Good morning and welcome to the VPG Q3 Fiscal 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Reynee Tung. Please go ahead.

Thank you, operator. Good morning, everyone. Welcome to VPG's 2017 third quarter earnings conference call. An audio recording will be made of the conference call today, including any questions or comments that participants may contribute. By now, you all should have received the earnings press release and we hope you have taken the time to read through it as it contains important information. You can find it, including relevant non-GAAP reconciliations, on VPG's website at www.vpgsensors.com. An audio recording will be available on the internet for a limited time and can be accessed on the VPG website. The content of this conference call is owned by VPG and is protected by US and international copyright law. You may not make any recordings or other copies of this conference call, and you may not reproduce, distribute, adapt, transmit, display or perform the contents of this conference call in whole or in part without our written permission. Today's remarks are governed by the Safe Harbor provisions of the 1995 Private Securities Litigation Reform Act. Actual results may turn out significantly better or worse than indicated by any forward-looking statements that we may make today. For a more complete discussion of the risks associated with VPG's operations, please refer to our SEC filings, especially the Form 10-K for the year ended December 31, 2016 and our other recent SEC filings. And now, it's my pleasure to introduce the host for today's call, Ziv Shoshani, CEO and President; and Bill Clancy, CFO. Bill?

Thanks, Reynee. Good morning, everyone and thank you for joining us on our call today. I would like to start by reviewing a few highlights and then summarizing the financials. Following that, Ziv will provide his view of the results and the global business environment. We had a solid third quarter 2017 with revenues of $62.8 million, adjusted gross margin of 38.7%, adjusted operating margin of 9.2%, diluted earnings per share of $0.32, adjusted net earnings of $0.27 per diluted share, cash generated from operations of $7.5 million, and a book-to-bill ratio of 1.12, an indication of an improved business environment. On Slide 4, third quarter of 2017 revenues increased by 15.3% to $62.8 million, up $8.3 million compared to $54.5 million of revenues in the prior year period. The negative impact of foreign exchange rates to revenues for the third quarter of 2017 as compared to the prior year period was $600,000. Our gross profit margin increased to 38.6% in comparison to 37.2% in the third quarter of 2016. The increase in adjusted gross profit of $4 million for the third quarter of 2017 as compared to the third quarter of 2016 was attributable to the increase in volumes of $4.2 million and $1 million in manufacturing efficiencies partially offset by a negative exchange rate of $500,000 and $500,000 in $400,000 in wage increases. Selling, general and administrative expenses for the quarter were $18.5 million or 29.5% of revenues as compared to $16.9 million or 31% from last year's third quarter. The overall increase of $1.6 million in SG&A expense is related to the increase to $1.8 million of incentive compensation reductions taken in the third quarter of 2016 which did not repeat in this quarter $400,000 of wages increase $300,000 of negative exchange rate impact off by a…

Thank you, Bill. An important part of our strategy is to grow by developing new product offering and our advanced sensor line continues to gain traction. This platform which is part of our FTP segment and which we developed a few years ago, is reporting revenue increases of 133% in the third quarter of 2017 versus 2016 third quarter, and 51% from the nine months ended September 30, 2017. As compared the comparable prior year period. I am pleased with the continued acceptance of this new sensor platform and it offers enhanced performance to our customers in conjunction with an efficient manufacturing platform. Another product line which is gaining momentum is the value-added OEM transducers business in the Force Sensors segment. For the third quarter of 2017 revenues increased by 153% compared to the third quarter of 2016 while revenues increased by 103% from the nine months ended September 30, 2017 as compared to the prior year period. We're pleased to see healthy trends continue in some important end markets for our business. I'll note steel, aerospace and defense in particular. The World Steel Association reports for September 2017 that the world steel capacity utilization is at 73.5%, which is the highest utilization since January 2016. Progressing the global steel market this year to-date has been encouraging. We have seen the cyclical upturn warning and firming throughout the year leading to a better than expected performance both developed and developing economies. In 2018, we expect global growth to be moderate mainly due to slower growth in China. Most geographic reasons are expected to witness demand growth in 2018. According to the World Steel Association is the producer of nearly half of the world steel tonnage. China exerts a huge influence on industry dynamics and has been accused by other countries…

[Operator Instructions] the first question will come from John Franzreb with Sidoti & Company. Please go ahead.

