Q1 2024 Vishay Precision Group Inc Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the V. P keys first quarter fiscal 2024 call. All lines have been placed on mute during the presentation portion of the call with an opportunity for a question and answer again, if you'd like to ask a question. Please press star followed by one on your telephone keep.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to VPG's first quarter, fiscal 2024, on this call. All lines have been placed on mute during the presentation portion of the call, with an opportunity for question and answer at the end. If you'd like to ask a question, please press star followed by one on your telephone keypad. I would now like to turn this conference over to our host, Steve Cantor, Senior Director of Investor Relations. Please go ahead.
Steve Cantor: I would now like to turn this call since I bought twice the Cantor senior director of Investor Relations. Please go ahead.
Steve Cantor: Great. Thank you Candice good morning, Good afternoon, everyone. Welcome to our first quarter 2024 earnings Conference call. Our Q1 press release and accompanying slides have been posted on our website at PPG sensors Dot com, an audio recording of today's call will be avail.
Steve Cantor: Great, thank you, Candice. Good morning. Good afternoon, everyone.
Steve Cantor: Welcome to our first quarter 2024 earnings conference call. Our Q1 press release and accompanying slides have been posted on our website at bpgcensors.com. An audio recording of today's call will be available on the Internet for a limited time and can be accessed on our website. These remarks are subject to 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, 2023, and our other recent SEC filings. On the call today are Ziv Shoshani, CEO and President, and Bill Clancy, CFO. I'll now turn the call over to Ziv for some prepared remarks and refer to slide three of the quarterly presentation.
Steve Cantor: On the Internet for a limited time and can be accessed on our website.
Steve Cantor: 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 <unk> operations. We encourage you to refer to our SEC filings, especially the form 10.
Steve Cantor: <unk> K for the year ended December 31, 2023, and our other recent SEC filings on the call today are zee shiny CEO and President and Bill Clancy CFO and now I'll turn the call disease for Sempra.
Ziv Shoshani: Paired remarks.
Steve Cantor: Can refer to slide three of the quarterly presentation.
Ziv Shoshani: Thank you Steve I.
Ziv Shoshani: Steve, I will begin with some comments on VPG's consolidated financial results and Say's Trends for the first quarter. Bill will provide financial details about the quarter and our outlook for the second. Moving to slide three, To summarize, the quota is old.
Ziv Shoshani: I will begin with some comments on Ppg's consolidated financial results.
Ziv Shoshani: Sales trends for the first school to build.
William M. Clancy: Bill will provide financial details about the quarter and our outlook for the second quarter.
Ziv Shoshani: Moving to slide three.
Ziv Shoshani: To summarize the quarter results.
Ziv Shoshani: Operationally, we performed well given a mixed business environment, which resulted in lower revenue compared to a year ago and the fourth quarter. Orders were flat sequentially, reflecting continuing soft demand, mainly in industrial weighing and semiconductor testing. We achieved record gross margin despite lower revenue, reflecting ongoing cost reduction initiatives. Our cash flow remains solid, and we continue to repurchase our common stock. Before providing details regarding the first quarter, I want to take this opportunity to summarize our strategy to accelerate VPG's long-term growth. Moving to slide four.
Ziv Shoshani: Operationally, we performed well given the mixed business environment.
Ziv Shoshani: Which resulted in a lower revenue compared to a year ago in the fourth quarter.
Ziv Shoshani: Orders were flat sequentially, reflecting continuing soft demand mainly in the industrial weighing in semiconductor test equipment.
Ziv Shoshani: We achieved record gross margin, despite the lower revenue, reflecting ongoing cost reduction initiatives.
Ziv Shoshani: Our cash flow remains solid and we continue to repurchase our common stock.
Ziv Shoshani: Before providing details regarding the first quarter I want to take this opportunity to summarize our strategy to accelerate <unk> long term goals.
Ziv Shoshani: As we have described in the past several quarters, we believe VPG is coming to an important inflection point as we pivot our strategic priorities to accelerate our growth and achieve our long-term targets. Our strategy leverages both organic and inorganic initiatives to address larger, faster-growing markets. These opportunities are driven by key technology trends, including electrification, industrial automation, defense, and aerospace technologies that require greater precision and performance. Our organic growth strategy comprises initiatives in each of our business reporting segments that expand our business development and engineering capabilities to capture new customers as well as to expand the applications we address.
Ziv Shoshani: Moving to slide four.
