We are fortunate to have with us today CFO Bill Clancy and Director of Investor Relations Steve Cantor. Following the presentation, there'll be time for Q&A. Please utilize the Q&A icon to submit questions, and I'll present them to management. With that said, gentlemen, thank you for being with us today. The floor is yours.
Thank you, John. It's great to be here at Sidoti this morning and tell you about VPG. Before I do, I do need to remind everyone that we will be making forward-looking statements this morning, and our actual results can differ, so we encourage all investors to review the risk factors in our SEC filings. This is really an exciting time for VPG. Our sensing and precision measurement solutions are finding new, larger and faster-growing markets, such as in humanoid robots, which are truly revolutionary and are requiring new levels of sensing technologies. These potential opportunities are being driven by major technology trends, such as what's being called Physical AI, and I'll talk more about that in a few minutes.
We've made some fundamental changes to our organization and strategy in the past few months, which are designed to accelerate our growth and to put us in a position to capture more of these opportunities, as well as to scale effectively. As we implement these changes, we continue to be very disciplined in our financial focus and in both our organic and inorganic growth strategies. For those who are not familiar with VPG, essentially what we do is provide high-value precision sensing and precision measurement technologies. We focus on the highest performing, the most premium solutions in those areas. Even so, we address a broad array of markets. It's really focused on providing the kind of high value to really make our customers' products and processes safer, smarter and more productive.
VPG products are often at the first part of the data value chain, where real-world data is acquired. For applications such as those where safety is involved or which are mission-critical, our products play a vital role. While you may not see VPG in your daily life, I can assure you probably benefit from it in ways you can't even imagine. Let me walk through some recent highlights. First, we delivered five consecutive quarters of book-to-bills at or above 1, and that's a solid indicator of improving demand. Bookings trends in our Sensors segment have been especially strong, particularly in the semiconductor test equipment market, as well as in general industrial and avionics, military and space markets. Sensors bookings reached levels not seen in 13 quarters. Second, we continue to see progress in the emerging humanoid market.
We booked nearly $2 million of prototype orders from October 2025 through January of this year, and it included an initial prototype order from a smaller third humanoid customer. Third, we strengthened our organizational structure with the introduction of two new C-suite roles, a chief business and product officer and chief operating officer. These positions are directly tied to accelerating growth and improving our operational readiness. Finally, we continued our cost reduction initiatives, which yielded $4.5 million of savings in 2025, and also include $6 million of additional savings targeted for this year. Together, these elements, we believe, form a strong foundation for our next phase of growth. One of our strengths as a company is the diversity of the markets we serve.
Our end market mix spans traditional applications that you can see here on the left side of this slide, which includes industrial applications, steel manufacturing, agriculture and construction, and construction equipment. On the other side, we are addressing emerging growth applications, including those in semiconductor test and avionics. Across these categories, we generally hold the number one or number two position in our specific niches, which speaks to the trust customers have placed in our technology over many years. This balance across traditional and emerging applications, we believe, creates a resilience and a strong foundation for accelerating our growth. We operate in three segments: Sensors, Weighing Solutions and Measurement Systems.
I think of these as sensors being components, weighing solutions being modules, which in many cases include our strain gauge sensors, as well as measurement systems, which are application-specific products and systems that really essentially do one thing in one particular area and do it quite well. Each segment addresses a distinct set of customers, but they share a common theme. They address applications where precision is critical. Across these areas, our value proposition is built on a combination of deep engineering expertise and the ability to customize or tailor our solutions for very specific customer requirements. I'll give you a quick snapshot on a few of the applications that we address. Humanoid robots is one of the fastest-moving areas we're currently serving.
We're supplying torque and tactile sensors that are helping humanoid developers solve really fundamental engineering challenges around stability and dexterity, essentially turning a hunk of metal into something that moves like a human and feels like a human. In semiconductors, our precision resistors are essential for ensuring consistent, accurate results in chip testing, a need which is only growing as AI drives more complex chips and architectures. In the fiber optics market, we're seeing renewed interest in our components because they help improve the stability of tunable laser sources used in data centers and long-haul telecom applications. A theme we've been discussing more and more with investors is Physical AI, which is essentially AI interacting with the real world through robotics and automated systems.