I'd like to start with the revenue guidance for the fourth quarter. When you think about the high and low end of the revenue expectations where are the biggest swings factors between hitting the top and the bottom of that range?

That's a very good question, John. First let me start that in - we're ramping up the volume and given the fact that we have less working days we expect to ship more. The two - there's a certainty in two product lines one of them is Pacific Instruments and the other one is KELK the steel business. Historically the nature of this product line as you know is logic driven. Therefore, there is a certain uncertainty when the product is being shipped to the customer may have certain delays in regards to the shipment which may move some revenues from one quarter to another quarter. So, I would say that this probably is the biggest factor in regards to the guidance.

Got it. And just kind of sticking with that theme about how the coming quarters are starting to look. It seems to that the turnover and the backlog has been most pronounced in the Force Sensors and Weighing Control, jumping virtually a month sizably in each one year-over-year. Is that because the shipping cycle has changed or is it becoming a little bit tougher for you meet some of the commitments on a timely basis?

Regarding the backlog and the shipments, I did indicate that in India we're going to a very massive ramp up of hiring people and adding more capacity and the expectation is that we're going to see higher revenues per day in Q4 in respect to Q3. So, no doubt that the ramp up in India will help dramatically in order to increase the shipment. In regards to WCS, I would say that at this point the backlog and the staggered backlog from a product line standpoint is still and since I indicated that this is a very project driven here the timing is dictated more by our customers. We still increase capacity, but customer timing, well customer decision is the prime goal regarding deliveries within a given quarter.

Got it and got it. And then the Force Sensors, the book-to-bill is the most pronounced at 1.25. I'm not sure if I actually heard you Ziv on what was the driver of the demand you're seeing in Force Sensors.

The overall economy is better, but the main driver for this force is our OEM business being headed by precision agriculture, some of our designs have been coming to fruition and now our customers are placing big orders. Precision [indiscernible].

Precision. Perfect. This point I'm going to jump back into queue. I'm going to let someone else ask some questions.

[Operator Instructions] the next question will be from Sarkis Sherbetchyan with B. Riley. Please go ahead.

Just sticking with the revenue guidance for 4Q, obviously the midpoint is better here sequentially. With that regard do you expect gross margin and the EBITDA margin to be at or above the 3Q rate. I know you mentioned something about foreign currency so just kind of understand that a little bit better.

Given the fact that if you may take the midpoint as the reference and you know that the main driver for margin improvement is the volume, we should expect giving meeting a certain revenue level to be as good as - if not better from a profitability standpoint, from an earning standpoint.

Understood to the previous speakers point. You know the backlog is up nicely in months, I don't know if you can maybe talk a little bit more about like the composition of that backlog maybe you mentioned your end markets are strong but maybe if you could talk about the composition of the backlog.

Okay the composition of the backlog, so we can go very quickly segment-by-segment. We are expecting I mean we're expecting to deliver 80% of the backlog in FTP is expected to be delivered within the following quarter therefore we're still very competitive in regards to lead time and we have capacity in place in order to meet customer demand. In regard to Force Sensors here we're slightly in the mid-70s and the main factor here is driving capacity up in India, in order to meet the demand. In regards to WCS, where we see the backlog drop around the 60% still is the main contribution and this as I indicated before the terms and conditions and the timing for shipments since it's project oriented. Product is being dictated by our customers.

Got it. That's very helpful. And then you mentioned the strong improvement year-over-year in advance sensors. Can you maybe talk about your expectations going forward? I mean it's a very robust performance thus far year-to-date, but maybe what should we expect for that business on a run rate basis and or what should we expect for that business maybe into fiscal 2018, if you can give comments around that.