Ziv Shoshani: As we have described in the past several quarters, we believe <unk> is coming to an important inflection point as we people with our strategic priorities to accelerate our growth and achieve our long term targets.
Ziv Shoshani: Our strategy Leverages, both organic and inorganic initiatives.
Ziv Shoshani: This larger faster growing markets.
Ziv Shoshani: These opportunities are driven by key technology trends, including electrification industrial automation defense and aerospace technologies.
Ziv Shoshani: It requires.
Ziv Shoshani: Greater precision and performance.
Ziv Shoshani: Our organic growth strategy comprises initiatives in each of our business reporting segments that expand our business development and engineering capabilities to capture new customers as well as to expand the applications we address.
Ziv Shoshani: We are investing more in these areas in 2024.
Ziv Shoshani: We are investing more in these areas in 2024 and are offsetting this investment with ongoing cost reductions and efficiency initiatives. While some of these initiatives are still in the early stages, we are already seeing an increase in the funnel of opportunity. To summarize some of these opportunities in the sensor segment, we are leveraging our advanced sensor technology to further penetrate the e-bike market. We are making progress in medical and surgical robotics, as well as with humanoid robots, as we have discussed previously.
Ziv Shoshani: Now offsetting this investment with ongoing cost reductions and efficiency initiatives.
Ziv Shoshani: While some of these initiatives are still in the early stages, we are already seeing an increase in the funnel of opportunities.
Ziv Shoshani: To summarize some of these opportunities in the sensor segment, we are leveraging our advanced sensor technology to further penetrate the E bike market, we are making progress in the medical and surgical robotics as well as with Humana all boats.
Ziv Shoshani: We have discussed previously.
Ziv Shoshani: For precision resistors, we have expanded our engagement with data center and fiber optics equipment manufacturers. In weighing solutions, we are working with the leading OEM customers for precision agriculture and construction equipment on their next generation equipment. We have also launched V-Light, a new lighter weight force sensor, which is targeted for the industrial weighing mouse.
Ziv Shoshani: For precision resistors, we have expanded our engagement with data center and fiber optics equipment manufacturers.
Ziv Shoshani: In weighing solutions, we are working with a leading OEM customers for precision agriculture and construction equipment on their next generation equipment. We have also launched V lite and new lighter weight for sensors, which is targeted for the industrial weighing market.
Ziv Shoshani: In measurement systems, one of the key initiatives is to broaden our market beyond steel manufacturing to address applications at aluminum mills, which is a new market for us. In the first quarter, we received an initial order for this solution. We are expanding our product offering at DSI with a new version of our GLEBEL system designed to test small samples in additive or 3D manufacturing systems.
Ziv Shoshani: In the measurement systems, one of the key initiatives is to broaden our market beyond steel manufacturers to address application Italo menu meals, which is a new market for us in.
Ziv Shoshani: In the first quarter, we received an initial order for this solution were expanding our product offering of DSI with a new version of our global system designed to test small samples in additive or three D manufacturing systems.
Ziv Shoshani: Concurrent with our programs aimed at growing our top line, we are continuing our focus on operational excellence. Our investments in operational capabilities and efficiencies and increased automation have positioned VPG to address higher volume opportunities and achieve new levels of profitability as revenue grows. To augment our organic initiatives and to leverage our strong business platform and balance sheet, we are continuing to look at attractive M&A that provides us with additional scale and product offering to expand our opportunities.
Ziv Shoshani: Concurrent with our programs aimed at growing our top line, we are continuing our focus on operational excellence our.
Ziv Shoshani: Moving to slide 5, turning to the first quarter results in detail, we reported sales of $80.8 million, which was at the low end of our guidance. We were pleased with our gross margin performance, which reached a record level for VP.
Ziv Shoshani: Our investments.
Ziv Shoshani: Operational capabilities and efficiencies and increased automation have positioned <unk> to address higher volume opportunities and to achieve new level of profitability as revenue goes.
Ziv Shoshani: To augment our organic initiatives and to leverage our strong business platform and balance sheet. We are continuing to look at attractive M&A that provides us with additional scale and product offering to expand our opportunities.
Ziv Shoshani: Moving to slide five turning to the first quarter results in detail, we reported sales of $88 million, which was at the low end of our guidance. We were pleased with our gross margin performance, which reached a record level for PPG.