These systems require highly accurate real-time data to make safe and reliable decisions, and that's really the role our sensors play. As these applications scale, the sensing layer becomes even more important, and that's an area where we perform very well and we're well-positioned. We think the world is really on the cusp of a fundamental revolution that will change a broad array of industries, including manufacturing logistics, with the introduction of more autonomous solutions. Jensen Huang, the CEO of NVIDIA, said just this week that the next major demand wave for compute is not coming from chatbots, but from robots and autonomous systems operating in the physical world. Jensen believes, as we do, that virtually every industry will adopt some form of Physical AI-driven automation. This is really a very exciting trend for VPG.
In 2025, we took a major step in reshaping the organization to support the opportunities ahead. It's a culmination of the steps we've made and changes we've made over the past several years, which have truly laid the foundation for what's ahead. The creation of the Chief Business and Product Officer and Chief Operating Officer roles allows us to run a more unified commercial function and a more efficient operational platform. It also sets us up for future growth, both organic and inorganic, by establishing consistent processes and cross-company coordination. This is truly a foundational shift that strengthens our ability to scale and to grow. A cornerstone of that, as I mentioned, are these two new roles and two new organizations, and I just want to highlight here the interaction between those and our operating model. They really are two sides of the same coin.
On the commercial side, we're enhancing our business development processes, refining our customer engagement model, and building tools that support consistency and also, very importantly, visibility. On the operational side, we're improving efficiencies through deploying more automation and optimizing our global footprint. These improvements will not only help us deliver higher levels of cash flow and profitability but will also allow us to be price-competitive as we go after these larger market opportunities. One of the focuses of the Chief Business and Product Officer organization is on our growth initiatives. These are engagements with new customers or new platforms with existing customers. In 2025, our business development initiatives delivered just under $38 million of orders ahead of our goal, and we're now targeting 20% growth from that level this year. This represents a broad array of initiatives. Each of our business units have their own specific initiatives.
Most are on the smaller side, but a few are quite large, such as humanoid robotics, semiconductor test, advanced material testing, defense systems, and precision manufacturing. Each of these opportunities reflect a customer need for high-performance sensing or measurement that aligns well with our strengths. Humanoid robots, just to highlight one of them, it represents perhaps one of the largest opportunities in our current BD funnel, business development funnel, and we've been working with three humanoid developer customers, two of which we've been working with for some time, and a third we just started working with in the Q4 of 2025. Over the past year, we've made significant progress with our first humanoid customer, moving from deep engineering collaboration and problem-solving, as well as providing multiple sensor prototypes, to now the final system set up and early alpha builds.
We've already received initial orders covering a few dozen robots, each using roughly 20-30 sensors, and we expect a follow-on order for hundreds of units in the second quarter, with the potential to ramp to hundreds of robots per week by the end of 2026, subject, of course, to our customer's timeline. With our second humanoid customer, we're also well advanced, recently receiving approximately $1.5 million of orders, primarily for tactile sensing, essentially giving the fingers of the robot its sense of touch and feel, and we expect clear volume visibility after their current prototype evaluations. In parallel, we've also begun engaging with a third humanoid customer, supplying prototypes for several dozen robots, and we believe there's broader industry momentum which could accelerate development and production with additional humanoid developers.
We believe that this year, 2026, will be a pivotal one for the humanoid market, since a number of leading developers have indicated plans to move to production and early deployment by the end of the year. The bigger picture here goes beyond humanoids themselves. This is really part of a broader shift towards what I described as Physical AI interacting directly with the physical world, and we think that we're just at the beginning of that trend, and it's gonna create a whole wide range of platforms and not just human-shaped robots. In fact, we're already starting to see potential app opportunities in adjacencies. We've had early-stage conversations with customers regarding Physical AI systems and logistics, which aren't humanoids per se but rely on similar testing and control capabilities.
While the humanoid market could take time to evolve, we believe we're only seeing the tip of the iceberg and that there will be many derivatives and new applications that will grow from this first wave. From that standpoint, the long-term potential is significantly larger than what's visible today. As I mentioned, what we're doing on the operations side is wholly complementary to the business commercial side. This roadmap that I'm showing here on this slide outlines the three areas where we're focused on in terms of an operational standpoint. First is footprint optimization, which includes expanding our capabilities in India. Second is operational excellence, which involves improvements in yields, productivity, and automation. Third is procurement, where we're consolidating suppliers and streamlining our logistics.
