Q2 2024 Vishay Precision Group Inc Earnings Call

Good morning all and thank you for joining us for VPG's second quarter Fiscal 2024 Ireland School. My name is Carly and I'll be the call coordinator for today.

Operator: at Fiscal 2020-24 UNESCO.

Kali: School 2024 Earnings Call. My name is Kali, and I'll be the call coordinator for today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad, and to remove yourself from that line of questioning, it's star followed by two. I'll now hand over to your host, Steve Cantor, Senior Director of Investor Relations, to begin. Steve, please go ahead. Thank you,

Carly: My name is Carly, and I'll be the cool coordinator for today.

Carly: During the presentation, you can register a question in my pressing staff on one on your telephone keypad and to remove yourself not line-up questioning it's staff followed by two.

During the presentation, you can register a question by pressing star followed by one on your telephone keypad, and to remove yourself from that line of questioning, it's star followed by two. I'll now hand over to your host, Steve Cantor, Senior Director of Investor Relations, to begin. Steve, please go ahead.

Steve Cantor: On our hand over to your host, Steve Cantor, Senior Director of Investor Relations, to begin. Steve, please go ahead.

Steve Cantor: Thank you, Carly. And good morning, everyone.

Steve Cantor: Welcome to VPG's 2024 second quarter earnings conference call. Our Q2 press release and accompanying materials have been posted on the VPG website at vpgcensors.com. An audio recording of today's call will be available on the internet for a limited time and can also be accessed on our website. These 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 BPG'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.

Steve Cantor: Thank you, Carly, and good morning, everyone. Welcome to VBG's 2020-24 second quarter earnings conference call. Our Q2 press release and a composite slide have been posted on the VBG website at VBG Sensors.com. And audio recording of today's call will be available on the internet for a limited time and can also be accessed on our website.

Steve Cantor: Thank you, Carly, and good morning everyone. Welcome to VPGs.

Speaker Change: 2024 Second Quarter Earnings Conference Call.

Speaker Change: Our Q2 press release and accompanying slides have been posted on the BPG website at bpgcensors.com.

Speaker Change: 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.

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 VBG'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.

Speaker Change: 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 BPG'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.

Steve Cantor: On the call today are Ziv Shoshani, CEO and President, and Bill Clancy, CFO.

Speaker Change: On the call today are Ziv Shoshani, CEO and President, and Bill Clancy, CFO .

Ziv Shoshani: And now I'll turn the call to Ziv for some prepared remarks.

Speaker Change: And now I'll turn the call to Ziv for some prepared remarks.

Ziv Shoshani: Thank you, Steve. I will begin with some commentary from VBG's consolidated financial results and says trends for the second quarter. Bill will provide financial details about the quarter in our outlook for the third quarter of 2024. Moving to slide 3, overall our second quarter was the follows. Says trends continue to reflect the mixed market environment. Revenants go sequentially in some of our markets, while other markets remain soft. Similarly, all the trends were mixed with sequentially growth in the measurement systems, offset by lower orders in sensors and weighing solutions. We achieved a solid growth margin in light of our revenue levels as we adjusted our operations effectively to current revenue levels and expanded our cost reduction programs. Customer engagement remains high as we continue our focus on our business development initiatives.

Ziv Shoshani: Thank you Steve. I will begin with some commentary on PPG's Consolidated Financial Resolve, and Sales Trends for the second quarter. Bill will provide financial details about the quarter and our outlook for the third quarter of 2024. Moving to slide three, overall our second quarter was as follows.

Ziv Shoshani: Thank you, Steve. I will begin with some commentary on PPG's consolidated financial results.

Speaker Change: and Sales Trends for the second quarter.

Bill Clancy: Bill will provide financial details about the quarter and our outlook for the third quarter of 2024.

Bill: Moving to slide 3, overall our second quarter was as follows.

Ziv Shoshani: Sales trends continue to reflect the mixed market environment. Revenues grew sequentially in some of our markets, while other markets remained soft. Similarly, all the trends will meet, with sequential growth in the measurement systems offset by lower orders in sensors and weighing solutions.

Ziv: Sales trends continue to reflect the mixed market environment.

Bill: Revenues grew sequentially in some of our markets, while other markets remained soft.

Bill: Similarly, order trends were mixed, with sequentially growth in the measurement systems offset by lower orders in sensors and weighing solutions.

Ziv Shoshani: We achieved a solid gross margin in light of our revenue levels as we adjusted our operations effectively to current revenue levels and expanded our cost reduction program. Customer engagement remains high as we continue our focus on our business development initiatives. Our strong balance sheet and solid free cash flow provide a good foundation for organic and inorganic growth. We expect the macro environment to be stable to the end of 2024 with mixed trends continuing in our model.

Bill: We achieved a solid gross margin in light of our revenue levels as we adjusted our operations effectively to current revenue levels and expanded our cost reduction programs.

