more important, and that's an area where we performed very well, and we're well positioned. We think the world is really on the cusp of a fundamental revolution that will change a broad array of industries, including manufacturing and logistics, with the introduction of more autonomous solutions.

Jensen Huang, the CEO of NVIDIA, said just this week that the next major demand way for compute is not coming from chatbots, but from robots and autonomous systems operating in the physical world. Jensen believes, as we do, that virtually every industry will adopt some form of physical AI-driven automation. So this is really a very exciting trend for VPG.

In 2025, we took a major step in reshaping the organization to support the opportunities ahead. It's a combination of the steps that we've made and the changes we've made over the past several years, which has truly laid the foundation from what's ahead. The creation of the Chief Business Product Officer and Chief Operating Officer roles allows us to run a more unified commercial function and a more efficient operational platform. It also sets us up for future growth, both organic and inorganic by establishing consistent processes and cross-company coordination. And this is truly a foundational shift that strengthens our ability to scale and to grow.

A cornerstone of that, as I mentioned, are these two new roles and two organizations. And I just want to highlight here the interaction between those and our operating model, there really are two sides of the same coin. On the commercial side, we're enhancing our business development processes refining our customer engagement model and building tools that support consistency and also very importantly, visibility. On the operational side, we're improving efficiencies through deploying more automation and optimizing our global footprint.

And these improvements will not only help us deliver higher levels of cash flow and profitability but will also allow us to be price competitive as we go after these larger market opportunities. One of the focuses of the Chief Business and Product Officer organization is on our growth initiatives. These are engagements with new customers or new platforms with existing customers. In 2025, our business development initiatives delivered just under $38 million of orders ahead of our goal, and we're now targeting 20% growth from that level this year. This represents a broad array of initiatives.

Each of our business units have their own specific initiatives. Most are on the smaller side, but a few are quite large, such as humanoid robotics, semiconductor tests, advanced material testing, defense systems and precision manufacturing. And each of these opportunities reflect a customer need for high-performance sensing or measurement that aligns well with our strengths. Humanoid robots just to highlight one of them, it represents perhaps one of the largest opportunities in our current BD funnel, Business Development funnel.

And we've been working with three humanoid developer customers, two of which we've been working with for some time. And the third, we just started working with in the fourth quarter. Over the past year, we've made significant progress with our first humanoid customer moving from deep engineering collaboration and problem solving as well as providing multiple sensor prototypes, to now the final system setup and early alpha builds. We've already received initial orders covering a few dozen robots, each using roughly 20 to 30 sensors. And we expect a follow-on order for hundreds of units in the second quarter with the potential to ramp to hundreds of robots per week by the end of 2026, subject, of course, to our customers' time line.

And with our second humanoid customer, we're also well advanced, recently receiving approximately $1.5 million of orders, primarily for tactile fencing, essentially given the fingers of the robot is sense touch and feel, and we expect clear volume visibility after their current prototype evaluations. In parallel, we've also begun engaging with a third humanoid customer supplying prototypes for several dozens of robots, and we believe there's broader industry momentum, which could accelerate development and production with additional humanoid developers.

We believe that this year 2026 will be a pivotal one for the humanoid market, since a number of leading developers have indicated plans to move to production and early deployment by the end of the year. But the bigger picture here goes beyond humanoid themselves. This is really part of a broader shift towards what I described as physical AI, AI interacting directly with the physical world. And we think that we're just at the beginning of that trend, and it's going to create a whole wide range of platforms and not just human-shaped robots.

In fact, we're already starting to see potential app opportunities in adjacencies. We've had early-stage conversations with customers regarding physical AI systems and logistics, which aren't humanoid per se, but rely on similar testing and control capabilities. So while the human market could take time to evolve, we believe we're only seeing the tip of the iceberg and that there will be many derivatives and new applications that will grow from this first wave.

And from that standpoint, the long-term potential is significantly larger than what's physical today. As I mentioned, what we're doing on the operations side is wholly complementary to the business commercial side. This road map that I'm showing here on this slide outlines the three areas where we're focused on in terms of an operational standpoint: First is footprint optimization, which includes expanding our capabilities in India; Second, is operational excellence, which involves improvements in yields, productivity and automation; And third is procurement, where we're consolidating suppliers and streamlining our logistics. And together, these initiatives represent a path to $20 million of cost savings over the next 3 years, including 2026, and position us for stronger margin performance as well as, as I mentioned, to make us price competitive and able to scale.

So to put everything together, the long-term thesis for VPG is clear. We're aligned with major technology and industry trends, automation, AI, advanced materials, semiconductor innovation. We've invested to build a stronger organization and a more efficient operating platform. and we're broadening our opportunity set through a disciplined business development. So from our perspective, the company is entering a period where our capabilities and market needs are increasingly aligned. And with that, we're happy to take your questions.

Thank you, Steve, for that expansive overview of Vishay. [Operator Instructions].

Bill, Steve. I guess the first question I really would like to address is the current events environment, you have production facilities in Israel. Can you talk about potential disruptions that investors should be aware of? What are you doing maybe to mitigate some of those potential disruptions? Maybe a little bit of a background and overview would be helpful.

Sure, John. I appreciate that. Thank you for the question regarding the facility that -- but most importantly, it's the employees, the people. Everybody in our facilities or at the moment are safe and housing. Obviously, we put all the measures in place to make absolutely sure all of our employees are safe, their well-being. And that is, by far, our priority #1.

Regarding -- we've always had areas that we have prepared for and shipped and we always had the ability to produce with very little interruption to our business. I would say we're probably 90%, 95% back to normal. And having said all that, we believe that -- we do everything we possibly can to satisfy all of our customer needs and have truly minimize what the impact will be from a revenue perspective. For that -- and we've taken all the steps and measures, we prepared for this. We've always been quite ready for anything and truly have taken all the steps to ensure the safety and health of the employees and also the continuity and accountability for the business as well.

Got it. And with that, I'm going to move directly to the audience questions that seem to be coming in. First question is what needs to happen over the next few years for the physical AI to become a meaningful revenue contributor?

Well, I think it's already starting to be an important contributor, at least we expect this year to see growth in our revenue associated with humanoid robots. The real question, though, depends on the deployment of these robots in real-world scenarios and whether or not you're going to deliver the value that they're promised.

So we'll learn a lot, I think, by -- about humanoid robots this year as a market. And then I think in parallel, the trend towards looking at some of these adjacent applications essentially using that same kind of physical AI technologies in manufacturing and logistics, as I mentioned, I think you'll start to see more and more solutions and investment from this year onwards. The real question, again, it has to -- there has to be an ROI associated with those investments. And so I think we'll see -- we'll know more about as we progress through this year.

That actually dovetails nice thing to the next question. How you're balancing R&D between the new sensing technologies and weighing solutions?

Yes. So we're very fortunate to have some of the best engineering talent related to what we do, which is around strain gate sensors and precision resistors as well as weighing solutions. And so our strength is really throughout our history and continues to be our ability to have very in-depth engineering discussions with our customers to really take our core technology and adapt and customize it to their specific needs. So that is something that we've continued to do and as we consider to be one of our strengths.

Next question. Can you talk about how your end market exposure has evolved, particularly with data centers and human robots?

Well, that's, I think, an important theme for VPG, which is that we've always been a niche supplier of high-performance products that we make. And in general, and I'm maybe oversimplifying this, but in many cases, our biggest competition is whether the customer chooses to use a lower performing product at a lower cost. But we think that there's some technology trends, and we certainly would argue that within the humanoid market where safety is probably going to be an important consideration you want to have the best performing product.