Together, these initiatives represent a path to $20 million of cost savings over the next three years, including 2026, and position us to scale for stronger margin performance as well as I mentioned, to make us price competitive and able to scale. To put everything together, the long-term thesis for VPG is clear. We're aligned with major technology and industry trends, automation, AI, advanced materials, semiconductor innovation. We've invested to build a stronger organization and a more efficient operating platform, and we're broadening our opportunity set through a disciplined business development. From our perspective, the company is entering a period where our capabilities and market needs are increasingly aligned. With that, we're happy to take your questions.
Thank you, Steve, for that expansive overview of Vishay. Again, if you have a question, please utilize the Q&A icon and it can present it to management. Bill, Steve, I guess the first question I would like to address is the current events environment. You have production facilities in Israel. Can you talk about potential disruptions that investors should be aware of, what you're doing maybe to mitigate some of those potential disruptions? Maybe a little bit of background and overview would be helpful.
Sure, John, I appreciate that, and thank you for the question, you know, regarding the facilities. Most importantly, it's the employees, the people. Everybody in our facilities as of the moment are safe and healthy. Obviously, we put all the measures in place to make absolutely sure all of our employees are safe, their well-being, and that is by far priority number one. Regarding, we've always had, you know, areas that we have prepared for and, you know, shipped, and we always had the ability to produce with very little interruption to our business. I would say we're probably 90%-95% back to normal.
Having said all that, we believe that we've done everything we possibly can to satisfy all of our customer needs and have truly minimized what the impact will be from a revenue perspective. We've taken all the steps and measures. We've prepared for this. We've always been quite ready for anything and truly have taken all the steps to ensure the safety and health of the employees and also the continuity and accountability for the business as well.
Got it. With that, I'm going to move directly to the audience questions that seem to be coming in. First question is, what needs to happen over the next few years for the Physical AI to become a meaningful revenue contributor?
Well, I think it's already starting to be an important contributor. At least we expect this year to see growth in our revenue associated with humanoid robots. The real question, though, depends on the deployment of these robots in real-world scenarios and whether or not they're gonna deliver the value that they're promised. We'll learn a lot, I think, about humanoid robots this year as a market. I think in parallel, the trend towards looking at some of these adjacent applications, essentially using that same kind of Physical AI technologies in manufacturing and logistics, as I mentioned, I think you'll start to see more and more solutions and investment, you know, from this year onwards.
The real question, again, there has to be an ROI associated with those investments, and so I think we'll see. We'll know more about it as we progress through this year.
That actually dovetails nicely into the next question. How are you balancing R&D between the newer sensing technologies and Weighing Solutions?
Yeah, we're very fortunate to have some of the best engineering talent related to what we do, which is around strain gauge sensors and precision resistors, as well as weighing solutions. Our strength is really throughout our history and continues to be our ability to have very in-depth engineering discussions with our customers to really take our core technology and adapt and customize it to their specific needs. That is something that we've continued to do and we consider to be one of our strengths.
Next question is, can you talk about how your end market exposure has evolved, particularly with data centers and humanoid robots?
Well, that's, I think, an important theme for VPG, which is that we've always been a niche supplier of high performance products that we make. In general, and I'm maybe oversimplifying this, but in many cases, our biggest competition is whether the customer chooses to use a lower performing product at a lower cost. We think that there's some technology trends, and we certainly would argue that within the humanoid market, you know, where safety is probably gonna be an important consideration, you wanna have the best performing product.
I'd say also the case in what we're doing in the data center fiber optics market is also a good example of that, where the importance and critical nature of the transmission of data from data centers or long-haul transmission is going to require a higher performing solution. We think that in that way, some of these opportunities are actually coming to us as opposed to us chasing them.
Can I just interject a question here? How much commonality is there in the sensing products that use between your three customers right now?
There's quite a bit. I mean, they're different designs and each customer has its own proprietary design, which are very different approaches. The commonality of what we're doing for them really evolves from our core technology, which is around foil-based substrate material that is used in our strain gauges to really provide that level of performance and reliability and consistency over time. That's the differentiation. That's essentially our secret sauce, that runs across everything that we're now doing for or discussing with these humanoid customers.
Okay. Thanks, Steve. Next question, can you expand on ordering patterns and lead times with the growing demand for Physical AI? Lot of AI questions here today.
Well, I guess I would maybe clarify that question to say.
Right
You know, this idea of physical AI, I think that's an important concept. It's one which we think is gonna be a trend that has a lot of legs to it. It's gonna interface with a lot of different parts of our world. If you wanna be more specific, I would say the primary example that we're currently addressing within that realm of physical AI is the humanoid. As we've discussed, you know, we've already generated, in the last couple years, $5 million of orders just for prototypes related to humanoid. We are expecting, you know, this year to see a growth, certainly compared to 2025, as those customers move to real production and deployment.
