Good day, and welcome to the VPG second quarter results conference call. [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 2018 Second 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've taken time to read through it as it contains important information. You can find it, including relevant non-GAAP reconciliations, on VPG's website at vpgsensors.com. An audio recording of today's call 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 U.S. 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 a written permission. Today's remarks are governed by the safe harbor provisions of the 1995 Private Securities Litigation Reform Act. Actual results, performance or achievements 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, 2017, 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. Referring to Page 3 of the slide deck. We had a good second quarter of 2018 with revenues of $74.2 million, gross margins of 42.3%, operating income of $11.3 million, operating margin of 15.2% and earnings per diluted share of $0.57. We are pleased with our quarterly performance and with our Q2 book-to-bill of 1.13, a good indication that the near-term business environment remains solid. On Slide 4. We grew our second quarter of 2018 revenues by 19.1% to $74.2 million, up $11.9 million compared to $62.3 million of revenues in the second quarter of 2017. The positive impact of foreign exchange rates to revenues for the second quarter of 2018 as compared to the second quarter of 2017 was $1.9 million. We increased our gross profit margin to 42.3% in comparison to 39.7% in the second quarter of 2017. The increase in gross profit of $6.6 million for the second quarter of 2018 as compared to the second quarter of 2017 was primarily attributable to an increase in volumes of $5.4 million, $1 million related to labor and manufacturing efficiencies and a positive exchange rate impact of $400,000. Selling, general and administrative expenses for the quarter were $20.0 million or 27% of revenues as compared to $18.6 million or 29.8% for the second quarter of 2017. The increase in selling, general and administrative expense was related to $800,000 in wage and incentive compensation increases in addition to a negative exchange rate impact of $400,000. Looking at operating income on adjusted basis, we increased our…

Thank you, Bill. An important part of our strategy is to go by developing new product offering. A great example of this is our advanced sensor line, which continues to gain adoption. We developed this platform as part of our Foil Technology Products segment, and it has grown nicely as more customers include it in their product design. We saw our advanced sensor revenues increased approximately 48% in the second quarter of 2018 versus the second quarter of 2017. We are pleased with the continued acceptance of this new sensor platform and are proud to provide enhanced performance to customers. We are also pleased to be manufacturing on an efficient platform. A second example of our innovation is our value-added OEM transducers business, part of our Force Sensors segment. For the second quarter of 2018, its revenues increased by 142% compared to the second quarter of 2017. A final example is in our Weighing and Control Systems segment. Our TruckWeigh and VanWeigh onboard weighing business revenues increased by 95% in the second quarter of 2018 as compared to the second quarter of 2017. We are pleased to see healthy trends continuing in some important end markets for our business, in particular, I note aerospace and defense, steel and test and measurements. In the commercial aircraft aftermarket, the industry focus is for 10% growth in 2018 as out-of-warranty flight hour growth, which the analyst views as the primarily driver for the aftermarket, comes to account for an increasing proportion of total flights hours. The aftermarket should also benefit from a strong initial provisioning on new aircraft types, along with improved trends in freight traffic. In the U.S. defense market, the analyst sees the overall defense budget has grown by 20% to 25% off the bottom in 2013. Based on current estimates…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Sarkis Sherbetchyan with B. Riley Capital. Please go ahead.

Good morning and thanks for taking my question here.

Good morning, Sarkis.

It seems like you guys updated the target financial model over the next few years here. Can you talk about the road map to get there? Maybe what levers you're proactively using to drive sales growth and also that margin expansion?

Sure. As we look at the sales growth - let's start with the sales growth. Regarding the sales growth, we do provide information regarding our organic growth regarding the main platform, which has been an engine for our growth in the last couple of years in conjunction with the strong economy. And we do believe that this growth is expected to continue and to get us to the projected strategy targets. In regards to the margins, if we look at historical restructuring and future - and further restructuring, which are expected in the near- and in the longer-term future, in conjunction with the gaining momentum regarding those organic growth with the project that is gaining more and more momentum, we do believe that those new targets are feasible, and we should expect to achieve them. I have to say that as we did in prior years, this strategy, of course, includes also M&A activities.

Got it. And I think you mentioned, Ziv, in your comments that advanced sensors were up 48% year-on-year. Is that what contributed to the strong margins for the FTP segment? Can you maybe help us there?

Yes, absolutely. If we look at the FTP segment, which had the, I would say, very strong margin level for this year, there are two main contributions. One is advanced sensors, but I would say even to a larger extent is higher sales in regards to Pacific Instruments, which we already reported has a very high gross margin level. So it's a combination of - in respect to the prior quarter, it's a combination of Pacific Instruments revenues with more additional advanced sensor volumes.

Good. I'll hop back in the queue. Thank you.

Thank you.

[Operator Instructions] The next question is a follow-up from Sarkis Sherbetchyan with B. Riley Capital. Please go ahead.

All right. Thanks for taking the follow-up here. So one more. With regards to the 3Q outlook, the range of $70 million to $77 million, can you maybe give us some puts and takes on what's required to get to the low end of the range versus the high end of the range?

Okay. The consideration to provide the Q3 guidance was based on the fact that we have expected - we have due - we are expected to ship - around 60%, 61% of the current backlog is expected to be delivered by the end of the Q3. We take into account the fact that we have 10% less working days in Israel, which plays a significant role in regards to manufacturing of the FTP, in conjunction with the fact that we know that in Europe, it's always softer. So we do take into account that we would be able to sell less out of stock in Europe during the July-August time frame, given the current backlog.

That's certainly helpful. And then I think you mentioned in the prepared remarks that you're monitoring the tariffs and trade situation globally here. It sounds like mid-July, right, tariffs went into effect. Can you maybe help us understand perhaps what products or product lines are impacted? And just kind of the idea of managing your supply chain or surcharges, et cetera?

Yes, absolutely. As Bill indicated, we are expecting an additional cost of $600,000 for the second half of 2018. There is no impact in regards to FTP. The first reporting segment in regards to - I would say, it's is a 50-50 split between Force Sensors and Weighing and Control. In regards to Force Sensors, these tariffs are applied on our products being manufactured in China and being shipped and sold into the United States. Going forward, as we continue to streamline all our manufacturing activities in India, as we did in the prior years, the expectation is that the impact of the tariff is going to be diminished in the upcoming years as we move more production to India. The other part is regarding WCS. And here, we are looking at two subsets. One is a sample that we currently buy from a third party in China, and we're selling into the United States. Here, we are looking at some alternative supply chain. How we may produce those products or we may take some of the product to our in-house production to our manufacturing facilities, which are out of China. And also, we are having, as Bill indicated, some discussions with customers regarding applying a surcharge to those products which are now currently impacted by the tariffs. And to a much, much smaller degree, we have some products that we buy in the U.S. and sell into Canada. But the biggest effect is coming from products which are made in China and delivered to the U.S. But we do expect to reduce and to mitigate the additional costs as we move forward.

Thanks. That's certainly helpful. That's all for me.

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

All right. Thank you, guys. I appreciate everybody for dialing in today and listening to our second quarter earnings call. We look forward to talking to you in the future. And also, just to let you know that Vishay Precision Group will be attending and presenting at the Jefferies Conference tomorrow in New York. Once again, I appreciate you dialing in, and thanks for your support, and have a good day.

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