And I'd say also the case in what we're doing in the data center fiber optics market is also a good example of that, where the importance and critical nature of the transmission of data from data centers or long-haul transmission is going to require a higher performing solution. And so we think that in that way, some of these opportunities are actually coming to us as opposed to us chasing them.

I just interject a question here. How much commonality is there in the sensing products that use between your three customers right now?

There's quite a bit. I mean there are different designs and each customer has a sell proprietary design, which are very different, different approaches. But the commonality of what we're doing for them really evolves from our core technology, which is around oil-based substrate material that is used in our strain gauges to really provide that level of performance and reliability and consistency over time. So that's the differentiation. That's essentially our secret sauce, but that runs across everything that we're now doing for or discussing with the senior customers.

Next question, can you expand on ordering patterns and lead times with the growing demand for physical AI? A lot of AI questions here today.

Well, I guess I would maybe clarify that question to say. This idea of physical AI, I think that's an important concept. It's one which we think is going to be a trend that has a lot of legs to it. It's going to interface with a lot of different parts of our world. But if you want to be more specific, I would say, the primary example that we're currently addressing within that realm of physical AI is the humanoid. And as we've discussed, we've already generated in the last couple of years, $5 million of orders just for prototypes related to humanoid. And so we are expecting this year to see a growth certainly compared to 2025 as those customers move to real production and deploy it.

But a more traditional question here. How much of total cost savings is expected to be realized in 2026?

So John, from that perspective, as we show our slide, we expect to have $6 million of savings, predominantly at the gross margin level compared to 2025 for cost savings. As Steve mentioned, it's a combination of factory consolidation, better automation, procurement savings and optimization. So in total, $6 million is projected for 2026.

Got it. Next question is, how scalable is the measurement systems business model compared to the other segments?

Well, from a scalability perspective, obviously, the measurement systems is our highest gross margin segment that we have today. It's in the low to mid 50%. So as we hopefully begin to see some tailwinds with steel and with AMS and the continuation with our craft test dummies and with ECS. I mean the scalability is as those revenues begin to increase, we could see incremental gross margins rising as well.

Something to that question, which is the measurement systems, as Bill mentioned, is our highest margin segment. But also it comprises our longer lead time businesses, and for example, within the steel market, it could take 9 months, if not longer, from the point when we start talking to a customer to the point where they place an order and another 9 months to customize, develop and install and test that system. So that's another difference. Generally, what we do in the Sensors and Weighing Solutions segment as much shorter lead times.

Makes sense. Thank you, both. Next question is in past presentations, you talked about hitting 22% EBITDA margins at a roughly $90 million quarterly run rate with new investments and cost-cutting initiatives. Can you give us a sense of your target margin profile at a similar run rate?

So John, it's an excellent question. We did have a 3- to 5-year plan we rolled out a couple of years ago. But given that with the announcement we made in November with the new structure with the CPO and the COO. We are in the process now of updating that 3- to 5-year model. And we intend to roll that out during our first quarter 2026 earnings call. Having said all that, I mean the expectation of giving a significant cost savings and a true mandate for mid- to high single-digit revenue growth each and every year.

The expectation is we should be able to probably at least achieve or those original 3- to 5-year plans we had a few years ago. But all of that will be spelled out in our first quarter earnings call.

Something to look forward to, Bill. Great. Next question. Can you discuss how the new C-suite executives are integrating? Any early impact on revenue initiatives or corporate culture, sorry.

Yes. So I would say, I mean, it's only been a couple of months, John, since we had the announcement, but we had -- I think we've had -- we've seen a greater what do you say, accountability, execution, the culture changes, I think, have been implemented throughout the organization I think people are obviously taking this organizational structure in a very, very positive way. And we're even seeing early momentum this truly being a well-run organization, and the parts that we're adding, the personnel that we're adding much -- I think, are -- will reap benefits in the future for sure.

Just to maybe add one point to that, which is I think we don't want to front run our rollout of our new target model, which we expect to release in our first quarter earnings call in May. But I think you should expect -- investors should expect that our outlook and the model will be will reflect higher levels of growth than the previous ones organically. And that's in part a reflection of certainly the opportunities that we talked about today, but also in part, reflecting what we think will be the impact of this new organization.

Makes sense. A question about if you need to expand your production capacity, and what challenge do you face around personnel and engineering needs?

So from a capacity expansion perspective, given where we are today, I mean, we have the capacity available depending upon which region to add personnel could be fairly quickly. And to the extent that we receive significant large orders or opportunities that we'd be more than willing to add the equipment and with the personnel book, we definitely have the flexibility and the capacity to handle significant opportunities and meet all of our customers' demands.

Well, it's been a robust Q&A, and I'm going to ask the last question that didn't come up for some reason this time. Can you talk a little bit about the M&A environment and your appetite for acquisitions? And what do you see on the horizon?

So John, a very good question. Obviously, we've always been very M&A inquisitive. I think what we're working on at the moment is implementing and establishing the two new C-suite. And as we finalize that rollout continuing to look for M&A growth and opportunities could be in existing markets, could be in new markets, but we are -- continue to be very acquisitive, and I definitely look forward to, I think, greater opportunities down the road.

Fair enough. Any closing remarks, Bill or Steve?

Just again, thank you and Sidoti for the opportunity to be part of the conference and to tell you about VPG and look forward to updating you at future conferences.

Thank you for the expansive overview. We appreciate you being here today, and have a great day, everybody.

Thank you.

Thank you. Appreciate it. Thank you, everybody.

Hello, everyone, and thank you for joining the VPG Fourth Quarter 2025 Earnings Call. My name is Claire, and I will be coordinating your call today. [Operator Instructions] I will now hand over to Steve Cantor, Senior Director, Investor Relations at VPG to begin. Please go ahead.

Thank you, Claire. Good morning, everyone. Welcome to VPG's 2025 Fourth Quarter Earnings Conference Call. Our Q4 press release and slides have been posted on VPG's website. 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.

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. 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, 2024, 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. Ziv?

Thank you, Steve. I will begin with some commentary on our results and trends for the fourth quarter and on our strategy. Bill will provide financial details and our outlook for the first quarter of 2026.

Moving to Slide 3. To summarize our Q4 '25 results, Q4 marked our fifth consecutive quarter with a book-to-bill over 1, led by sensors. While Q4 gross margin reflected a number of headwinds, we expect gross margin to improve in Q1. With sensors ramping and backlog at a multiyear high, we expect higher shipments beginning in Q2 and continued progress on our growth initiatives. Specifically, fourth quarter revenues of $80.6 million was up 11% year-over-year and 1% sequentially, reflecting solid execution across the portfolio. We achieved another quarter of positive booking trends as our consolidated orders of $81.3 million grew 2% sequentially. This resulted in a book-to-bill of 1.01, the fifth consecutive quarter of book-to-bill of 1 or better.

We continue to make good progress across our business development initiatives, including humanoid robots and semiconductor equipment. These efforts generated $11.8 million in orders during the fourth quarter, bringing total orders from these initiatives to $37.8 million for the full year of 2025, which exceeded our goal of $30 million for the year. Our fourth quarter adjusted gross margin of 37% was impacted by $3 million of headwinds, including unusual unfavorable product mix, inventory reductions and discrete inventory and manufacturing impacts. We expect gross margin to improve in Q1. We are currently ramping production of sensors products and expect to realize higher sales in the second quarter.