Ziv Shoshani: Bill will provide more comments regarding our gross margin on a consolidated basis in a second. Our cash flow was solid, and we generated $13.2 million of adjusted EBITDA, an adjusted EBITDA margin of 15.3%, and adjusted free cash flow of $4.2 million. Our book-to-bill improved to 0.93 compared to 0.84 in the fourth quarter. Orders of $75.3 million were even with the fourth quarter levels and reflected continued mixed trends across our markets. Specifically, orders in the avionics, military and space, transportation, and consumer applications were sequentially higher, while bookings in the industrial weighing and test and measurement markets were weaker as some customers continued to work down their inventory. Given the cross currents in the current macroeconomic environment, our expected recovery in demand has been pushed out to the latter part of the year. I'll now review the quarter's highlights by segment.
Ziv Shoshani: Bill will provide more comments regarding our gross margin on a consolidated basis and by segment.
Ziv Shoshani: Our cash flow was solid and we generated $13 2 million of adjusted EBITDA and.
Ziv Shoshani: And adjusted EBITDA margin of 15, 3% and adjusted free cash flow of $4 2 million.
Ziv Shoshani: Our book to Bill improved to nine three compared to eight four in the fourth quarter.
Ziv Shoshani: Orders of $75 3 million, where even with the fourth quarter levels and reflected continued mixed trends across our markets.
Ziv Shoshani: Specifically orders in avionic military and space transportation and in consumer applications with sequentially higher while bookings in the industrial weighing in test and measurement markets were weaker as some customers continue to work down their inventory levels.
Ziv Shoshani: Given the crosscurrents in the current macroeconomic environment, our expected recovery in demand has been pushed out to the latter part of this year.
Bill: I will now review the quarter's highlights by segment moving to slide six beginning with our sensors segment first quarter revenue of $29 4 million declined 19, 9% for me a year ago, and 14, 1% compared to the fourth quarter.
Ziv Shoshani: Moving to slide six, beginning with our censors segment, first quarter revenue of $29.4 million declined 19.9% from a year ago and 14.1% compared to the fourth quarter. Sequentially, the decrease primarily reflected lower revenue of precision resistors in the test and measurement and AMS market. Orders for sensors of $26.7 million were 8.9% lower sequentially, which resulted in a book-to-bill of 0.91. Bookings for precision resistors were soft, as distributors and OEM customers continued their cautious order path. Bookings for the semiconductor test and AMS market were lower, reflecting the timing of customer orders and projects.
Ziv Shoshani: Sequentially. The decrease primarily reflected lower revenue of precision resistors in the test and measurement and Ams markets orders for sensors of $26 7 million were $8, 9% lower sequentially, which resulted in a book to bill of <unk> 91.
Ziv Shoshani: Bookings for precision resistors were soft as distributors and OEM customers continued cautious ordering patterns.
Ziv Shoshani: Bookings for the semiconductor test and Aam's market were lower reflecting the timing of customer orders and projects.
Ziv Shoshani: We are pleased with our progress with advanced sensors for both ongoing and new OEM engagement. While sales of advanced sensors softened modestly compared to the fourth quarter and a year ago, orders for consumer applications continue to improve. Moving to slide seven.
Ziv Shoshani: We are pleased with our progress with advanced sensors for both ongoing and new OEM engagements, while sales of advanced sensors soften modestly compared to the fourth quarter and the year ago orders for consumer applications continued to improve.
Ziv Shoshani: Moving to slide seven.
Ziv Shoshani: Turning to our weighing solution segment, sales of $28.8 million were 9.5% lower than a year ago and 5.2% lower than the fourth quarter of 2020. Sequentially lower sales of force sensors in our other markets for precision agriculture and construction applications and lower sales of force sensors in our industrial weighing markets were partially offset by increased sales in the transportation market. Book to bill for weighing solutions was 0.95, and orders of $27.5 million were essentially flat with the fourth quarter. This reflects soft demand in our industrial weighing market, as well as in other markets for precision agriculture and construction equipment, offset by increased orders in transportation. Moving to slide 8.
Ziv Shoshani: Turning to our weighing solutions segment sales of $28 8 million were nine 5% lower than a year ago, and five 2% lower than the fourth quarter of 'twenty three.
Ziv Shoshani: Sequentially lower sales of full sensors in our other markets for precision agriculture, and construction applications and lower sales of <unk> in our industrial when markets were partially offset by increased sales in the transportation market.
Ziv Shoshani: Book to Bill for weighing solutions was <unk> 95.
Ziv Shoshani: Orders of 27 5 million was essentially flat with the fourth quarter.
Ziv Shoshani: This reflects soft demand in our industrial weighing market as well as in other markets for precision agriculture and construction equipment.