Bill: Customer engagement remains high as we continue our focus on our business development initiatives.

Ziv Shoshani: Our strong balance sheet and solid free cash flow provides a good foundation for any can in our gun growth. We expect the macro environment to be stable to the end of 2024, with mixed trends continuing in our markets. Moving to slide 4, looking at the second quarter results in detail. We reported sales of 77.4 million, which were 14.8% lower than a year ago and 4.2% lower sequentially. All those of 73.5 million soften modestly from 75.3 million in the first quarter. Our book to build ratio includes slightly to .95. We are seeing mixed trends in our markets.

Bill: Our strong balance sheet and solid free cash flow provides a good foundation for organic and inorganic growth.

Bill: We expect the macro environment to be stable to the end of 2024, with mixed trends continuing in our markets.

Ziv Shoshani: Moving to slide four. Looking at the second quarter results in detail, we reported sales of 77.4 million, which were 14.8 percent lower than a year ago and 4.2 percent lower sequentially. Orders of $73.5 million softened modestly from $75.3 million in the first quarter. Our book-to-bill ratio improved slightly to 0.95. However, we are seeing mixed trends in our market. Bookings were soft in the test and measurement, avionics, military, and space, and industrial weighing sectors.

Bill: Moving to slide four.

Speaker Change: Looking at the second quarter results in detail, we reported sales of 77.4 million, which were 14.8% lower than a year ago, and 4.2% lower sequentially.

Bill: Orders of $73.5 million softened modestly from $75.3 million in the first quarter.

Bill: Our book-to-bill ratio improved slightly to 0.95.

Bill: We are seeing mixed trends in our markets.

Ziv Shoshani: Bookings were soft in the test and measurement, avionic military and space, and industrial weighing. However, all those grew for consumer-related applications and in our transportation and steel markets. Regarding our strategic business development initiatives, we are seeing the early results of these efforts in terms of design wins and initial orders with new customers, and additional applications and projects with existing ones. Our growth margin of 41.9% declined from a record of 43.4% in the first quarter, reflecting lower sales in the second quarter. We generated 10.2 million of adjusted EVDA, 7.5 million of cash form operation, and 4.9 million of adjusted free cash flow, which supports our capital allocation strategy to grow stockholders' value.

Bill: Bookings were soft in the test and measurement, avionic military and space, and industrial weighing. However, orders grew for consumer-related applications and in our transportation and steel markets.

Ziv Shoshani: However, orders grew for consumer-related applications and in our transportation and steel market. Regarding our strategic business development initiatives, we are seeing the early results of these efforts in terms of design wins and initial orders with new customers and additional applications and projects with existing ones. Our gross margin of 41.9% declined from a record of 43.4% in the first quarter, reflecting lower sales in the second quarter. We generated $10.2 million of adjusted EVDA, $7.5 million of cash from operations, and $4.9 million of adjusted free cash flow, which supports our capital allocation strategy to grow stockholders' value. I'll now review our business segment performance for the second quarter. Moving to slide five. Beginning with our censored segment.

Bill: Regarding our strategic business development initiatives, we are seeing the early results of these efforts in terms of design wins and initial orders with new customers and additional applications and projects with existing ones.

Bill: Our gross margin of 41.9% declined from a record of 43.4% in the first quarter.

Bill: reflecting lower sales in the second quarter.

Bill: We generated $10.2 million of adjusted EVDA, $7.5 million of cash from operations, and $4.9 million of adjusted free cash flow.

Bill: which supports our capital allocation strategy to grow stockholders' value.

Ziv Shoshani: I now review our business segment performance for the second quarter. Moving to slide 5, beginning with our sensor segment, second quarter revenue of 28.9 million declined 20.4% from a year ago, and was 1.9% lower sequentially. Compared to the first quarter, safe growth in vancensors products was offset by lower sales of our precision resistors. Sales of vancensors and the related strain gauge products grew 17% from Q1 on the strength in consumer applications. Sales of precision resistors to the test and measurement market were softer, particularly in Asia. While second quarter orders for sensors of 26.1 million were slightly lower sequentially, bookings for a vancensors grew 20%.

Bill: I'll now review our business segment performance for the second quarter.

Bill: Moving to slide 5.

Ziv Shoshani: Second quarter revenue of $28.9 million declined 20.4% from a year ago and was 1.9% lower sequentially. Compared to the first quarter, safe growth in advanced sensors products was offset by lower sales of our precision resistors. Sales of advanced sensors and related strain gauge products grew 17% from Q1, on the strength of consumer applications.

Bill: beginning with our sensor segment.

Bill: Second quarter revenue of $28.9 million declined 20.4% from a year ago and was 1.9% lower sequentially.

Bill: Compared to the first quarter, safe growth in advanced sensors products was offset by lower sales of our precision resistors.