I'll now review the business performance by segment. Moving to Slide 4. Beginning with our Sensors segment. Fourth quarter revenue declined 4% sequentially, but was 18% higher than a year ago. Compared to the third quarter, continued strength in test and measurement related to semiconductor equipment was offset by softer sales to the AMS and the general industrial market. Booking for Sensors continued its positive trend and reached its highest level in 13 quarters. Sensor bookings rose 4% sequentially and were 30% above a year ago, resulting in a book-to-bill of 1.15.

The bookings growth from the third quarter was driven by higher orders in general industrial, our other markets for consumer electronics and AMS. In addition, we are pleased with the demand related to the test and measurement market, particularly for semiconductor test equipment applications. Total sensors orders were up 18% in the second half of 2025 compared to the first half, with Sensors backlog at the highest level since Q3 of 2023.

We are currently hiring to ramp up production to meet demand, which should lead to increased sales beginning of Q2. A key highlight continues to be our growing momentum with humanoid robots developments in Q4. We received $800,000 in humanoid-related orders, including a follow-on bookings for our first 2 customers and an initial prototype order for the third. This new customer is an emerging robotics company developing humanoids to enhance productivity and streamline daily operations in both homes and warehouse environment.

In addition, in January, we received a follow-on order from one of our initial 2 humanoid customers of approximately $1 million. 2026 is expected to be a pivotal year for the overall humanoid robotics market as leading companies move decisively from prototype into early production and real-world deployment. Technical challenges remain, but they play directly to our strength and create strong demand for our high-value, high-performance solutions that solve their problems to advance dexterity, stability, responsiveness and safety. While the timing and scale of production ramps across the humanoid robot market remains unclear, we expect 2026 to bring continued momentum for VPG. Our infrastructure and supply chain teams are prepared to support customers' production demands.

Moving to Slide 5. Turning to our Weighing Solutions segment. Fourth quarter sales increased modestly from the third quarter and grew 7.8% from prior year. The sequential increase was primarily evident in our industrial weighing market. Weighing Solutions orders were up 14.9% sequentially to $28.2 million, resulting in a book-to-bill of 1.02. Specific areas of strength were in our other markets for precision ag, medical, construction, and e-bike applications. Orders were also higher in the transportation for onboard weighing systems for heavy used trucks. While there are signs that some of these end markets have reached their cyclical bottom, we continue to see mixed trends across our OEM customers.

Moving to Slide 6. Turning to our Measurement Systems segment. Revenue in the fourth quarter of $22.4 (sic) [ 22.8 ] million increased 9% sequentially and 6% from a year ago. The sequential increase reflected a record high sales for DSI R&D tool for development of new metal alloys. We also had higher sales in AMS for testing new avionics platforms. Fourth quarter Measurement Systems orders of $18.1 million declined 16% from the third quarter and resulted in a book-to-bill of 0.81. Lower orders in our steel market, which mostly reflected the timing of projects in the middle of a soft global steel market, offset stronger sales of DTS products used in crash safety testing. Our pipeline remains healthy. And given the timing of customers' projects, we expect to return to a positive book-to-bill in Q1.

Moving to Slide 7. Looking at the year in total fiscal 2025, was a year of transformation for VPG. While our revenues of $307.2 million grew slightly from the prior year, sales in the second half were up 9% from the first half. In addition, we had a steady improvement in orders through the year, particularly in the Sensors segment. Our performance in our business development initiatives of $37.8 million in 2025 exceeded our goal of $30 million for the year. We also delivered $4.5 million of targeted cost reductions as part of ongoing cost efficiency plans.

Moving to Slide 8. Most significantly, during 2025, we took steps to position VPG for its next phase of accelerated growth. Over the past several years, we strengthened and streamlined our operation to support higher volume opportunities and sharpen how we develop and track our growth initiatives. Those efforts have prepared us to move into the next phase, which involves a fundamental rewiring of our business. As we announced in November, a key component is the creation of the 2 new senior executives positions and corresponding organizations, the office of the Chief Business and Product Officer and the Office of Chief Operating Officer. Each organization has a clear mandate. The CBPO's focus is on accelerating growth by refining our internal sales and product development processes, thus expanding our opportunity set and increasing our conversion rate with both new and existing customers. The CEO organization is supporting this accelerated growth by driving improvements in operational efficiency and readiness while also reducing our cost structure.

Creating this cross-divisional center of excellence organizations marks a major shift from the diversified operating structure that defined much of our history. The reason is simple. The opportunities ahead are being driven by large mainstream market and technology trends, and are bigger and more significant than ever. As we enter Q1 transition period, the new organization will work on the core and cross-company processes, redesigning them into standardized, scalable, unified and up-to-date global processes, while also implementing industry best practices.

The new processes will be fully placed in Q2. We expect an additional $3 million of SG&A costs in 2026 to support the new organizational structure as well as new IT platforms. As a result of the new organization, we expect $2 million in savings through cost reduction initiatives. The net effect is $1 million to support the new organization. A key trend driving our long-term opportunities is the emergence of physical AI technologies. Physical AI is the class of AI systems that perceives the real world, makes decisions and drive physical actions through machine or control systems. It sits at the intersection of AI and machine learning, sensors, controls and humanoids.

As physical AI gains broader adoption, certain types are expected to have bigger longer-term impact than others. VPG is looking to provide solutions in the humanoids and autonomous logistics. As a result, we are excited about our growth prospects. We have set an internal goal this year to grow our top line in the mid- to high single digits, as we anticipate a stronger second half, reflecting strengthening economic trends and capital investments as well as continued progress with our ongoing growth initiatives. Given our current pipeline from business development initiatives, we are setting a target of $45 million for 2026, which represents a 20% increase from 2025.

Before turning the call to Bill, I would like to thank our employees for their dedication, their past year and their embrace of the changes we are making. I want to thank our customers for their trust and confidence as we continue to work hard to exceed their expectations. I will now turn it over to Bill Clancy. Bill?

Thank you, Ziv. Referring to Slide 9 and the reconciliation tables of the slide deck, our fourth quarter 2025 revenues were $80.6 million. Adjusted gross margin of 37% in the fourth quarter decreased from 40.5% in the third quarter was impacted by $1 million related to unfavorable product mix and $1 million due to inventory reductions. In addition, we incurred approximately $1 million of discrete inventory and manufacturing impacts as well as a $400,000 impact from unfavorable foreign exchange. Sequentially by segment, adjusted gross margin for Sensors of 28.5% declined due to lower volume and unfavorable product mix and foreign exchange rates.

The Weighing Solutions gross margin of 33% decreased from the third quarter, primarily due to onetime manufacturing fixed costs, a reduction of inventory and higher logistics costs. Adjusted gross margin for the Measurement Systems of 53.3% increased from the third quarter due to higher volume, partially offset by discrete inventory adjustments.

Moving to Slide 10. Our adjusted operating margin was 2.3%, which excluded restructuring costs of $697,000 and $110,000 of purchase accounting adjustments. Selling, general and administrative expense for the fourth quarter was $27.9 million or 34.7% of revenues, which was modestly higher than Q3, reflecting hiring for the new organizational structure and higher travel and commission costs. Unfavorable foreign exchange rates impacted adjusted operating margin in the fourth quarter by $600,000 and for the full year of 2025 by $4.7 million. Our GAAP net loss was $1.9 million or $0.14 per diluted share. Adjusted diluted EPS was $0.07. The GAAP tax rate for the full year was 39%. For 2026, we are assuming an operational tax rate of approximately 26%.