Ziv Shoshani: Offset by increased orders in transportation.
Ziv Shoshani: Moving to slide eight.
Ziv Shoshani: Turning to our Measurement Systems section, first quarter revenue of $22.5 million grew 11.1% from a year ago and decreased 9.3% sequentially. The sequential decrease in revenue was primarily due to lower sales of DTS products in the AMS and transportation markets, partially offset by higher sales in the steel market. As we have discussed before, the measurement systems businesses are project-driven, and sales trends reflect the timing of customer projects. The book-to-bill ratio for measurement systems was 0.94 as orders of 21.1 million increased 16.4% from the fourth quarter.
Ziv Shoshani: Turning to our measurement systems segment first quarter revenue of $22 5 million grew 11, 1% from a year ago and decreased nine 3% sequentially. The sequential decrease in revenue was primarily due to lower sales of DPF products in the Miss and transportation.
Ziv Shoshani: Markets, partially offset by higher sales in the steel market.
Ziv Shoshani: As we have discussed before the measurement systems businesses, our project driven and sales trends reflect the timing of customer projects book to Bill ratio for measurement systems was <unk> 94 is orders of 21.1 million increased 16, 4% from the fourth quarter.
Ziv Shoshani: The sequential order growth was driven by higher orders for calc products, as well as higher orders for DTS, which included a multi-million dollar order for North American developer of eVTOL, or electric vertical takeoff and landing aircraft. These offset lower orders for DSI's metal alloy development system.
Ziv Shoshani: The sequential order growth was driven by higher orders for chemical products.
Ziv Shoshani: Well as higher orders for Dts, which included in a multimillion order for North American developer of EV or.
Ziv Shoshani: Electric vertical takeoff and landing aircraft.
Ziv Shoshani: This offset lower orders for deal size metal alloy development systems.
Ziv Shoshani: Moving to slide 9, we are continuing to implement our balanced allocation strategy that creates stockholder value through organic growth, successful M&A, and warranted stock repurchase. In the first quarter, we repurchased $2.8 million of stock, or 85,000 shares. From August 2022, when we announced the buyback program to the end of Q1 of 24, we have repurchased $11.4 million of stock. In addition, to further leverage our business platform, we have continued to look for attractive and value-creating acquisition opportunities.
Ziv Shoshani: Moving to slide nine we are continuing to implement our balanced allocation strategy that create stockholder value through organic growth successful MMA and warranted stock repurchases in the first quarter, we repurchased two 8 million of stock or <unk> 85.
Ziv Shoshani: 5000 shares.
Ziv Shoshani: From August 2022, when we announced the buyback program to the end of Q1 'twenty four we have repurchased 11 $4 million of stock. In addition to further leverage our business platform, we are continuing to look for attractive and value creating.
Ziv Shoshani: <unk> opportunities.
Ziv Shoshani: Before turning the call over to Bill, I would like to add the following points. We are excited about the business development effort around VPG, which is aimed at accelerating our long-term growth. At the same time, we are maintaining our ongoing focus on cost controls and operational excellence. I will now turn it over to Bill Clancy for additional financial details.
Speaker Change: Before turning the call to Bill I would like to add the following points.
Ziv Shoshani: We are excited about the business development effort there on the PPG that we are aimed at accelerating our long term growth at the same time, we are maintaining our ongoing focus on cost controls and operational excellence I will now turn it over to Bill Clancy for additional financial details Bill.
William M. Clancy: Thanks, Steve.
William M. Clancy: Referring to slide 10 and the reconciliation tables of the slide deck, our first quarter revenues declined 9.8% from the fourth quarter of 2023, and we're 9.1% below the first quarter a year ago. Gross margin in the first quarter of 43.4% grew from 43.0% in the fourth quarter of 2023 to a record high as improved manufacturing efficiency and cost reduction offset the negative impact of lower volume, by segment. Gross margin for the sensor segment of 36.5% declined sequentially, primarily due to lower volume, partially offset by improved efficiency.
William M. Clancy: Referring to slide 10, and a reconciliation table on the slide deck, our first quarter revenues declined nine 8% from the fourth quarter of 2023.
William M. Clancy: Our nine 1% below the first quarter a year ago.
William M. Clancy: Gross margin in the first quarter of 43, 4% grew from 43%.
William M. Clancy: In the fourth quarter of 2023 to a record high as improve manufacturing efficiency and cost reductions offset the negative impact of lower volume.
William M. Clancy: By segment.
