Wendy Wilson – Senior Director Investor Relations and Corporate Communications William Clancy – Chief Financial Officer and Executive Vice President Ziv Shoshani – President and Chief Executive Officer.

John Franzreb – Sidoti & Company Robert Henderson – Rutabaga Capital Management LLC.

Good morning and welcome to VPG’s Third Quarter Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please also note this event is being recorded. I would now like to turn the conference over to Ms.

Wendy Wilson. Please go ahead..

Thank you, Gary. Good morning, everybody. Welcome to VPG’s third quarter fiscal 2014 earnings conference call. An audio recording will be made of the conference call today and including any questions or comments that you 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 does contain important information. You can find it including relevant non-GAAP reconciliations on our website. An audio recording will be available on the Internet for a limited time and can be accessed on our 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 recording 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 our operations, please refer to our SEC filings, especially the Form 10-K and our other recent SEC filings. And now, it’s my pleasure to introduce our host for today’s call, Ziv Shoshani, CEO and President; and Bill Clancy, CFO.

Bill?.

Thanks, Wendy. Good morning everyone and thank you for joining us on our call today. I’d like to start by reviewing some highlights this quarter and then summarizing the financials. Following Ziv will provide his view of the results and the business environment.

Overall, I’d say the third quarter was a good one with increased revenues at $63.4 million, adjusted diluted earnings per share of $0.23 versus $0.09 per adjusted earnings per share in the same period last year and solid cash generation from operations of $7.7 million and free cash flow of $5.5 million.

If you recall, in last year’s third quarter we implemented an ERP system in our FTP segment which negatively impacted results in that business.

And last year’s third quarter net earnings attributable to VPG stockholders also included $900,000 of KELK acquisition and purchase accounting adjustments which impacted cost of products sold, $100,000 of acquisition costs, and $100,000 of restructuring costs, and the impact of the one-time tax benefit of $1.3 million, which affected comparability.

Net earnings attributable to VPG’s stockholders for the nine months of 2014, includes $500,000 of acquisition related costs and restructuring costs.

For us it’s approximately $4.4 million of KELK acquisition and purchase accounting adjustments for the nine months of 2013, which impacted cost of goods sold, $800,000 of acquisition costs, $500,000 of restructuring costs and the impact of the one-time tax benefit of $1.3 million.

Adjusted gross margin for the 2014 third quarter was 37.5%, down slightly from 37.9% in the second quarter of 2014. Our nine-month book-to-bill ratio of 1 was equal to our book-to-bill ratio of 1 for the nine months of last year and our backlog for the first nine months is 2.9 versus 3.1 for the same period last year.

We expect net revenues in the range of $60 million to $65 million for the fourth quarter of 2014. For a brief review of the financial statements, let’s start at the top. For the third quarter, we reported net revenues of $63.4 million, a 9.8% increase from $57.7 million for the prior year period.

The consolidated adjusted gross margin for the third quarter of 2014 was 37.5% versus 34.9% for the third quarter of 2013. The consolidated adjusted gross margin for the third quarter of 2013 excludes $900,000 of KELK acquisition purchase accounting adjustments.

Selling, general and administrative expenses for the quarter were $19.7 million or 31% of revenues compared to $18.5 million or 32% for last year’s third quarter. The increase of $1.2 million versus the prior year period is mainly due to an increase in commissions, wage increases and other fees.

Looking at operating margin on adjusted basis, with that acquisition and restructurings costs you can see that it’s at 6.5%, an increase from 2.9% in the third quarter last year and a slight decrease from 7.3% sequentially.

Included in other income and expense, in our press release this morning, was $103,000 of foreign exchange losses during the third quarter of 2014, compared to $184,000 of foreign exchange gains in the third quarter of 2013.

We also recorded interest expense of $212,000 in the third quarter of 2014, compared to interest expense of $276,000 for the same period of last year. The GAAP tax rate for the third quarter of 2014 is 14.2% and we expect the operational tax rate to be in the range of 19% to 21% for 2014.

GAAP net earnings attributable to VPG’s stockholders in the third quarter of 2014 was $3.1 million or $0.22 per diluted share, compared to GAAP net earnings attributable to VPG’s stockholders for the third quarter of 2013 of $1.5 million or $0.11 per diluted share.