Bill: Sales of advanced sensors and related strain gauge products grew 17% from Q1.

Ziv Shoshani: Sales of precision resistors to the test and measurement market were softer, particularly in Asia. While second quarter orders for sensors of 26.1 million were slightly lower sequentially, bookings for advanced sensors grew 20%. Orders for our resistor products were soft, particularly in the test and measurement market in Asia. Strategically, in the advanced sensors, we continue to address additional opportunities in both high-end road bikes and e-bikes with European and Asian bike makers. These applications use our sensors to precisely measure the force of every pedal stroke.

Bill: on the strength in consumer applications.

Bill: Sales of precision resistors to the test and measurement market were softer particularly in Asia.

Bill: While second quarter orders for sensors of 26.1 million were slightly lower sequentially, bookings for advanced sensors grew 20%.

Ziv Shoshani: Orders for our resistors products were soft, particularly in the test and measurement market in Asia. Strategically, in the vancensors we continue to address additional opportunities in both high-end road bikes and e-bikes with European and Asian bike makers. This application used our sensors to precisely measure the force of every pedal stroke. This helps professional and high-end bike riders train more efficiently. In addition, we received a substantial R&D order for a developer of robotics for medical applications. Our project with a leading developer of a humanoid robot continues to progress well as we recorded revenue related to prototypes for this project.

Bill: Orders for our resistor products were soft, particularly in the test and measurement market in Asia.

Bill: Strategically, in the advanced sensors, we continue to address additional opportunities in both high-end road bikes and e-bikes with European and Asian bike makers.

Bill: These applications use our sensors to precisely measure the force of every pedal stroke.

Ziv Shoshani: This helps professional and high-end bike riders train more efficiently. In addition, we received a substantial R&D order for a developer. Robotics for Medical Applications. Our project with a leading developer of a humanoid robot continues to progress well as we recorded revenue related to prototypes for this project. This customer expects to deploy several thousands of these robots in its factories by the end of 2025. Book-to-bill ratio for sensors was 0.9. Moving to slide six.

Bill: This helps professional and high-end bike riders train more efficiently. In addition, we received a substantial R&D order for a developer of robotics for medical applications.

Bill: Our project with a leading developer of a humanoid robot continues to progress well as we recorded revenue related to prototypes for this project.

Ziv Shoshani: This customer expects to deploy several thousands of these robots in its factories by the end of 2025. Book to Bill ratio for sensors was 0.9.

Bill: This customer expects to deploy several thousands of these robots in its factories by the end of 2025.

Bill: Book to bill ratio for sensors was 0.9

Ziv Shoshani: Moving to slide 6, turning to our Wayne solution segment, second quarter saves of 27.4 million were 12.2% lower than a year ago and 4.8% below the first quarter of 2024. Sequentially, the decline reflected lower revenue in the transportation market, while revenue in our industrial market was roughly flat. The book to bill ratio for Wayne Solutions was 0.93 orders of 25.5 million declined 7.3% from the first quarter. The lower orders were primarily in the transportation market for process weighing and on-board weighing systems. In terms of business development initiatives for weighing solutions, we are developing a variety of solutions and applications for existing and new customers in the medical and lab automation, construction, and transportation markets.

Ziv Shoshani: Turning to our weighing solution segment, Second quarter sales of $27.4 million were 12.2% lower than a year ago and 4.8% below the first quarter of 2024. sequentially, the decline reflected lower revenue in the transportation market, while revenue in our industrial market was roughly flat. The book to bill ratio for weighing solutions was 0.93, and orders of $25.5 million declined 7.3% from the first quarter. Turning to our measurement system segment, second quarter revenue of $21 million declined 9.6% from a year ago and 6.6% sequentially. During the quarter, we repurchased 3.1 million shares of our stock.

Bill: Moving to slide six.

Bill: turning to our weighing solution segment

Bill: Second quarter sales of $27.4 million were 12.2% lower than a year ago and 4.8% below the first quarter of 2024.

Bill: Sequentially, the decline reflected lower revenue in the transportation market, while revenue in our industrial market was roughly flat.

Bill: The book-to-bill ratio for weighing solutions was 0.93. Orders of $25.5 million declined 7.3% from the first quarter.

Bill: The lower orders were primarily in the transportation market for process weighing and on-board weighing systems.

Bill: In terms of business development initiatives for weighing solutions, we are developing a variety of solutions and applications for existing and new customers in the medical and lab automation, construction, and transportation markets.

Ziv Shoshani: Moving to slide 7, turning to our measurement system segment, second quarter revenue of 21 million declined 9.6% from a year ago and 6.6% sequentially. The sequential decline was driven by lower sales of DTS, safety testing products in AMS, and the transportation and markets. Book to improve 3.8% from the first quarter. Sequentially, orders grew for the DSI comprehensive tools for the development of new metal alloys, while bookings for the DTS and calc steel productivity systems were softer. As we have discussed, order pattern can fluctuate quarter to quarter due to the timing of customer projects and the long lead times of these products.