William M. Clancy: Gross margin for the sensors segment of 36, 5% decline sequentially, primarily due to lower volume, partially offset by improved efficiency.
William M. Clancy: Wayne Solutions' gross margin of 39.1% grew from the fourth quarter to a record high, reflecting a reduction in inventory in the fourth quarter, which did not repeat in the first quarter of 2024, as well as cost reduction programs, which were partially offset by lower volume. The measurement system's gross margin of 58.1% improved from the fourth quarter, reflecting favorable product mix and positive inventory adjustment, which were partially offset by lower volume.
William M. Clancy: Wayne solutions gross margin of 39, 1% growth in the fourth quarter to a record high reflecting a reduction of inventory in the fourth quarter, which did not repeat in the first quarter of 2024.
William M. Clancy: As well as cost reduction programs, which were partially offset by lower volume.
William M. Clancy: The measurement systems gross margin of 58, 1% improved from the fourth quarter.
William M. Clancy: Reflecting favorable product mix and positive inventory adjustments that were partially offset by lower volume.
William M. Clancy: Total selling general and administrative expenses for the first quarter or $27 4 million or 33, 9% of our revenues as compared to $26 4 million or 29, 4% of revenues in the fourth quarter of 2023.
William M. Clancy: Total selling, general, and administrative expenses for the first quarter were $27.4 million, or 33.9% of revenues, as compared to $26.4 million, or 29.4% of revenues in the fourth quarter of 2023. The sequential $1 million increase in SG&A was mainly attributable to 2024 incentive compensation accruals typically booked in the first quarter of the year. The first quarter results included a restructuring charge of $782,000 associated with severance and headcount reduction related to cost reduction programs, mainly in the sensor sector.
William M. Clancy: The sequential $1 million increase in SG&A was mainly attributable to 2020 for incentive compensation accruals typically booked in the first quarter of the year.
William M. Clancy: Our first quarter results included a restructuring charge of $782000.
William M. Clancy: Associated with severance and headcount reductions related to cost reduction programs, mainly in the sensor segment.
William M. Clancy: Operating margin was eight 6% for the first quarter adjusted.
William M. Clancy: Operating margin was 8.6% for the first quarter; adjusted operating margins in the first quarter were 10%, as compared to 13.6% in the fourth quarter of 2023, primarily reflecting lower revenue. The adjusted net earnings for the first quarter were $5.7 million, or $0.42 per diluted share, compared to $8.2 million, or $0.61 per diluted share, in the fourth quarter of 2023. Adjusted EBITDA was $12.3 million, or 15.3% of revenue, compared to $16.5 million, or 18.5% in the fourth quarter of 2020.
William M. Clancy: Adjusted operating margin in the first quarter was 10% as compared to 13, 6% in the fourth quarter of 2023.
William M. Clancy: Morally reflecting the lower revenue.
William M. Clancy: The adjusted net earnings for the first quarter were $5 7 million or <unk> 42 per diluted share compared to $8 $2 million or <unk> 61 per diluted share in the fourth quarter of 2023.
William M. Clancy: Adjusted EBITDA was $12 3 million or 15, 3% of revenue compared to $16 5 million or 18, 5% in the fourth quarter of 2023.
William M. Clancy: Purchased capex in the first quarter was $2 6 million.
William M. Clancy: Purchased CapEx in the first quarter was $2.6 million. For the full fiscal 2024, we expect purchased CapEx to be in the range of $14 to $16 million. Adjusted free cash flow was $4.2 million for the first quarter as compared to $13.5 million in the fourth quarter and $5 million in the first quarter of 2023. We define adjusted free cash flow as cash from operating activities of $6.4 million plus capital expenditures of $2.6 million plus the sale of fixed assets of $400,000.
William M. Clancy: For the full fiscal 2024, we expect purchased capex to be in the range of $14 million to $16 million.
William M. Clancy: Adjusted free cash flow was $4 2 million for the first quarter as compared to $13 5 million in.
William M. Clancy: In the fourth quarter.
William M. Clancy: And $5 million in the first quarter of 2023.
William M. Clancy: We define adjusted free cash flow as cash from operating activities of $6 4 million less capital expenditures of $2 6 million plus the sale of fixed assets or $4000.
William M. Clancy: The GAAP tax rate in the first quarter was 28, 4% compared to 24, 1% in the first quarter of 2023, primarily reflecting a higher proportion of income and higher tax rate jurisdictions.