How about a more traditional question here? How much of total cost savings is expected to be realized in 2026?
John, from that perspective, as we, you know, showed on our slide, we expect to have $6 million of savings predominantly at the gross margin level, you know, compared to 2025 for cost savings. As Steve mentioned, it's a combination of factory consolidation, better automation, procurement savings and optimization. In total, $6 million is projected for 2026.
Got it. Next question is, how scalable is the Measurement Systems business model compared to the other segments?
Well, from a scalability perspective, obviously, the Measurement Systems is our highest, you know, gross margin segment that we have today. You know, it's in the low-to-mid 50%. As we hopefully begin to see some tailwinds with steel and with AMS, and the continuation with our crash test dummies and with DTS, I mean, the scalability is as those revenues begin to increase, we could see incremental gross margins rising as well.
Yeah, I just wanted to add something to that question, which is the Measurement Systems, as Bill mentioned, is our highest margin segment, but also it comprises our longer lead time businesses. For example, within the steel market, you know, it could take nine months, if not longer, from the point when we start talking to a customer to the point where they place an order, and another nine months to customize, develop and install and test that system. That's another difference. Generally, what we do in the Sensors and Weighing Solutions segment have much shorter lead times.
Makes sense. Thank you both. Next question is, in past presentations you talked about hitting 22% EBITDA margins at a roughly $90 million quarterly run rate, with new investments and cost-cutting initiatives. Can you give us a sense of your target margin profile at a similar run rate?
John, it's an excellent question. You know, we did have a you know a three to five year plan that we rolled out a couple of years ago. But given that with the new announcement we made in November with the new structure, with the CBPO and the COO, we are in the process now of updating that three to five year model, and we intend to roll that out during our first quarter of 2026 earnings call. Having said all that, I mean, the expectation is given the significant cost savings and the true mandate for you know mid- to high-single-digit revenue growth each and every year. The expectation is we should be able to you know probably at least achieve or exceed those original three to five year plans we had a few years ago.
All that will be spelled out in our first quarter earnings call.
Something to look forward to, Bill. Oh, great. Next question. Can you discuss how the new C-suite executives are integrating, any early impact on revenue initiatives or corporate culture, sorry.
Yeah, I would say, you know, I mean it's obviously only been a couple of months, John, you know, since we had the announcement. We've seen a greater accountability, execution. The culture changes I think have been implemented throughout the organization. I think people are obviously taking this organizational structure in a very positive way. We're even seeing early momentum of this truly being a well-run organization. The parts that we're adding, the personnel that we're adding, which I think will reap benefits in the future for sure.
Yeah, just to maybe add one point to that, which is, we don't want to front run our rollout of our new target model, which we expect to release in our first quarter earnings call in May. I think you should expect, investors should expect that our outlook and the model will be, will reflect higher levels of growth than the previous ones organically. That's in part a reflection of certainly the opportunities that we talked about today, but also in part reflecting what we think will be the impact of this new organization.
Makes sense. A question about if you need to expand your production capacity, and what challenge do you face around personnel and engineering needs?
From a capacity expansion perspective, you know, given, you know, where we are today, I mean, we have the capacity available, depending upon which region, to add personnel could be fairly quickly. To the extent that we receive, you know, significant large orders or opportunities, then we'd be more than willing to add the equipment and with the personnel. We definitely have the flexibility and the capacity to handle significant opportunities and meet all of our customers' demands.
Well, it's been a robust Q&A, and I'm gonna ask the last question that didn't come up for some reason this time. Can you talk a little bit about the M&A environment and your appetite for acquisitions, and what do you see on the horizon?
John, very good question. Obviously, we've always been very M&A acquisitive. I think what we're working on at the moment is, you know, implementing and establishing the two new C-suites. As we finalize that rollout, continuing to look for M&A growth and opportunities, could be in existing markets, could be in new markets. We continue to be very inquisitive and definitely look forward to, I think, greater opportunities down the road.
All right. Fair enough. Any closing remarks, Bill or Steve?
No, I just want to again thank you and Sidoti for the opportunity to be part of the conference and to tell you about VPG and look forward to updating you at future conferences.
Yeah. Thank you for the expansive overview. We appreciate you being here today, and have a great day, everybody.
Thank you.
Thank you. Appreciate it. Thank you, everybody.