Moving to Slide 11. Adjusted EBITDA was $6 million or 7.5% of revenue compared to $9.2 million or 11.5% of revenue in the third quarter. CapEx in the fourth quarter was $3.5 million and was $8.5 million for the full year. For 2026, we are forecasting $14 million to $16 million for capital expenditures. We generated adjusted free cash flow of $1.3 million for the fourth quarter, which compared to $7.4 million in the third quarter. As of the end of the fourth quarter, our cash position was $87.4 million and our long-term debt was $20.6 million. The resulting net cash position of $66.8 million and the unused portion of our credit facility provides ample liquidity to support our business requirements and to fund M&A. Regarding the outlook, for the first quarter of 2026, we expect net revenues to be in the range of $74 million to $80 million, assuming constant fourth fiscal quarter 2025 exchange rates.

In summary, quarterly bookings exceeded $80 million for the first time since second quarter of 2023 and resulted in a book-to-bill of 1.01. We exceeded our 2025 goal for orders from business development initiatives and are targeting a 20% increase in 2026. And we entered into a new phase with key organizational and strategic changes focused on accelerating growth and cost efficiencies.

With that, let's open the lines for questions. Thank you.

[Operator Instructions] Our first question comes from John Franzreb from Sidoti & Co.

I actually want to start with the revenue guide. I'm curious about to achieve the high -- mid- to high single-digit guide that you're putting out there, how biased is that towards the Sensors segment given the recent bookings profile?

Well, John, first, we are fairly optimistic regarding the recovery in the marketplace. We have seen many, many signs. It started the initial sign was in the Sensors, but we're also quite positive about -- also positive sign regarding Weighing Solutions. Also for Measurement Systems, some of the segments are -- we started to see early signs of recovery. Still the steel market is fairly soft predominantly in China. But overall, we are optimistic regarding the business environment. In addition to that, we are also expecting additional book-to-bill above 1 in the second quarter.

Now regarding execution and revenues, this is correct that while we are working on ramping up production for sensors, we would expect to see higher revenues mainly in Sensors as of the second quarter. But from a -- but you are correct that in order to achieve the mid- to high single digit, the second half of this year, we are going to -- we are looking to achieve higher revenues than the first half since we are in a ramp-up mode currently.

Got it. And regarding the gross margin impact, my back of the envelope number was that was roughly -- would have been 41% in the quarter. Is that right to assume ex some of those, we'll call it, onetime items, if you will? And I'm curious if any of them lingered or lingering into the first quarter of 2026.

So we have identified kind of an unusual effect in the fourth quarter at the level of $3 million, as I indicated, which were related to year-end closing and also to, I would say, launching new ERP systems at one of our sites, those so-called...

Apologies, it seems we have lost connection with Ziv. The call will commence shortly once we regain.

Can you hear me?

I can hear you now, sir.

Can you hear me, John? Sorry. For somehow, I heard you. Okay. What I was saying is that at least the $3 million, we do not expect to see in the next quarter. Therefore, we should see an improved gross margin moving into Q1.

Got it. And regarding the restructuring actions, then I'll get back into queue. You expect $6 million. Is that $6 million expected to be realized in 2026? Or is that an exit velocity coming out of the year?

The $6 million of cost reduction are expected to be realized in 2026 and are expected to be in the 2026 P&L. So all the cost reduction initiatives in regards to efficiency, productivity improvement, streamlining of manufacturing locations and all other related activities would result in a $6 million cost savings, which we expect to see in 2026.

Our next question comes from Josh Nichols from B. Riley.

I want to dive in some pretty significant organizational strategic changes here that you touched on during the call. What does this mean you think, I guess, one, betting on the company's growth prospects overall? And then 2, it's been some time, but I think you used to put out some longer-term financial targets about operating leverage and what the company could achieve. With these new changes, could you touch on those 2 aspects and if you plan to put any updates out on those potentially?

Yes, absolutely. If you can recall, Josh, in November, we announced an organizational changes in the company. The organizational changes was around 2 main new organizations, was the COO and the CBPO. The purpose was to develop a new organization, which is cross-divisional organization, which would allow us to standardize, unified and improve and apply best practice processes. So to that extent, we are in the process of implementing the changes which we are going to see starting to take into effect in the second quarter. The changes regarding the COO organization would be mainly around procurement, general, I would say, centralized procurement would be around supply chain and also, I would say, a much better organizational -- operational focus around cost reduction, execution and around supporting our business organization.

On the other hand, the CBPO, the purpose is to create one centralized sales operation function, centralized marketing and centralized business development in order to optimize our opportunities. Now in addition to that, I would like to say that we are launching a data project, an IT, I would say, data project, which would allow us -- which would allow everyone to operate on one system, which we are going to introduce more advanced BI and AI tools.

So all in all, the whole organization focus is on execution from the cost side and to support the business on the other side, support the business in terms of better lead time, I would say, better lead times, shorter -- better quality business development or I would say, to enhance business development initiatives also from a cross-divisional and centralized marketing. We see already that the new organization from a cost standpoint as we are building the foundation or as we are moving ahead with the foundation, we are expecting, as I indicated, the $6 million. We have even a bigger target for the next 3 years to achieve a certain cost reduction, while also we have set internal goals for business development, for example, at 20% year-over-year, moving to a $45 million business development target for 2026.

As you indicated now, we are in the process of changing the model in order to feed the new cost and the new financial -- to set a new financial model. So I would say that in the coming weeks, we are going to introduce a new model, which will be based on the new organization.

Yes. Good to hear that that's going to be updated. And then good also new third humanoid development customer here that you're getting some initial orders from. I know you provided some very high-level detail about using humanoids at home and also for manufacturing. Anything you could tell us about the size of the customer relative to the other 2 and potential time lines? Are they looking to scale up to larger scale production in '26? Or are they still in the earlier stages of development overall?

The only thing I could say since we are under a very strict NDA that this is a smaller customer than the other 2. They are still in the design configuration stage. And we will -- and we are continuing the journey of engineering discussions with this customer in order to provide them with the best solution. I think that all in all, in the humanoid ecosystem, the ramp-up is really depends on the customer commercialization and adoption of the humanoid-related application. We don't know when they are expecting to start preproduction or even ramping up. But I think that the important piece is that our infrastructure and supply chain are prepared to support them once they make the decision.

And then last question for me. This has been a big topic. You see a lot of humanoids and CES and other events overall. Is it fair to say that you're in discussions with multiple other humanoid developers also and potentially, we could see some additional customers now throughout 2026? Or what is your expectation on that front on building out your humanoid customer base?

We do have a list of many humanoid manufacturers, which we started a dialogue with them. At this point, we don't report that in our earnings call since they have not requested a prototype orders. So the fact that there is a whole list of humanoid manufacturers in different parts of the world, we hope that we will be able to report -- that we would be able to report that we are going to ship or to start a more serious dialogue and to ship prototypes to others, yes. But no doubt, they are on our screen, and we are looking at many more humanoid manufacturers, yes.

Our next question comes from Jaeson Schmidt from Lake Street Capital Markets.

Just following up on that line of questioning. Beyond humanoid robots where it seems like you guys are seeing some really nice momentum, can you talk about which verticals in your new business initiatives are outperforming your original expectations?