William M. Clancy: The first quarter operational tax rate was 27%.
William M. Clancy: We are assuming an operational tax rate in the range of 26% to 28% for the full year of 2024.
William M. Clancy: Moving to slide 11, we ended the first quarter with $83 million of cash and cash equivalents and total debt of $31 9 million.
William M. Clancy: The GAAP tax rate in the first quarter was 28.4% compared to 24.1% in the first quarter of 2023, primarily reflecting a higher proportion of income and higher tax rate jurisdiction. The first quarter operational tax rate was 27%. We are assuming an operational tax rate in the range of 26 to 28% for the full year of 2024. Moving to slide 11, we ended the first quarter with $83 million of cash and cash equivalents and total debt of $31.9 million. Regarding the out, for the second fiscal quarter, given the current market conditions and our backlog, we expect net revenue to be in the range of $75 million to $85 million at constant first fiscal quarter 2024 exchange rates.
William M. Clancy: Regarding the outlook.
William M. Clancy: For the second fiscal quarter, given the current market conditions and our backlog, we expect net revenue to be in the range of 75 million to $85 million at constant first fiscal quarter 2020 for exchange rates.
William M. Clancy: In summary.
William M. Clancy: In summary, we had a record gross margin on sequentially lower sales. We generated solid cash flow and continued to repurchase our common stock. And we continued our strategy, focusing on accelerating our growth with strategic initiatives on larger, faster-growing opportunities. With that, let's open the lines for questions. Thank you.
William M. Clancy: We had a record gross margin on sequentially lower sales.
William M. Clancy: We generated solid cash flow and continued to repurchase our common stock.
William M. Clancy: And we continued our strategy focusing on accelerating our growth with strategic initiatives on larger faster growing opportunities.
William M. Clancy: With that let's open the lines for questions.
Speaker Change: Thank you.
Operator: Thank you. If you'd like to register a question, please press star followed by one on your telephone keypad, ensuring that you are unmuted locally. If you'd like to withdraw your question at any time, you can do so by pressing start followed by, As a reminder, it's a star followed by one to register your question. So the first question comes from the line of Griffin Boss of B Reilly. Your line is now open. Please go ahead.
William M. Clancy: You'd like to register a question. Please press star followed by one on your telephone keypad in children.
Griffin Taylor Boss: On mute locally.
Griffin Taylor Boss: If you'd like to withdraw your question at any time you can do so my question.
Griffin Taylor Boss: As a reminder, it staff volatile I wanted to get your state your question.
Griffin Taylor Boss: So the first question comes from the line of Christian Buss of B Riley. Your line is <unk>. Please go ahead.
Griffin Taylor Boss: Hi, Thanks for taking my questions good morning, everyone.
Griffin Taylor Boss: Hi, thanks for taking my questions. Good morning, everyone. First, on the operating expense side, I was expecting to see a bigger ramp in SG&A in the first quarter related to those business development and R&D initiatives you talked about to drive additional growth in 2025 and beyond. I guess, can you just talk more about your expectations for growth investments and maybe OPEX projections going forward for the year?
Griffin Taylor Boss: So first I'll just.
Griffin Taylor Boss: On the operating expense side I was expecting to see a bigger ramp in SG&A in the first quarter related to those business development and R&D initiatives, you talked about to drive additional growth.
Griffin Taylor Boss: 25 and beyond.
Griffin Taylor Boss: Can you just talk more about your expectations for growth investments and you know maybe opex projections going forward for the year.
Ziv Shoshani: Yes, hi, good morning. Yes, when we looked at the initial projection regarding business development and engineering and sales resources in order to accelerate organic growth, we took the assumption that we were expecting a certain number of hires within a given time. So, as we are moving forward, we started to hire the personnel. Apparently, we are a little bit behind the curve.
Speaker Change: Yes, hi, good morning.
Ziv Shoshani: Yes, when we are looking at the initial projection regarding business development and engineering and sales resources in order to accelerate organic growth.
Ziv Shoshani: <unk> took the assumption that we are expecting a certain hiring within a given time. So as we are moving forward. We started to hire the personnel apparently we are a little bit behind the curve the expectation is still to meet.
Ziv Shoshani: To meet those targets in order again to accrue to assure accelerated growth.
Ziv Shoshani: The expectation is still to meet those targets in order, again, to assure accelerated growth. Regarding OPEX, the OPEX investments currently for this year are mostly expected to support cost reduction initiatives, which you have seen some of them already being realized in Q1. And the others are also, I would say, supporting some high-volume expansion product lines, which we do expect to see some of the orders coming through next year.