Bill: Moving to slide seven.

Bill: Turning to our measurement system segment, second quarter revenue of $21 million declined 9.6% from a year ago and 6.6% sequentially.

Bill: The sequential decline was driven by lower sales of DTS safety testing products in AMS and the transportation end markets.

Bill: Book to bill ratio for measurement systems was 1.04 as orders of 21.9 million improved 3.8% from the first quarter.

Speaker Change: Sequentially, orders grew for the DSI comprehensive tools for the development of new metal alloys while bookings for the DTS and Kelk steel productivity systems were softer.

Speaker Change: As we have discussed order pattern can fluctuate quarter to quarter due to the timing of customer projects and the long lead times of these products.

Ziv Shoshani: We continue to be encouraged by our business development activity in the measurement systems. In the current quarter, we expect to have the first aluminum manufacturing customer evaluation of our calcoptimization system using our optical technology. As we have discussed, the industrial aluminum manufacturing is a new potential adjacent market for us. We believe our solution can offer important cost savings for these customers in terms of reduced downtime and waste. For DSI, we expanded our offering of our global thermal mechanical physical simulation tool for developing new metal alloys with modules that can efficiently test smaller sample size. This capability opens a new market for DSI in the additive material manufacturing equipment market for applications such as commercial 3D metal printer.

Speaker Change: We continue to be encouraged by our business development activity in the measurement systems.

Speaker Change: In the current quarter, we expect to have the first aluminum manufacturing customer evaluation of our calc optimization system using our optical technology.

Speaker Change: As we have discussed, the industrial aluminum manufacturing is a new potential adjacent market for us.

Speaker Change: We believe our solution can offer important cost savings for these customers in terms of reduced downtime and waste.

Speaker Change: For DSI, we expanded our offering of our Gliebel Thermal Mechanical Physical Simulation Tool for developing new metal alloys with modules that can efficiently test smaller sample size.

Speaker Change: This capability opens a new market for DSI in the additive material manufacturing equipment market for applications such as commercial 3D metal printers.

Ziv Shoshani: is moving to Slide 8.

Ziv Shoshani: Before turning the call to Bill, I want to comment on our capital allocation strategy. Given our balance sheet and the free cash flow generation, we believe that we can create stockholders' value to organic gold, successful MMA, and as warranted stock repurchases. During the quarter, we repurchased 3.1 million of our stock of 97,000 shares.

Speaker Change: Moving to slide 8.

Speaker Change: Before turning the call to Bill, I want to comment on our capital allocation strategy. Given our balance sheet,

Speaker Change: and the free cash flow generation, we believe that we can create stockholders' value to organic growth, successful M&A, and as warranted stock repurchases.

Speaker Change: During the quarter, we repurchased $3.1 million of our stock.

Ziv Shoshani: In closing, we continue to focus on our strategic initiatives in both business development activities and cost reduction programs. These actions are positioning VPG to realize the significant long-term earnings power embedded in our business model.

Speaker Change: of 97,000 shares.

Speaker Change: In closing, we continue to focus on our strategic initiatives in both business development activities and cost reduction programs.

Speaker Change: These actions are positioning VPG to realize the significant long-term earnings power embedded in our business model.

Bill Clancy: I will now turn over to Bill Clancy for additional financial details. Bill?

Speaker Change: I will now turn it over to Bill Clancy for additional financial details. Bill?

Bill Clancy: Thank you. Referring to slide 9 and the reconciliation tables of the slide deck, our second quarter revenues declined 4.2% from the first quarter and were 14.8% below the second quarter a year ago. Adjust the gross margin in the second quarter of 41.9% compared to 4.3.4% in the first quarter due to lower volume and unfavorable product mix. By segment, gross margin for the sensor segment of 38.3% improves the quenchally primarily due to improved efficiencies. The weighing solutions gross margin of 37.6% was lower than the first quarter, primarily due to lower volume. Measurement systems gross margin of 52.4% declined sequentially, reflecting lower volume with an unfavorable product mix.

Bill Clancy: Thanks, Ziv. Referring to slide 9 and the reconciliation tables of the slide deck, our second quarter revenues declined 4.2% from the first quarter and were 14.8% below the second quarter a year ago.

Bill Clancy: adjusted gross margin in the second quarter of 41.9% compared to 43.4% in the first quarter due to lower volume and unfavorable product mix.

Bill Clancy: By segment, gross margin for the sensor segment of 38.3% improved sequentially primarily due to improved efficiency.

Speaker Change: The weighing solutions gross margin of 37.6% was lower than the first quarter, primarily due to lower volume.