So as you know, we -- in the past, we were looking at the ultra-high temperature ceramics, which is one of our products. We are also -- we were also looking at some designs of precision resistors in the semiconductors. And very recently, we have also started a dialogue with what we call physical AI applications, which are, let's call it, those type of autonomous logistics, which are based on AI platforms, which I would say some large manufacturers are looking at that. That's, I would say, this is kind of an adjacent application to the humanoid, but also based on AI. So we started the dialogue also with 1 or 2 customers regarding autonomous logistics.

Got you. And then following up on your comments on kind of additional hiring within the Sensors segment. Is this to mainly just build out that infrastructure more? Or are you seeing demand pull from specific verticals or end markets that are -- that is really driving this?

So hiring the people at this point in time, the Sensor business main -- I would say, the end sectors that are driving the demand are test and measurement of avionic, military and space, and some general industrial applications. That -- those are the end markets that we did see some signs of recovery. We have seen much stronger order intake, and we are hiring direct employees and ramping up production. We don't believe that this is a short-term recovery. We believe that we should expect to see also this recovery in the coming months.

[Operator Instructions] We currently have no further questions, and I would like to hand back to Steve Cantor for any closing remarks.

Great. Thank you, Claire. Before closing, I do want to note that we will be at the ROTH Investor Conference in March. And of course, we look forward to updating you next quarter. Thank you all for joining the call today, and have a great day.

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.

Hello, everyone, and thank you for joining the VPG Third Quarter 2025 Earnings Call. My name is Claire, and I will be coordinating your call today. [Operator Instructions]

I will now hand over to Steve Cantor from VPG to begin. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to VPG's Third Quarter 2025 Earnings Conference Call. Our Q3 press release and accompanying 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 the VPG website.

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. 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, 2024, 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?

Thank you, Steve. I will begin with some commentary on our results and trends for the third quarter. Bill will then provide financial details about the quarter and our outlook for the fourth quarter of 2025.

Moving to Slide 3. Beginning with revenue, third quarter revenue of $79.7 million grew 6.1% from the second quarter and was up 5.3% from the prior year. Total bookings of $79.7 million were at similar levels with the second quarter, reflecting mixed but stable global trends. Strong double-digit growth in Sensors offset lower orders for Weighing Solutions and Measurement Systems sequentially. Our consolidated book-to-bill was 1.0, marking the fourth sequential quarter with a book-to-bill of 1.0 or higher. Our Sensors and Measurement Systems segment reported a book-to-bill of 1.07 and 1.04, respectively.

Our adjusted gross margin of 40.5% reflected improved in the Sensors segment and another record quarter for Weighing Solutions segment. However, consolidated gross margin included a significant impact from unfavorable FX and product mix, which offset the effect of the higher sequential revenue. We achieved an adjusted operating margin of 6.2%, which improved compared to both Q2 and the prior year. We continue to make progress with our long-term business development and cost optimization initiatives. This translated into a solid cash generation with $9.2 million in adjusted EBITDA and $7.4 million in adjusted free cash flow. We successfully mitigated the impact of tariff cost to a price adjustments to our customers and do not believe tariffs impacted demand.

Moving to Slide 4. Beginning with our Sensors segment, third quarter revenue increased 19.1% sequentially, reflecting higher sales of precision resistors in the Test and Measurement and AMS and higher sales of strain gages in the General Industrial market. Sensor bookings rose 13.5% sequentially, reaching the highest level in 12 quarters and resulted in a book-to-bill of 1.07. The bookings growth was driven by demand from precision resistors for semiconductor test and AMS applications. We expect this momentum to continue in the fourth quarter as some distributors replenish inventories for AMS applications.

Regarding humanoid robots, we are optimistic about the long-term potential for VPG in the emerging markets. While humanoid robots market is still in its infancy and initial real-world deployment of this robot is expected in 2026, we believe we are in a good position in high-performance niches for our sensor technology. We received $1.8 million in orders from July to October related to our two current humanoid developer customers. This included prototype orders of approximately $600,000 from our second humanoid customer in October. This brings the total orders year-to-date to approximately $3.6 million related to humanoid projects. We are also in the initial discussions with additional developers of humanoid.

Moving to Slide 5. Moving to our Weighing Solutions segment. Third quarter sales decreased 6.4% from the second quarter. The decline reflected lower sales in the transportation market as well as in the construction and precision ag equipment markets. Weighing Solutions orders of $24.5 million were about 10% lower compared to the second quarter, resulting in a book-to-bill of 0.89. Order trends for Weighing Solutions softened but were at stable levels.

Moving to Slide 6. Turning to our Measurement Systems segment. Revenue in the third quarter of $20.6 million increased 7.3% sequentially. The increase reflected higher sales to the steel market of our KELK and DSI products. Third quarter Measurement Systems orders of $21.4 million decreased 6.9% sequentially, and resulted in a book-to-bill of 1.04. The lower sequential bookings reflected ongoing softness in DTS due to delays related to defense and space government projects. We expect delays in some of these defense projects to continue into the fourth quarter due to the U.S. government shutdown.

We were pleased to receive an order from Stoney Brook University for the beta of our new UHTC system. This is the second university which ordered the system. This system designed to perform band testing on nonconductive materials such as ceramics, which are used in critical high-performance applications such as hypersonic missiles in aerospace as well as in avionics, energy and industrial applications.

Moving to Slide 7. I'll now provide an update on our strategic priorities for 2025. First, we generated approximately $26 million in business development orders through the first 9 months of this year, which put us on track to achieve our $30 million goal for 2025.

Second, regarding our cost efficiency goals for 2025, we expect to have in place $5 million of annualized cost reductions by the end of this year. We also continue to execute our ongoing operational efficiency plans with the sale of a building in July.

Third, we also continue to look for attractive M&A opportunities. Our strategic priorities are designed to increase growth and profitability. They reflect several years of focused investments and have built strong foundation to reach our long-term financial goals even on a lower revenue than we originally expected.

As VPG enters this next phase, we are expanding our senior leadership team with two new C-suite roles. We have appointed Yair Alcobi to the newly created position of Chief Business and Product Officer, responsible for overseeing sales, marketing, product strategy and business development. Yair brings considerable experience in accelerating growth and profitability from his previous executive leadership roles at leading industrial tech companies, including in the semiconductor test market for KLA-Tencor, among others.

We have also appointed Rafi Ouzan to the newly created role of Chief Operating Officer to lead VPG's manufacturing and our operational excellence initiatives. Rafi has more than 30 years of experience in key executive and operational roles for VPG and Vishay Intertechnology, including as Senior Vice President and Head of our Weighing Solutions segment.

I want to welcome these two executives to our senior team and look forward to their contributions to delivering business excellence and execution, which are prime strategic trusts for VPG. Yair and Rafi will help drive our focused mainstream global trends, increase the speed of innovation and R&D and leverage our strong brands. I believe these new positions will enhance and accelerate value to our customers and stockholders and will also allow me to focus on continuing to build a dynamic culture supporting future growth and scalable M&A strategy.

In summary, we are pleased with the solid quarter. We see stable, moderately improved business environment. We are making organizational changes that align our reporting segment to accelerate top line growth and strengthen our operational excellence. We are continuing to make progress with our business development initiatives, including supporting our humanoid customers.

I will now turn it over to Bill Clancy. Bill?

Thank you, Steve. Referring to Slide 8 and the reconciliation tables of the slide deck, our third quarter 2025 revenues were $79.7 million. Adjusted gross margin was 40.5% in the third quarter. Compared to 41% in the second quarter, the third quarter gross margin was impacted by $600,000 of unfavorable foreign exchange and $800,000 from unfavorable product mix, which offset higher volume and tariff-related net price adjustments.