Ziv Shoshani: Regarding opex.
Ziv Shoshani: The Opex investments.
Ziv Shoshani: Currently four Dcs, mostly.
Ziv Shoshani: <unk> is expecting to support cost reduction initiatives, which you have seen some of them already being realized in Q1 and the others is also I would say supporting some high volume.
Ziv Shoshani: High volume expansion product line, which we do expect to see.
Ziv Shoshani: Some of the orders coming through.
Ziv Shoshani: <unk>.
Speaker Change: Okay. Great. Thanks, that's helpful. I guess, along those lines in terms of just more operational efficiencies. The gross margin was obviously very strong in the past you've published quarterly financial models, which outlined profitability expectations on certain revenue.
Griffin Taylor Boss: Okay, great. Thank you. That's helpful.
Ziv Shoshani: I guess along those lines, in terms of just more operational efficiencies, the gross margin was obviously very strong. In the past, you've published quarterly financial models, which outline profitability expectations on certain revenue ranges. It seems like that gross margin expectation is sort of structurally higher at this point. Is it, would it be fair to assume that that's the case going forward with regard to your long-term model?
Ziv Shoshani: Ranges.
Ziv Shoshani: It seems like that gross margin expectation is sort of structurally higher at this point.
Ziv Shoshani: Is it would it be fair to assume that that's the case going forward with regards to your long term.
Ziv Shoshani: Model.
Speaker Change: Yes, I would say that the target that we have.
Ziv Shoshani: Yes, I would say that the target that we published a while ago regarding the 45% gross margin is still viable. You are correct. We are a little bit ahead of the plan at this point in time. We believe that given the exchange rate, the product mix, and the sales revenue, this growth margin is sustainable, and the expectation is to continue and improve that, meeting our longer-term targets.
Ziv Shoshani: But we have published a while ago regarding the 45% gross margin still viable.
Ziv Shoshani: You are correct, we are a little bit ahead of the plan at this point in time, we believe that given the exchange rates the product mix and the sales revenue.
Ziv Shoshani: <unk>.
Ziv Shoshani: Gross margin is sustainable and the expectation is to continue and improve that meeting our longer term targets.
Speaker Change: Okay great.
Ziv Shoshani: Okay, great. And then I wanted to dig into the measurement systems. You talked about, I mean, obviously, strong sequential growth and orders there, and that multi-million dollar award for an eVTOL customer. Is that a new customer or one of the existing customers you've mentioned in the past that you're working with? Yes, they are.
Ziv Shoshani: And then.
Ziv Shoshani: Wanted to dig into the measurement systems, you talked about I mean, obviously strong sequential growth in orders there and multimillion dollar award for an <unk> customer is that a new customer or one of the existing customers you've you've mentioned in the past that youre working with.
Ziv Shoshani: Yes, the whole eVTOL sector is kind of a new sector for us, for DTS. As you know, DTS has two end-market verticals. One is automotive, and the other one is defense. In the classical automotive market, the historical business was supporting all the sensing-related activities for crash dummies. Over time, we have developed another vertical, which is selling our miniature data acquisition systems to other types of, let's call them, automotive-type applications. eVTOL is one of them, and we do expect it to grow at least 20% year over year.
Speaker Change: Yes, the whole EBIT toll sector is kind of a new sector for us for Dts.
Ziv Shoshani: EPS has few.
Ziv Shoshani: <unk> end markets verticals, one is automotive and the other one is defense in the classical automotive market. The historical business was supporting all of the sensing sensing related activity default crash dummies over time, we have developed another another vertical which is selling our.
Ziv Shoshani: Meaningful data acquisition systems to other type of let's call. It automotive type applications. If at all is one of them and we do expect it to grow at least 20% year over year at this point it's fairly.
Ziv Shoshani: At this point, it's fairly small, it's really a couple of millions, but as this business is expected to grow, we have already been designed for some key customers, and they are running prototype testing, and we do expect to grow as the market grows.
Ziv Shoshani: It's really.
Ziv Shoshani: A couple of millions, but as this business is expecting to grow we have been designs already at some key customers and theyre running prototype testing and we do expect to grow as the market goes.
Speaker Change: Okay, great. Thanks for that context, and then if I could just squeeze in one more you mentioned, obviously, the avionics military and space.
Griffin Taylor Boss: Okay, great. Thanks for that context.