Speaker Change: Measurement systems gross margin of 52.4% declined sequentially reflecting lower volume with an unfavorable product mix.

Bill Clancy: Total selling general and administrative expenses for the second quarter were 26.5 million, or 34.3% of revenues, as compared at the 27.4 million, or 33.9% of revenues for the first quarter of 2024. The sequential decrease in SG&A of $900,000 was mainly attributable to a reduction of bonus reserve accruals. Operating margin was 7.6% as compared to 8.6% for the first quarter. The adjusted operating margin in the second quarter was 7.6% as compared to 10% in the first quarter of 2024, primarily reflecting the lower revenue. The adjusted net earnings for the second quarter were 4.2 million dollars for 31 cents per diluted share, which compared to 5.7 million dollars for 42 cents per diluted share in the first quarter of 2024.

Speaker Change: Total selling, general, and administrative expenses for the second quarter were $26.5 million, or 34.3% of revenues, as compared to $27.4 million, or 33.9% of revenues, for the first quarter of 2024.

Bill Clancy: The sequential decrease in SG&A of $900,000 was mainly attributable to a reduction of bonus reserve accruals.

Speaker Change: Operating margin was 7.6% as compared to 8.6% for the first quarter.

Speaker Change: The adjusted operating margin in the second quarter was 7.6%, as compared to 10% in the first quarter of 2024, primarily reflecting the lower revenue.

Speaker Change: The adjusted net earnings for the second quarter were $4.2 million, but $0.31 per diluted share, which compared to $5.7 million, or $0.42 per diluted share, in the first quarter of 2024.

Bill Clancy: Adjusted EBIDA was 10.2 million dollars for 13.2% of revenue compared to 12.3 million dollars for 15.3% in the first quarter of 2024. Purchase cap-ax in the second quarter was 2.6 million dollars. For the full fiscal year of 2024, we expect purchase cap-back to be in the range of $10 to $12 million, which is significantly lower than the levels we have spent over the past few years. The gap tax rate in the second quarter was 33.3% as compared to 28.4% in the first quarter of 2024, primarily reflecting a higher proportion of income and higher tax rate jurisdictions.

Speaker Change: Adjusted EBITDA was $10.2 million, or 13.2% of revenue, compared to $12.3 million, or 15.3% in the first quarter of 2024.

Speaker Change: Purchased CapEx in the second quarter was 2.6 million dollars.

Speaker Change: For the full fiscal year of 2024, we expect PERSA's cap back to be in the range of $10-12 million, which is significantly lower than the levels we have spent over the past few years.

Speaker Change: Adjusted free cash flow was $4.9 million, which increased from $4.2 million for the first quarter.

Speaker Change: We define Adjusted Free Cash Flow as cash from operating activities of $7.5 million, less capital expenditures of $2.6 million.

Speaker Change: The GAAP tax rate in the second quarter was 33.3%, as compared to 28.4% in the first quarter of 2024, primarily reflecting a higher proportion of income and higher tax rate jurisdictions.

Bill Clancy: The second 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 10, we ended the second quarter with 84.1 million of cash and cash equivalents and total debt of 31.9 million, which was classified as a current liability. I want to note that we have realized approximately $900,000 in net interest savings through the first half of 2024 as a result of our debt paydown in 2023.

Speaker Change: The second quarter operational tax rate was 27%.

Speaker Change: We are assuming an operational tax rate in the range of 26% to 28% for the full year of 2024.

Speaker Change: Moving to slide 10, we ended the second quarter with $84.1 million of cash and cash equivalents and total debt of $31.9 million, which was classified as a current liability.

Speaker Change: I want to note that we have realized approximately $900,000 in net interest savings through the first half of 2024 as a result of our debt pay down in 2023.

Bill Clancy: Regarding the outlook for the third fiscal quarter, given the current market conditions and our backlog, we expect net revenues to be in the range of $70 million to $78 million at constant second fiscal quarter 2024 exchange rates.

Speaker Change: Regarding the outlook...

Speaker Change: For the third fiscal quarter, given the current market conditions and our backlog, we expect net revenues to be in the range of $70 million to $78 million.

Speaker Change: at constant second fiscal quarter 2024 exchange rates.

Bill Clancy: In summary, we've adjusted our operations effectively to current revenue levels. We've generated solid cash flow and continued to repurchase our common stock, and we continue our focus on strategic business development and cost savings initiatives.

Speaker Change: In summary, we've adjusted our operations effectively to current revenue levels.

Speaker Change: We've generated solid cash flow and continue to repurchase our common stock. And we continue our focus on strategic business development and cost savings initiatives.

Operator: With that, let's open the lines for questions. Thank you. If you'd like to ask a question, please press star for the vote one. We're going to telephone keypad now. If you'd like to remove yourself, that line of questioning, you can press star for the buy two.