Adjusted net earnings for the third quarter of 2014, was $3.2 million or $0.23 per diluted share versus adjusted net earnings of $1.2 million or $0.09 per diluted share for the comparable prior year period. Foreign exchange rates for the third quarter of 2014, as compared to the prior year period did not have any impact on pre-tax income.

Capital expenditures in the third quarter of 2014 were $2.2 million compared to $2.1 million in the third quarter of 2013. Depreciation and amortization for the third quarter of 2014 was $2.9 million, compared to $3.0 million in the third quarter of 2013.

Total long term debt as of September 27, 2014 and December 31, 2013, was $19 million and $22.9 million respectively. Cash provided by operations was $7.7 million for the third quarter of 2014, compared to $2.2 million for the third quarter of 2013.

We referred to the amount of cash generated from operations of $7.7 million in excess of our capital expenditure needs of $2.2 million as free cash, so total free cash flow for the third quarter of 2014 was $5.5 million compared to $100,000 in the third quarter of 2013.

We remain focused on our strategy of growing the top line to organic growth and in facilitating additional acquisitions, as well as improving profitability by increasing efficiencies and reducing costs. With that I would now like to turn the call over to Ziv Shoshani, our CEO and President.

Ziv?.

Thank you. As Bill mentioned, our focus remains on our strategy and the important part of that is enhancing our organic growth. Over the past 12 months the revenues from our advanced sensors platform which is part of our FTP segment and which we developed two years ago is up by 170% year-over-year and grew 10.8% sequentially.

Our strategy to derive a higher percentage of revenues in our Force Sensors sector for new products launched which are customized value added products has also began to gain momentum.

With the 25.5% increase in 2014 third quarter versus the 2013 third quarter and from WCS sector our truck VanWeigh systems’ revenues are up 28.6% from the first nine months of 2014.

On the broader economic front, the Chinese economy continues to show signs of weakness; industrial production has decelerated, coupled with other indicators there is evidence of weak domestic demand. In Japan, global uncertainties and lack of confidence in reforms are discouraging businesses from reinvesting.

The Eurozone’s recovery has suffered several setbacks recently. Despite negative pressure the fundamentals growth trends in Germany remains positive. We continue to expect the U.S. economy to show strength for the remainder of 2014 and into 2015. Excess capacity remains the biggest threat to the steel sector.

Capacity utilization has decreased to 76.1% in September from 78.3% in June. For the nine months of 2014, World Steel estimates that global production increased 2.1%, with China accounting for 50% of that production.

Given the weaker than expected performance in the emerging markets and the developing economies in the first-half of 2014, World Steel has trimmed its production growth outlook to 2.0% in 2014, down from 3.1%, with the expectation of China global supply and demand of steel is expected to grow largely following the global economic recovery.

Growth in demand in the U.S., Brazil and India in particular will be driven by the strong momentum in automotive markets, the energy sector and construction. Moving on to operational trends, let’s start by comparing consolidated year-over-year and sequential results.

The company’s overall book-to-bill was 0.95 in the third quarter of 2014, compared to 1.01 last year and 0.98 in the second quarter of 2014. Total orders for the third quarter of 2014 were $59.9 million up 2.6% from $58.4 million last year, and down 6.6% from $64.1 million in the second quarter of 2014. Some details on our reporting segments.

The FTP segment had a book-to-bill ratio of 0.94 for the third quarter of 2014, compared to 1.1 for the third quarter of 2013 and 1.01 for the second quarter of 2014. Sequentially, orders decreased by $2.7 million or 9.6% from the second quarter of 2014, reflecting a decrease primarily in Asia and Americas.

The FTP gross margin was 41.1% for Q3 up from 36.7% in Q3 last year and up from 40.2% in the second quarter of 2014. The FTP gross margin increased from a comparable prior year period was due primarily to $3.3 million of increased volume and 200,000 of labor efficiencies.

The sequential increase in gross margin was due 200,000 of labor efficiencies offset by lower volume. The FTP segment backlog was 2.9 months compared to 3.2 months last year and 3.1 months in the prior quarter.

Looking at the Force Sensors segment, the book-to-bill ratio was 1.02 for Q3, compared to 0.92 in the third quarter last year and 0.95 for the second quarter of 2014. Sequential orders increased by $1.6 million or 10%. This increase came primarily from the Americas and Asia, partially offset by European seasonality.