Ziv Shoshani: And then, if I could just squeeze in one more, you mentioned obviously, the avionics military in space. Revenue, I guess I was surprised to see it come in where it seems kind of like it's, you know, perhaps in a trough right now, but you had, you know, sequential growth in orders. If I remember correctly, in the last earnings call, you mentioned expectations for modest growth in that end market, at least as it related to orders in the first half. So, I guess, what are you seeing now heading into the second quarter with regard to, you know, order trends in that segment for the second quarter?
Ziv Shoshani: Revenue I guess I was surprised to see it come in where it is it seems kind of like it's perhaps at a trough right now, but you had sequential.
Ziv Shoshani: Growth in orders, if I remember correctly on the last earnings call you mentioned expectations for modest growth in that end market at least as it related to orders in the first half. So are you I guess what are you seeing now heading into the second quarter with regards to your order trends in that segment for the second quarter.
Ziv Shoshani: So.
Ziv Shoshani: So regarding AMS, we are selling two different product lines. One product line is precision resistors, which we are selling more to, let's say, call it electronic-based applications, which we see projects for, are being placed, and we are getting those orders. So this is really more of a project based on the resistor side, and it's quite sustainable.
Ziv Shoshani: We are selling two different product lines, one product line in precision resistors, which we are selling more to let's say call. It.
Ziv Shoshani: Electronic based applications, which we see.
Ziv Shoshani: Those projects are.
Ziv Shoshani: Hum.
Ziv Shoshani: Our being let's say placed we are getting those orders. So this is the this is really a more of a project based on the digital side and it's quite sustainable the other piece, where we are selling to Ams is the dts for the Dts products.
Ziv Shoshani: The other piece we are selling to AMS is the DTS product. The DTS product. We have been designing what we call the women, which are crash dummies for military applications. Those are high-ticket items in terms of sales orders. It's around, I would say, one and a half to two million dollars per item.
Ziv Shoshani: We have.
Ziv Shoshani: We have been designing our what we call the women, which is crash dummies for military applications. Those are high ticket items in terms of.
Ziv Shoshani: Sales orders, it's around I would say 152 million.
Ziv Shoshani: At this point in time, we have been designed for some key projects. We have been approved by the U.S. Army and NATO, but I would say that the expectation is once those projects are released, those orders would be placed. So we are kind of just waiting for the funding to be released for a few armies, including the US Army. But we have been designing, so this is just a matter of timing. And we do hope that through the second half of the year, those large orders will be placed.
Ziv Shoshani: Item at this point in time, we have been designed at some key projects, we have been approved by the U S.
Ziv Shoshani: April but.
Ziv Shoshani: I would say the expectation is once those projects would be released those orders will be placed so we are.
Ziv Shoshani: Kind of just waiting for the for the funding to be released for the fulfill army, including the U S Army, but we have been designed in so this is just a matter of timing and we do hope that towards the second half of the year those large orders will be placed.
Ziv Shoshani: Okay.
Speaker Change: Got it understood. Okay. Thanks for all the color I appreciate it and thanks for taking my questions.
Griffin Taylor Boss: Got it, understood. Okay, thanks for all the technology, I appreciate it, and thanks for taking my questions. Thank you. As a reminder, if you'd like to ask a question, please press star followed by 1 on your telephone keypad.
Speaker Change: Thank you.
Griffin Taylor Boss: As a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
Griffin Taylor Boss: Okay.
Operator: As there are no additional questions waiting at this time, I'd like to hand the conference call back over to Steve Cantor for closing remarks.
Griffin Taylor Boss: Also with no additional questions waiting at this time I would like to hand, the conference call back over to Steve Cantor for closing remarks.
Steve Cantor: Great. Thank you all for joining the call. I do want to let listeners know before we conclude that we will be participating in the B. Reilly Investor Conference on May 23rd. It's an in-person conference. We do look forward to updating you next quarter. Thank you all and have a great day.
Steve Cantor: Great. Thank you all for joining the call I do want to let listeners know before we conclude that we will be participating in the B Riley Investor Conference on May 23rd it's an in person conference.
Steve Cantor: We do look forward to updating you next quarter. Thank you all and have a great day.
Operator: Ladies and gentlemen, this concludes today's call. Have a great day. You may now disconnect your
Speaker Change: Ladies and gentlemen. This concludes today's call have a great day you may now disconnect your lines.
Operator: Yeah.
Operator: [music].
Operator: Yeah.
Operator: Okay.
Operator: [music].
Operator: Okay.
Operator: Okay.