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

Speaker Change: Thank you. If you'd like to ask a question, please press star followed by 1 on your telephone keypad now. And if you'd like to remove yourself from that line of questioning, you can press star followed by 2.

Griffin Boss: Our first question comes from Griffin Bus of B. Riley.

Griffin Boss: Griffin, your line is not open. Hi. Good morning, Zeeb. Bill, thanks for taking my questions. So first for me, you laid out your three to five-year targets for revenue growth and margin expansion back in February of 2022. Now that we're about six months on the front end of that range and macro uncertainty remains, and perhaps is even growing, how viable do you see those targets today?

Speaker Change: Our first question comes from Griffin Boss of Be Riley. Griffin, your line is now open.

Griffin Boss: Hi, good morning Ziv, Bill, thanks for taking my questions. So first for me...

Griffin Boss: You laid out your three- to five-year targets for revenue growth and margin expansion back in February of 2022. Now that we're about six months from the front end of that range and macro uncertainty remains and perhaps is even growing, how viable do you see those targets today?

Ziv Shoshani: Good morning, Griffin. When we developed the three to five-year plans back in 2022, naturally, we have not foreseen the downturn in the marketplace. Nevertheless, I still believe that the plan we have provided is very much viable, given the fact that, based on the discussions that we had with our large OEM customers and the outlook and the initial outlook that we have been looking for an initial recovery.

Speaker Change: Good morning, Griffin. When we developed the three to five year plan back in 2022, naturally, we have not foreseen the

Speaker Change: I would say the downturn in the marketplace. Nevertheless...

Griffin Boss: I still believe that the plan we have provided is very much viable, given the fact that...

Griffin Boss: that based on the discussions that we had with our large OEM customers and the outlook and the initial outlook that we have been looking for an initial recovery

Ziv Shoshani: in the second half of 2024, which at this point in time, we are looking, moving the initial recovery based on the discussion we had with our large OEM and their earnings release as well, the correlation with the earnings release, we foresee the recovery starting as of 2025 in addition to our extensive business development activities, which should generate new, I would say, we would expect it to generate significant revenue with new projects. I do believe that the plan we have laid back in 2022 is still viable, and the plan for the company is still to meet that.

Speaker Change: in the second half of 2024, which at this base, which at this point in time, we are looking, moving the initial recovery.

Ziv Shoshani: Based on the discussion we had with our large OEMs and their earnings release as well as the correlation with their earnings release, we foresee the recovery starting in 2025. In addition to our extensive business development activities, which should generate new revenue, I would say we would expect it to generate significant revenue through new projects. I do believe that the plan we laid out in 2022 is still viable, and the plan for the company is still to meet that.

Speaker Change: based on the discussion we had with our large OEMs and

Speaker Change: their earnings release as well. The correlation with the earnings release, we foresee the recovery starting as of 2025 in addition to our extensive business development activities which should generate

Speaker Change: I would say we would expect it to generate significant revenue with new projects.

Speaker Change: I do believe that the plan we have laid back in 2022 is still viable and the plan for the company is still to meet that.

Griffin Boss: Okay, great, thanks for the colors, Steven. On that note, too, the revenue growth targets obviously implied meaningful, inorganic contribution.

Speaker Change: Okay great, thanks for the colors Ziv. On that note, the revenue growth targets obviously implied meaningful inorganic contribution. Can you just discuss a little bit more what you're seeing on the M&A front, how that process has progressed throughout the year?

Ziv Shoshani: Can you just discuss a little bit more what you're seeing on the M&A front, how that process has progressed throughout the year? On the M&A front, I would say that on the M&A front, we still have seen deals with some lower multiples. We have been in I would say in discussion with few companies at this point in time; unfortunately, I have nothing to report, but I do feel that the M&A landscape is going to be more, I would say, more reasonable at a much better, I would say, at a much better closing, or I would say, at a much better deals as we move forward.

Ziv Shoshani: On the M&A front, it was...

Speaker Change: I would say that on the M&A front, we still have seen deals with some lower multiples.

Speaker Change: We have been, I would say, in discussion with a few companies. At this point in time, unfortunately, I have nothing to report, but I do feel that the M&A landscape is going to be more, I would say, more reasonable at a much better...

Speaker Change: I would say it's a much better...

Ziv Shoshani: So I would say that, unfortunately, we were not able to execute, but I do think that we are going to be much more optimistic about the M&A as we move forward.

Griffin Boss: Okay, great. Make sense, thanks, Steve. And just trying to, a model question here, that gross margin SGNA both came in below our expectations obviously, gross margin because of the lower volume, SGNA, the ongoing cost reduction niche does, which is great to see.

Griffin Boss: It's fair to assume that those trends are going to continue into the back half of the year, just given the expectation for Q3 top line. The gross margin; we are looking at the similar revenue level, at the similar exchange rate. The gross margin is sustainable, and the SGNA bill will provide more color regarding the SGNA.