The gross margin for the segment was 22.5% in the third quarter of 2014 versus 17.6% in the third quarter of 2013, and 21.9% in the second quarter of 2014. The gross margin for the quarter increased from the comparable prior year, primarily due to 600,000 of manufacturing efficiencies and 400,000 of higher volume.

The sequential gross margin improved due to 300,000 of higher volumes. The Force Sensors segment backlog was 2.2 months compared to 2.3 months in prior year and 2.2 months in Q2. For the Weighing and Control Systems segment, orders decreased $1.9 million or 10.2% compared to Q3 of 2013, primarily due to decreased orders from Asia and Americas.

Sequentially, orders decreased by $3.1 million or 15.8% primarily from Europe and Americas. We see higher growth activity in steel, but customers are hesitant to place orders due to the current market conditions. Customers are also pushing out deliveries to early 2015.

The adjusted gross margin for the segment was 46.0% versus 47.8% excluding the KELK acquisition purchase accounting in the third quarter of 2013 and 48.2% in the second quarter of 2014.

The year-over-year reduction in adjusted gross margin is primarily due to the 900,000 of lower steel volume, partially offset by our onboard weighing and process weighing business volume. The sequential decrease in adjusted gross margin is due to $1.1 million of lower volume due to European seasonality and the macroeconomic steel environment.

The book-to-bill ratio was 0.89 for Q3 compared to 0.98 in the third quarter of last year and 0.98 for the prior year quarter. Segment backlog was at 3.4 months compared to 3.9 months in last year’s third quarter and 3.5 months in the prior quarter.

In light of the macroeconomic conditions in our backlog, we expect net revenues in the range of $60 million to $65 million for the fourth quarter of 2014. With that, we will open the line for questions. Thank you..

(Operator Instructions) Our first question comes from John Franzreb with Sidoti & Company. Please go ahead..

Good morning, everybody..

Good morning, John..

Good morning, John..

Ziv, it sounds like from the book-to-bills you just gave out, what we normally expect would be a seasonally stronger fourth quarter is going to be seasonally weaker than normal and it’s also going to be in your two previous gross margin businesses in the FTP and Weighing.

What do you attribute the weaker than normal book-to-bill outlook in those two businesses?.

This is a very good question, John. First we have to look at Q3, which was very strong, which was unusually strong for Q3 due to the European seasonality.

The fact that we had two strong quarters in the FTP due to two big orders, which we are not going to deliver in Q4, they were in the segment of automatic testing equipment and some telecom infrastructure, those were two big orders that made the second quarter and the third quarter in the FTP very strong, which will not repeat itself.

So this is one reason why we may see slightly lower revenues on the FTP side. I would say that regarding the business, all businesses are still very, very solid, the demand is strong. Regarding Force Sensors, we should still see an upside from a revenue standpoint as we had been used to in the past for the fourth quarter.

The main difference is coming from WCS. In WCS, we do expect a rebound in our on-board weighing and our process weighing business in Q4 as we did in the past. The biggest factor regarding the revenues and the fairly very modest book-to-bill is coming from the steel market.

We do expect and we have been asked by customers to push out deliveries from Q4 later into 2015. Therefore, we do project lower revenues, unusually lower revenues in Q4 predominately coming from the soft steel demand..

Perfect, I was going to ask about that.

How much in deferred revenues have been pushed into Q1 from weighing?.

We’re looking at revenues between $1.5 million, $2 million..

Okay, okay. All right, and you talked about new product contribution in the quarter.

Do have a sense of how much in product revenue was in Q3 versus Q3 a year-ago?.

We are looking at roughly – I have to look at the numbers, because it comes from various new platforms. It’s coming from the advanced sensors and on-board weighing, but we are looking at a range of I would say $3 million..

Okay..

$3 million to $4 million, yes, $3 million to $4 million..

Okay, Ziv, also on your prepared remarks you talked about starting to have success in conversions in Force Sensors to more OEM customers.

Can you put a number around that, give us a sense of how much more penetration you’re getting on the OEM side?.

Regarding the OEM, it was mainly related to the Force Sensors, yes, in the Force Sensors we are – we have been – we have increased our penetration. I would say, we are looking at around 10% to 15% of the complete segment revenues..

And how will….

…in those value added customized products..

Where is that compared to a year-ago maybe?.