Sequentially by segment, adjusted gross margin for the Sensors of 33.7% increased primarily from volume and tariff-related net price adjustments, partially offset by a decrease in inventories and unfavorable foreign exchange rates. The Weighing Solutions adjusted gross margin of 40.3% increased slightly from the second quarter and reached an all-time record, primarily reflecting tariff-related net price adjustments and cost reductions, partially offset by lower volume. The gross margin for the Measurement Systems of 51.1% declined from the second quarter due primarily to unfavorable product mix.

Moving to Slide 9. Our adjusted operating margin was 6.2% which excluded start-up costs, restructuring costs and purchase accounting adjustments amounting to $362,000 and the gain on the sale of a building of $5.5 million. This improved from 4.8% in the second quarter of 2025. Selling, general and administrative expenses for the third quarter was $27.2 million or 34.2% of revenues, which decreased from $27.7 million or 36.9% of revenues for the second quarter of 2025. The operational tax rate in the third quarter was 26%. And for the full year of 2025, we are forecasting an operational tax rate of approximately 28%. We reported net earnings of $7.8 million or $0.58 per diluted share. Adjusted net earnings for the third quarter was $3.5 million or $0.26 per diluted share, compared to $2.3 million or $0.17 per diluted share in the second quarter of 2025.

Moving to Slide 10. Adjusted EBITDA was $9.2 million or 11.5% of revenue, compared to $7.9 million or 10.5% of revenue in the second quarter. CapEx in the third quarter was $2.2 million. For the full year of 2025, we are forecasting $10 million for capital expenditures. We increased our adjusted free cash flow to $7.4 million for the third quarter from $4.7 million in the second quarter. As of the end of the third quarter, our cash position was $86.3 million, and our long-term debt was $20.5 million, giving us a net cash position of $65.8 million. This reflects the debt paydown of $11 million from the proceeds of the sale of a building in July.

Regarding the outlook, for the fourth fiscal quarter of 2025 at constant third fiscal quarter 2025 exchange rates, we expect net revenues to be in the range of $75 million to $81 million.

In summary, we grew sales quarter-to-quarter and year-to-date. We continue to improve our operating margin, which reflect our cost reduction and efficiency programs. And we remain excited about the potential of our business development initiatives, particularly in humanoid robotics.

With that, let's open the lines for questions. Thank you.

[Operator Instructions] Our first question comes from John Franzreb from Sidoti.

Ziv, I guess I'm kind of curious, firstly, about maybe the disconnect that we're seeing in the Weighing Solutions business. And by that, I mean, the book-to-bill has been below 1 for a couple of quarters, but the revenues kind of held up relatively well. Is that becoming a shorter cycle business? Or maybe you could provide some color there?

Sure, absolutely. Regarding Weighing Solutions. The Weighing Solutions business relies on a few pillars. First, we have the OEM business, which is encompass -- which consists of precision ag and construction. Those large companies, given the interest rates and the environment, do see a significant slowdown. On the other hand, the general industrial or the general -- sorry, the general weighing business, that's the other piece is very much linked to the industrial sector, which is also fairly stable.

On the -- regarding the on-board weighing, the main driver there is the European economy, which is improving, but we have, to an extent, the seasonal effect for Q3. Regarding the overall bookings for this segment, we see a fairly stable environment, but still the larger companies do not see a significant upside from demand. And what we mainly see is the replenishment of the pipeline -- of the queue in the pipeline.

And the record gross margin of 40.3%, is that a sustainable number on an annualized basis? I get there should be some seasonality in Q4. But how should we think about that going forward into 2026?

There are significant cost reduction initiatives in this segment as we continue to streamline our manufacturing from other parts of the world to India. So given the continuous operational excellence, I would say, initiatives at a similar revenue level, this gross margin is sustainable.

That's excellent to hear. And just sticking on the cost savings topic, you expect $5 million to be realized by the end of the year, and I assume that's on an annualized basis. But what's the year-to-date, how much of that $5 million has been realized?

We do expect to meet the $5 million by the end of the year, and you are correct, this is an annualized number. And by now, we already reached $4 million.

And you touched on the -- No, I heard you. And on the humanoid robotics topic, you mentioned that you expect more shipments in 2026. Can you give us a sense of what kind of ramp that you expect to see? And will you need to add any manufacturing square footage to meet that demand?

Absolutely. As I indicated, year-to-date, we have received $3.6 million of orders from two humanoid suppliers -- customers. One, we are ahead with the design and the other, we are in the prototype levels.

Already now, there are some discussions regarding higher volume production, and there are discussions between us and our customers regarding VPG capability to support higher volume manufacturing. At this point in time, and unfortunately, I cannot get to specifics, but there are discussions. We don't know what is the ramp-up time and how quickly they are going to ramp up, but they are preparing for a higher volume application. And when time comes, they will -- we will continue to have this conversation and to be prepared to support our customers.

Our next question comes from Josh Nichols from B. Riley.

Good to see the orders from the two humanoid customers. You mentioned briefly on the call that you're in discussions with other potential customers as well. Do you think there's opportunities to bring at least one new customer into the fold over the next couple of quarters? Or where are you in those early additional customer discussions today?

We are in the engineering dialogue providing or discussing a certain solution or a certain sensing solution to their humanoid. I would say that we don't have such a visibility to know exactly when they would approve the design even with some of the earlier discussions. Our customers have continued to change the design. They didn't freeze the design. It took them quite some time. So it's hard to tell. But I think that the main thing is that our customers do see and believe that VPG can provide value added when it comes to those sensing solutions. And this is why they approach us, and this is why they are ready to -- or they would like to work with us for their applications.

So those are definitely good signs, but it's very hard to know exactly where we are in the design stage given their, I would say, proprietary process.

Fair enough. And again, for these new business development initiatives, $26 million for the first 9 months on track to hit $30 million. Does that imply some additional expected humanoid orders in the fourth quarter? Or is that coming from other new areas of the business like ceramics overall?

The $26 million are coming from very different applications, humanoid is part of them. We have also -- as you indicated, the ceramics, we have also some other designs for semiconductor back-end testing for, I would say, fiber optics. It comes from many, many different new applications across the complete company, across all the divisions.

And then last question for me. I think you mentioned there was a little bit of softness related specifically for defense associated with like the U.S. government shutdown and that's likely to continue into 4Q. Any way you could quantify the impact to 3Q or what type of impact do you expect that to have to 4Q based on the guidance that you kind of laid out?

Sure, absolutely. We believe that given the U.S. government shutdown, the effect is going to be mainly on our Measurement Systems division, I would say, more specifically on the -- for DTS product line, where we know that we -- I mean, there is a challenge having discussions or placing orders or shipping. So I would say that I would be a little bit more cautious to put a number, but it definitely will be -- this -- the effect will be at least in the hundreds of thousands of dollars, if not more. But that's really the kind of the ballpark.

[Operator Instructions] We currently have no further questions. So I'll hand back to Steve Cantor for closing remarks.

Before we conclude, I want to note that VPG will be presenting at the Three Part Advisors IDEAS Conference later this month, and the Sidoti Virtual Conference in December, and you can contact me for more details. And with that, we thank you for joining our call, and we look forward to updating you next quarter.

This concludes today's call. Thank you all for joining. You may now disconnect your lines.

Hello, everyone, and welcome to the VPG Second Quarter 2025 Earnings Call. My name is Ezra, and I will be your coordinator today. [Operator Instructions] I will now hand you over to our host, Steve Cantor, Senior Director of Investor Relations, to begin. Please go ahead.