Speaker Change: and the SG&H bill will provide more color regarding the SG&H.

Bill Clancy: Yeah, so so different on the SGNA. Yeah, we were at 26.5 for Q2, which included some bonus adjustments. It'd only be slightly higher for Q3. So trending too much of where we were slightly higher.

Griffin Boss: Okay, great, all right, thanks, thanks. And then just last for me, I guess more broadly, obviously, the past 12 months have been tough.

Ziv Shoshani: I think the company's been navigating the environment very well, but just looking forward, aside from the ongoing cost reduction initiatives, what gets you most excited for the future in terms of trends or business opportunities? What gets me most excited is our business development initiatives. We are working very diligently, and we have enhanced our business development resources, and we are, I would say, each of the reporting segments is working with some, I would say, with some key OEM in order to develop high volume revenues. As I indicated during the call, we have, on the sensor side, the human oil projects, we have some medical robotics applications, we have the consumer electric bike and high-end bikes, we have inventory management on the weighing solutions, we have some large OEM construction designs on the measurement systems, we have, on the DSI, the additive production ceramic base testing. So, all those projects, which are in an initial design cycle, should generate a substantial amount of revenue in the future, and this is what I'm really excited about: the improvement and the acceleration of organic growth for the company in the coming years.

Speaker Change: The past 12 months have been tough. I think the company's been navigating the environment very well, but just looking forward, aside from the ongoing cost reduction initiatives, what gets you most excited for the future in terms of trends or business opportunities?

Speaker Change: is working, I would say, with some key OEMs

Griffin Boss: Great that's that's excellent thanks even and thank you for taking my questions. Thanks.

John Franzreb: Question comes from Fran. Excuse me.

John Franzreb: John Fran is a bit of a said I'll see you company.

John Franzreb: John, your line is not open. Good morning, guys. Thanks for taking the questions. I'd actually like to take a step back and see maybe talk about the beginning of the year to today. When you look back at the revenue profile, what business was far weaker than you thought now than you thought maybe in the beginning of the year. Okay, that's a great question. John, our outlook going into the year was for an initial recovery in the second half of 2024, which was based on a more optimistic expectation from our customers. We have received indication for many of our OEM customers that their expectation for an afternoon has been pushed from the second half of 2024 to 2025.

Speaker Change: Okay, that's a great question John . Our outlook going into the year was for an initial recovery in the second half of 2024, which was based on a more optimistic expectation from our customers.

Speaker Change: We have received indications from many of our OEM customers that their expectation for an upturn has been pushed from the second half of 2024 to 2025.

Ziv Shoshani: We have seen this mainly in precision agricultural, industrial construction, and also semiconductor, a test and measurement. So those would be the main end markets where we have expected an afternoon in the second half of this year, which at this point in time, based on the discussions with them, they are looking for a push out for 2025.

Speaker Change: So those would be the main end markets where we have expected...

Speaker Change: An upturn in the second half of this year, which at this point in time, based on the discussions,

Ziv Shoshani: In terms of our outlook for the rest of the year, we expect all those to be flatish, reflecting continuing mixed trends in our end markets.

Speaker Change: With them, they are looking for a push-out for 2025. In terms of our outlook for the rest of the year, we expect all those to be flattish, reflecting continuing mixed trends in our end markets.

John Franzreb: Yeah, some of those end markets that you just mentioned are interest rate sensitive. Would be fair to assume that interest rate cuts would be certainly a positive for those end markets.

Speaker Change: Yeah, some of those end markets that you just mentioned are interest rate sensitive. Would it be fair to assume that interest rate cuts would be certainly a positive for those end markets?

Ziv Shoshani: Yes, yes, this is correct, John. If we are looking at, you know, the large capital investment like construction, like Precision Act, definitely test and measurement, those markets would be influenced by the interest rates. And once interest rates, I expected to drop, we would see, I would say, an improvement in their activity, in their business activity.

Speaker Change: Yes, yes, this is correct, John , if we are looking at...

John: You know, the large capital investments like construction, like Precision X.

Speaker Change: Definitely test and measurement. Those markets would be influenced by the interest rates and once the interest rates are expected to drop, we would see, I would say, an improvement in their activity, in their business activity.

John Franzreb: And it seemed to me in your prepared remarks, there is an increased emphasis on the gain sensor business again.

Speaker Change: And it seemed to me in your prepared remarks there is an increased emphasis on the advanced sensor business again. Are you seeing more interest in that product line? Can you just kind of elaborate why the increased verbiage on it?