I would say that a year-ago we have been at the low-mid single digit, right..

Perfect. All right, one last question and perhaps – this is for you, Bill.

Could you just run through the impact of the euro/dollar changes on the P&L, just so we can get that out there, considering how much of your total revenue exposure is into Europe?.

Yes, Sure, John. From a revenue and if we look at it sequentially, the impact of revenues was less than $400,000. The overall impact from a P&L perspective compared to sequentially is $100,000. If we look at year-over-year the impact overall was $200,000. So in total it’s not a big impact for us..

And why is that?.

We’re just naturally hedged in that perspective..

In Europe..

In Europe..

The other currencies which effects dramatically – our cost structure mainly the New Israeli Sheqels and the Indian rupees, and to an extent also the Chinese all in....

But in Europe, John, we’re predominately hedged, so it doesn’t have a major impact to us..

Okay, guys. Perfect, I’ll get back into queue. Thank you..

Thank you. .

Thank you..

(Operator Instructions) And we have a follow-up question from John Franzreb with Sidoti & Company. Please go ahead..

Okay, guys. I’ll monopolize this. You have – you put more resources in place to expand the market penetration.

Can you talk a little bit about how that – how the progress of that initiative?.

Most of the capital expansion is coming on the Force Sensor side and the FTP side in regard to advanced sensors. As you have – as you have rightly quoted, the revenues in these segments are already in the millions. Now, we see a dramatic shift and well accepted by our customers moving more and more.

I think that in the – I know that next year, as we’re going to ramp up much more dramatically, there will be much more revenue derived from that new platform. Regarding – this is where we spent most of the cap – this is where we spent most of the capital. And in regards to the WCS segment, it’s truck with VanWeigh.

So far we do see very, very good prospects in Europe. We are not setting – we are developing a new setup for the U.S. market due to the fact that the U.S. market, that the chassis of the trucks here have a different configuration.

Once the product will be launched, we are ready to open another big market, which no one is serving today, I have to state that. So this is a completely new market which no one is serving today..

Got it, got it. And you’ve been exploring the M&A opportunities, can you update us on the potential M&A pipeline..

Yes, I mean, I think, since we spoke three months ago, we’ve been – obviously, we’ve been much more aggressive. We had various communications. Obviously, we haven’t finalized anything yet, but we can – there are good opportunities out there that we are currently investigating and working on..

Has pricing become better in recent months or is it still strained, for one of a word?.

I think in some respects pricing has come down a little bit. I think it’s actually – there are I think deals to be made out there and it’s not as what we saw like three, six, nine months ago..

Okay. Good. And Bill, I guess, I wasn’t going to wait to have this question offline, but I’ll do it now. Looking at the balance sheet, it seems to me that the receivables and the inventory numbers, I guess, are at elevated levels, I’d say, versus a year ago, okay, is what I’m kind of glancing at.

Is that the net change of having KELK in the profile or is there something else going on there..

No, I mean, we had KELK there at December 31. I mean, inventories, John, from a year ago are actually from December are down $1 million. The inventory is going down. AR is only up $2.5 million, but you will also have much more revenue compared to a year-ago so that’s just a normal revenue increase..

Okay. Nothing to be concerned about..

There’s nothing unusual about it at all..

Okay. That’s why I was going to take it offline but I figured I’d do it now anyway..

Anyway, John..

Okay. Guys, thank you for taking my questions..

All right, thank you, John..

Thank you, John..

The next question comes from Robert Henderson with Rutabaga Capital Management. Please go ahead..

Could you just update us on your thoughts on the stock buyback, because it seems like the way your balance sheet is now or the stock is – it could still be an attractive use of capital for the company..

Yes, as you’re aware we did announce the buybacks late September. Since then we bought in – purchased back a few thousand shares at the moment.

We’re actually utilizing our capital for the buyback but also more importantly like Ziv mentioned, the organic growth and the capital that’d be required for that, and then also predominantly on the acquisitions which is our number one target at the moment..

Okay. Thank you..

This concludes our question-and-answer session. I’d like to turn the conference back over to Wendy Wilson for any closing remarks..

Thank you, Gary. And thank you to everybody for joining our call today. If you have further questions please let us know and we’d be happy to help you out. And we look forward to hearing from you over the quarter and having you on the call in the spring. Thanks a lot..

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