Thank you, Ezra, and good morning, everyone. Welcome to VPG's 2025 Second Quarter Earnings Call. Our Q2 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 also can be accessed on our website.

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. 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, 2024, and our other recent SEC filings. On the call today are Ziv Shoshani, CEO and President; and Bill Clancy, CFO.

And now I'll turn the call to Ziv for some prepared remarks. Please refer to Slide 3 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 then provide financial details about the quarter and our outlook for the third quarter of 2025.

Moving to Slide 3. Beginning with revenue. Second quarter revenue of $75.2 million grew 4.8% from the first quarter. We are pleased to report continued positive bookings trends across several key markets, reflecting a moderately improved business environment. Our consolidated orders grew 7.5% sequentially, making the third consecutive quarter of sequential growth. This resulted in a consolidated book-to-bill of 1.06 with Measurement Systems and Sensors segments reporting a book-to-bill of 1.2 and 1.12, respectively.

Adjusted gross margin improved to 41.0%, driven by sequentially stronger performance across all 3 business segments. I want to highlight the Weighing Solutions segment, in particular, which delivered a record quarterly adjusted gross margin. We continue to advance our business development and cost optimization initiatives. Our operational execution translated into a solid cash generation with $6.0 million in cash from operations and $4.7 million in adjusted free cash flow.

Before reviewing our sales and orders performance by division segment, I want to comment on the impact of tariffs on our second quarter results. Tariff changes impacted our gross margin negatively by approximately $500,000 due to the timing of our offsetting price increases. We expect this gap to narrow in the third quarter as our price adjustments becomes effective. While tariff policies continue to change and are difficult to predict, we are confident in our ability to respond given our manufacturing footprint, the geographical distribution and our sales and our deep customer relationships.

Moving to Slide 4. Beginning with our Sensors segment, second quarter revenue decreased 1.8% sequentially, reflecting mixed trends across its market as higher sales of strain gages products were offset by lower sales for precision resistors. Sensors booking rose 3.7% sequentially, reaching the highest level in 6 quarters and resulting in a book-to-bill of 1.12. The bookings growth was driven by higher orders in the test and measurement for precision resistors and higher demand for strain gage sensors in AMS and industrial weighing, which was partially offset by lower orders for the test and measurement.

For precision resistors, we recorded a $1.5 million of order for fiber optics data center application, and we expect an additional order in Q3. Regarding humanoid robots, from April 2025 through July, we received approximately $1.5 million in follow-on orders from our initial humanoid customer. The humanoid robot market is still in its infancy and the initial real-world deployment of these robots is expected now in 2026. As the technology and use case continues to develop, we are optimistic about the long-term potential for this market has for VPG, and we focus on high-precision, high-performing segment of this rapidly evolving market.

Moving to Slide 5. Turning to our Weighing Solutions segment. Second quarter sales increased 11.3% from the first quarter. The increase was driven primarily by higher sales in the transportation and industrial weighing markets and in our other markets for medical and precision agriculture applications. Weighing Solutions orders grew 3.6% sequentially to $27.2 million, resulting in a book-to-bill of 0.92. Higher orders for precision agriculture and medical applications and in industrial weighing offset lower orders in the transportation and general industrial.

Moving to Slide 6. Turning to our Measurement Systems segment. Revenue in the second quarter of $19.2 million increased 5.1% sequentially. The increase reflected higher sales of DTS data acquisition modules in the AMS market, which offset lower sales to the transportation and steel markets. Second quarter Measurement Systems orders of $23.0 million increased 18.1% sequentially and resulted in a book-to-bill of 1.2. Bookings reflected higher demand primarily in the AMS and steel markets.

In the current quarter, we expect to complete the beta installation at the University of Alabama of our new UHTC system. This system is designed to perform band testing on nonconductive materials such as ceramics, which are used in critical high-performance applications, such as for hypersonic missiles in aerospace as well as in avionics, energy and industrial applications.

We believe our differentiated solution can increase test throughput by tenfold while testing materials at ultra-high temperature of around 2,000 degrees C that is required for these advanced applications. We are now in discussions with the second university regarding beta testing for this system.

Moving to Slide 7. I would like to provide a brief update on our 3 top strategic priorities for 2025. First, we are encouraged by our business development initiatives, which generated orders of approximately $17 million through the first half of this year. This puts on track to achieve our goal for 2025 of securing $30 million of orders from either new customers or new application with existing customers. What is significant is not only the magnitude of these orders, but the breadth, which runs across our businesses.

To support these initiatives, we are continuing to improve our sales processes and systems as well as our use of digital marketing channels. Second, we continue to reduce costs and increase operational efficiencies through product relocation and efficiency improvements. The measure we have taken through the first half of 2025 put us on course to reduce fixed costs by about $5 million for the full 2025 compared to prior year, excluding inflation. These measures entail mainly the consolidated of production and shared services to lower-cost countries.

Third, we continue to pursue high-quality acquisitions to build scale and expand our cash flow. We remain disciplined and patient in our search for the right opportunity. In summary, we are pleased with the positive order trends, which have continued for the third consecutive quarter and our ongoing progress with our growth and cost initiatives. Global economic activity has remained stable in 2025 and improved modestly in several areas despite the ongoing macro uncertainties due to tariffs, trade policies and geopolitical tensions.

I will now turn it over to Bill Clancy.

Thank you, Steve. Referring to Slide 8 and the reconciliation tables of the slide deck, our second quarter 2025 revenues were $75.2 million. Adjusted gross margin of 41% in the second quarter increased by 270 basis points from 38.3% in the first quarter, reflecting higher volume, favorable product mix and favorable exchange rates, which offset net tariff costs. Sequentially by segment, adjusted gross margin for sensors of 32.2% increased due to an increase in inventories and favorable FX rates, which offset the impact of lower volume and net tariff costs.

Weighing Solutions adjusted gross margin of 40.2% increased from the first quarter and reached an all-time record, primarily due to higher volume and favorable foreign exchange rates, which offset the impact of net tariff costs. Gross margin for Measurement Systems of 54.6% increased from the first quarter due to higher volume and favorable product mix.

Moving to Slide 9. Our adjusted operating margin of 4.8%, which excluded start-up and restructuring costs amounting to $885,000 improved from 1.1% in the first quarter of 2025. Selling, general and administrative expense for the second quarter was $27.7 million with 36.9% of revenues, which increased from $26.7 million with 34.5% of revenues for the first quarter of 2025.

On an adjusted basis, second quarter 2025 SG&A was approximately $27.1 million or 36% of sales, excluding approximately $500,000 of severance costs. The increase in SG&A is mainly due to unfavorable foreign exchange rates. The operational tax rate in the second quarter was 31%. And for the full year of 2025, we are forecasting an operational tax rate of approximately 28%. We reported net earnings of $248,000 or $0.02 per diluted share.

Adjusting for manufacturing start-up costs, restructuring, severance costs and foreign currency exchange losses, adjusted net earnings for the second quarter was $2.3 million or $0.17 per diluted share compared to $468,000 or $0.04 per diluted share in the first quarter of 2025.

Moving to Slide 10. Adjusted EBITDA was $7.9 million or 10.5% of revenue compared to $5.1 million or 7.2% of revenue in the first quarter. Capital expenditures in the second quarter was $1.3 million. For 2025, we are forecasting $10 million to $12 million for capital expenditures. We generated adjusted free cash flow of $4.7 million for the second quarter, which compared to $3.7 million in the first quarter.