Ziv Shoshani: Are you seeing more interest in that product line, in this kind of a library? Why he increased Virgin on it? Yes, okay, so one, we had a good positive sign of an increase of 21% in bookings in terms of consumer electronics, in respect to prior quarter. And I do believe that we are very, very excited given the business development initiatives in advanced sensors. The fact that the business environment is soft, only emphasizes how important it is to continue and promote the business development activities in order to assure the long-term growth of the company, a project like the humanoid project which this year should result in hundreds of thousands of dollars of revenue only at the prototype level.

Speaker Change: Yes, okay, so one, we had a good positive sign of an increase of 21% in bookings in terms of consumer electronics in respect to prior quarter.

Speaker Change: I do believe that we are very, very excited, given the business development initiatives in Advanced Censors. The fact that the business environment is soft.

Speaker Change: only emphasize how important it is to continue and promote the business development activities in order to assure the long-term growth of the company.

Ziv Shoshani: The large R&D order, a significant R&D order for medical robotics. And the E-bike are only an indication regarding customer engagement and the potential growth for high value dollar accounts. And this is what the business is focusing on. So we understand that there is a short-term business environment, but the company is very much focused and driven on pushing those business development activities. And this is why, since we are very, since the team and myself are very excited about, and this is only one platform about advanced sensors, this is why we are discussing this product line.

Speaker Change: The large R&D order, a significant R&D order for medical robotics.

Speaker Change: pushing those business development activities.

John Franzreb: And I guess if we kind of look at it, so the business is slower than expected, but of course the whole portfolio.

Speaker Change: If we kind of look at it, so the business is slower than expected, but of course the whole portfolio.

John Franzreb: If I wanted to identify what business line would indicate things are starting to turn around the proverbial green shoes, when you look at your portfolio, where would you expect to see a turnaround first emerge? If I'm looking, when we speak about turnaround, there are two verticals. One is the true demand in the market, while the other one is going to the end of the cycle of the collision of inventory.

Speaker Change: If I wanted to identify what business line would indicate things are starting to turn around, the proverbial green shoots, when you look at your portfolio, where would you expect to see a turnaround first emerge?

Speaker Change: If I'm looking, when we speak about turn around...

Ziv Shoshani: I do believe that one of the business segments that we should expect to see by the end of the year, a faster depletion of the inventory and an initial indication of recovery is Testament. We joined those discussions with customers. We have really opened the discussions. We understand that they are getting to the end cycle of the inventory level, and they would expect the beginning of next year to start placing orders.

Ziv Shoshani: We We have realized, or during the discussions, we understand that they are getting to the end cycle of the inventory level, and they would expect...

Speaker Change: We understand that they are getting to the end cycle of the inventory level and they would expect

Ziv Shoshani: As we have discussed earlier, other markets could be more dependent on interest rates. So once there is an indication of a reduction of the interest rates, I think that customers would be more willing to start investing in big projects and start investing more in inventory. We should also bear in mind that the inventory cue cycle at EMS and distribution is very, very low given the high interest rates and the cost of holding inventory. So I would expect that this would also change, as interest rates would start to grow down.

Speaker Change: beginning of next year to start placing orders. As we have discussed earlier, other markets...

Speaker Change: could be more dependent on interest rates.

Speaker Change: So, once there is an indication of a reduction of the interest rates, I think that customers

Speaker Change: to start investing in big projects and start investing more in inventory. We should please also bear in mind that the...

Speaker Change: The inventory Q cycle at EMS and at distribution is very, very low, given the high interest rates and the cost of holding inventory. So I would expect that this would also change.

Speaker Change: is in the streets.

Speaker Change: would start to go down.

John Franzreb: I understood.

John Franzreb: Thank you, Ziv, for taking my questions. I got back in the queue.

Operator: Thank you.

Speaker Change: Understood. Thank you, Ziv, for taking my questions. I'll get back to you.

Operator: As a reminder, if you'd like to ask a question, please press staff vote by one on your telephone keypad, and to move yourself online, a question named please press staff vote by two.

Speaker Change: Thank you.

Speaker Change: As a reminder, if you'd like to ask a question, please press star followed by 1 on your telephone keypad. And to remove yourself from that line of questioning, please press star followed by 2.

Operator: It would appear we have no further questions.

Steve Cantor: So I'll hand back to Steve Council, C.N. Director of Investor Relations for closing remarks. Thank you all for joining the call. I want to note that we will be participating in the call. Again, thank you all, and have a good day. Bye.

Steve Cantor: It would appear we have no further questions, so I will hand back to Steve Cantor, CA Director of Investor Relations, for closing remarks.

Steve Cantor: Thank you all for joining the call. I wanna note that we will be participating in the Jeffries Conference on September 4th. You can check our website for additional details. Again, thank you all and have a good day, bye.

Operator: This concludes today's call. Thank you to everyone for joining. You may now disconnect your line.

Speaker Change: This concludes today's call. Thank you to everyone for joining. You may now disconnect your lines.