Okay, we have never provided the detailed information regarding specific product lines within the company. but I can elaborate regarding historical performance of this product line, this product line has been increasing very, very nicely it's a double-digit sales growth year-over-year in prior years and without giving specific details, we're still in a very good momentum regarding new products and market acceptance.

Got it. Can you talk maybe about, what it means to maybe your annual revenue rate - from advanced sensors? I think I the past in the investor conferences you guys have mentioned the annual sales number.

In the past we've mentioned that now we're in the - we were since this is a very new product line we were in the first two years running on a fairly low level and we just crossed the double-digit revenue level.

Very helpful. Thanks. I'll hop back in.

Your next question will be a follow-up from John Franzreb with Sidoti & Company. Please go ahead.

I guess a couple things. One, could you kind of update on the M&A pipeline on your presentation you talk about how it's part of your growth strategy. What are you seeing out there?

John as you know, M&A we've always emphasized that M&A is a very important part of the company's strategy to enhance growth in shareholders' value. Based on the dynamics in the last few quarters, what we have found is that still the dynamics - it's very much a seller's market. Therefore, the multiples are still extremely high. And for every year business, there are many, many bidders therefore it's still very, very high multiples and I would say definitely for sure not sure north of 11 or 12.

Okay and part of it that strategy on Slide 5, you talk about mid to high single-digit sales growth. I'm assuming that means organic sales growth I'm not quite sure. If that's the case, what the roadmap to get to a sustainable kind of mid to high single-digit sales growth profile if you don't have opportunities on the M&A side of the business. Can you just talk to that a little bit?

First the slide itself encompasses execution of M&A deals as well. nevertheless, from an organic standpoint as you see, and we did provide more light regarding specific product that we consider as growth engines for the future and we have provided regarding advanced sensors, regarding OEM, transducers business that there is a very I would say very nice growth year-over-year and quarter-over-quarter.

Anything more on the long-term, are you looking at adjacent market places? Tapping into new customers somehow, if anything else [indiscernible] right.

Yes absolutely, this is part of the M&A strategy. If we may acquire a company with a product line, we could round our portfolio it will definitely could get us into new end markets in a completely different customer base, but this is part of our M&A strategy.

Okay and you mentioned I think it was $1 million of cost savings in the quarter that was realized, could you kind of update us where you are as far as the restructuring the business. I since recalled some point you put on hold, one rationalization so can you kind of give us kind of update on that process?

From a cost reduction standpoint, it is more of a culture mindset, we continue to drive cost in all aspects of the business regardless of the volume increase in order to assure our - the cost base of our competitiveness for the future. Regarding major relocation and restructuring I did indicated that there was a certain I would say phase delay especially in Force Sensors, due to the volume increase in order to provide customers with products on time, no doubt the cost reduction in regards to manufacturing and in regards to continuous production sites, real consolidation is part of the strategy of the company and is expected to continue and to be executed in the near-term future for this company.

Okay all right. So, we allow for any kind of modest organic growth again. I'm looking at Slide 5, you talk about adjusted operating margin above 10%. The last two quarters you've [indiscernible] north of 9%, what do you think longer term reasonable goal is and the adjusted operating margin. It's clearly going to be above 10%, if you have any kind of organic growth.

As you know, okay let me say this. At a given exchange rate, at a given flat exchange rate environment which play the significant role and the fact that we should continue and realize more revenues based on our organic growth and based on our driving new product innovation. We would expect to meet those financial goals. Now as you said in the last two quarters, we were very close to that, but as you know the intention of the company to show that we can provide consistent financial and operational performance overtime. So, two quarters are good, but the intention is to deliver more quarters ahead. So those financial targets are sustainable and then to set the targets for the next step.

Okay, Ziv. Fair enough. I'm looking forward to resetting them. How's that? Okay.

Thank you.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Bill Clancy for any closing remarks.

I appreciate everybody dialing in and listening, participating on a very good earnings call and looking forward to talking to everyone in near future. Thank you very much and have a good day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.