As of the end of the second quarter, our cash position was $90.3 million, an increase of $6.4 million from the first quarter. As part of our ongoing cost reduction and efficiency initiatives, in July 2025, we completed the sale of a building, which generated approximately $11 million in net proceeds. We used these proceeds to reduce our outstanding bank revolver balance, which will reduce our annual interest expense by about $700,000.

Regarding the outlook, for the third fiscal quarter of 2025 at constant second fiscal quarter of 2025 exchange rates, we expect net revenues to be in the range of $73 million to $81 million. In summary, bookings of $79.9 million grew sequentially for the third straight quarter, resulting in a book-to-bill of 1.06. Our business development initiatives continue to advance, and we generated solid cash flow as we continue to implement our cost reduction programs.

With that, let's open the lines for questions. Thank you.

[Operator Instructions] Our first question comes from Josh Nichols with B. Riley.

Great to see the continued trend in improving business activity. Just want to touch on for a minute, I think you mentioned you've received $17 million of business development revenue. You have a goal of getting to, to $30 million this year. Presumably, do you expect some additional revenue from humanoid robot, some of your humanoid robotics customers later this year? And then you mentioned one customer is expected to move into production next year. How do you expect the size of those orders would change relative to what you're getting today, assuming that, that customer does move into production versus earlier stage demo today orders that you guys are doing?

Regarding the humanoid robotics project, as we indicated, we have received a $1.5 million order from April to July. We are pleased with the progress of this customer and our design position on their robot. At the same time, we have to continue and support the production schedule, which are still changing by our customers. So we may expect to get more orders. At this point in time, the customer continues to evaluate based on their schedule. But if -- but potentially, we could see an order, it really depends on the customer. This is regarding the first humanoid customer.

The second humanoid customer, I did indicate in prior calls that we did provide an initial prototype lines, prototype products. The feedback was good, and we are expecting to provide another -- we are expecting to see a larger order in the near future. Regarding 2026, we -- Vishay Precision Group is set to support our customers regardless of the volume. We are set regarding the infrastructure. And once the customer is ready to ramp up on higher volume, the company is ready to support their production. So based on prior discussions that we had with the customer, once and if there would be changes in volume, we are ready to support those customers. We do hope to see those higher volume orders coming in 2026, but it really depends on the customer schedule.

And then just to drill down into that a little bit. I think you previously mentioned somewhere in the range of like $500 to $1,200 per robot. Is that still what you're expecting? And is the margin profile for these customers relatively in line with the corporate average or a little bit better? Or how is that going to impact the businesses at scale?

Okay. I did provide a price range given the volume that has been discussed naturally. Once higher volume would be discussed, we already -- we understand that probably a different pricing model will have to be supported, and the company is prepared for that. Regarding the profit schedule, I think it's a little bit premature still to provide this type of information.

Fair enough. I appreciate the detail there. I guess just one more question. I mean your business activity has been improving, but if you look like -- I mean, the company has been coming off an extended downturn and now things are starting to pick up. We've seen a healthy uptick in operating income. Meanwhile, you've been cash flow positive even throughout the more challenging times. How do you see like the scalability of the business in terms of EBITDA and operating margin as your sales get back up to a higher level of cadence next year and think about the scale that comes into play on the margin front?

As you know, our financial profile is such that for every incremental dollar of revenue, we do expect it to be around about, I would say, $0.30 to $0.40 drop to the pretax level. So this model, we do expect to continue once we would see an upturn in revenue. I should say that given all the cost initiatives that the company has taken during the last 2 years, we should be even in a better cost position to capitalize profitability once the volume rebound.

So if there was a certain schedule, regarding the profitability improvements once the volume increased historically, we should be in a better position, meaning we -- the profitability level should be accelerated in respect to the past once volume would rebound.

Our next question comes from John Franzreb with Sidoti & Company.

I'd like to start with the quarter that we just finished. Ziv, it seems like there is a fair amount of variability in the transportation market for you. Weighing Systems had some good revenue numbers flow through. Measurement Systems didn't. I wonder if you could just talk about what's going on? What are you seeing in the transportation side of your business.

Okay. Great. So regarding Transportation, let me start with Measurement Systems. On the Measurement Systems, the upside that we have seen this quarter is coming mainly in the steel, mainly the DSI, the project-related AMS and to an extent, also the DTS automotive business. What we can or what we have identified is kind of a slower demand in weighing solution is due to the fact that in the first quarter, there were very high orders of transportation for our onboard weighing, which did not repeat itself in the second quarter. So as a matter of fact, it's not that the business has been slowing down. It's just that we did not repeat those large orders in Q1.

So do you think that was just catch-up from delayed orders from '24 in Q1 and now they're at equilibrium? Any kind of greater thoughts?

Okay. So the Q1 orders were considered to be 6 to 9 months orders that the customer has placed in Q1 and is expected to continue -- the sales are expected to continue in the coming months.

Got it. Got it. And can you talk a little bit also about the steel market? It seems like the order bookings in steel were weak, and I was kind of hopeful maybe that they'd be a little bit stronger given what we're seeing as far as the macro conditions.

Okay. So regarding steel, as you know, there are a few moving parts in steel. First, the global steel market as a whole continues to be soft, reflecting slow automotive production and demand and pushouts for some electric vehicle model production.

Secondly, the tariffs, which are very high on steel and steel-related products also makes a significant effect. Our -- the orders that we have received for steel are not -- have not been necessarily on our KELK, which is in line or in-line equipment inspection in steel mills, but it's more on the R&D for DSI product. So there is still a lot of tailwind once the steel business would rebound.

Got it. That helps. And in regards to the $5 million in cost savings, would that program be completed by the third quarter? Or is that going to take to the full year-end?

The $5 million are expected to end in Q4. And I believe that for the first 6 months, we have captured $2.8 million out of the $5 million.

And just a little bit of thought about how July looks, the trends for the company overall compared to what you saw the monthly trends in June -- I'm sorry, in the second quarter.

I would -- regarding July, at this point in time, I would say since it's already providing information regarding the third quarter, at this point, I could say there are no surprises to us.

One last question. Right. One last question. Should the robotics actually begin production in 2026. At what point would you actually have to add capacity to meet some of the projections for 2030? Have you -- I'm sure you thought about that, but can you maybe share with us what that -- what the ramp would look like as far as you're concerned?

As I indicated, the ramp-up -- I mean, the ramp-up schedule is very much dependent on our customers. We share with our customers our capacity, our equipment capacity and our headcount, and we are working hand-to-hand that our capabilities and capacities would be in line with their demand. So to that extent, I think there is a very good collaboration between the two companies. And they would give us enough heads up and enough information that we would be there with enough capacity to support them. We are not going to be the bottleneck. Now regarding the timing and the schedule, it's up to them. We do hope that it would be sooner rather than later. But it's really...

I'm sorry. I think I lost you...

I think he was finished. I think he was finished, John.

[Operator Instructions] We currently have no further questions. So I will hand back over to Steve for any closing remarks.

Thank you. Before concluding our call today, I want to note that we will be participating in 2 upcoming investor conferences, the Three Part Advisors IDEAS Conference in Chicago on August 27 and the Jefferies Industrials Conference in New York on September 3. You can contact us for more information about them.

And with that, thank you for joining our call today.

Thank you very much, Steve, and thank you, everyone, for joining. That concludes today's call. You may now disconnect your lines.