$VPG Follow-on Call Takeaways
$VPG follow-on IR Call Key Takeaways and Write-Up:
Refreshed Financial Targets: VPG will release updated 3-5 year financial targets next month. We can expect improvements over the previous benchmarks of low-teens annual revenue growth, 45% gross margin, and 18% operating margin.
Sensor Economics: The $400 volume production revenue per robot cited for Customer 1 does not necessarily apply to Customer 2. Tactile sensors in the hands, which present a complex dexterity and weight challenge, are generally more expensive than torque sensors.
Cross-Selling Momentum: Exploratory commercial discussions regarding cross-selling torque and tactile sensors to existing customers have occurred within the last 6-9 months, though these have not yet reached the formal design phase.
Data Center Growth: Management identifies a growing opportunity for precision resistors in optical lasers. The company secured $2 million in orders in 2025 from a leading laser manufacturer, benefiting from infrastructure tailwinds at firms like Cisco $CSCO, Ciena $CIEN, and $LITE Lumentum.
Physical AI Roadmap: Beyond humanoids, management believes the broader Physical AI market will become a major growth driver over a 3-5 year horizon as manufacturing and logistics demand precise real-world data collection.
Humanoid Robotics
VPG is not concerned about being behind a potential hockey stick ramp in humanoid demand, as they remain confident their customers would make sure that the supply chain is fully prepared to meet the ramp. They also noted they have all the plans drawn up to expand their existing manufacturing facilities to meet any hockey stick ramp.
When asked if there has been any cross-selling of torque/tactile sensors with existing customers, VPG stated, that in terms of design discussions, no, but there have been exploratory commercial discussions. Those conversations have been throughout the life cycle, but have also occurred within the last 6-9 months.
I asked if that ~$400 revenue per robot would be true for both Customer 1 and 2 at production volume scale. VPG stated that it would be different just given the number of sensors, and that they haven’t disclosed what would the average revenue per robot for Customer 2 would be. They did state, though, that tactile sensors can be more expensive than torque sensors, as the hands have been one of the main areas of technical challenges due to dexterity and the weight of the hands. Management will likely not be giving much more detail than what they are providing because of NDAs and the competitive landscape. They stated that if the bull case scenario comes to fruition, it will be pretty evident in terms of the impact to their financial model.
Physical AI
When discussing the conversations with two large Physical AI manufacturers, VPG stated that they are early on in those discussions, so there is nothing material they can add. They did say that if you listen to Nvidia talking about Physical AI and what it means for transforming manufacturing, you can get a sense of what this could mean for VPG and also the need they fit.
In order for AI to drive these advancements and value, especially within manufacturing, you need to have data and the data needs to come from the physical world. That data needs to be collected precisely and transmitted in an efficient way. What VPG does is at the frontier of that for data collection. VPG stated that this is a 3-5 years roadmap, but they think this could be another big driver for the business as an opportunity. VPG stated that the broader Physical AI market excluding humanoids could become quite meaningful and there is a number of opportunities that they can address, partially due to the humanoid applications.
VPG noted that Physical AI includes and is adjacent to robotics. Physical AI is the umbrella, but they talk about humanoids separately given they have three real customers actively ordering. VPG noted that they have never had anything like the pace of development and willingness to buy prototypes for humanoid robotics.
Management has some estimates for what humanoids can drive as a % of total company revenue, but nothing that they can share with me.
Business Development and Data Centers Opportunity
When talking about the new $45M BD target, VPG stated that the $45M of BD bookings that they are targeting for this year is a broad based array of products and customers. What they consider to be new business development are either bookings with new customers or new platforms with existing customers. They noted that a few of the BD initiatives could be quite large.
They pivoted to data centers as a market opportunity and VPG noted what is interesting about the data center and why they feel really good about that piece is they got sizeable orders in 2025, totaling $2M from a leading laser/optics manufacturer (Think Cisco, Lumentum, Ciena). VPG is selling precision resistors that go into the optical lasers and they are essentially controlling/monitoring the bias of the current that goes into the laser source. It has to remain in a very, very narrow set of parameters or it causes major degradation of the laser performance. VPG stated that their biggest competitor is a lower priced, lower performing product. Now, they are getting sizeable orders for this application because of the importance of transmitting larger amounts of data. They are buying VPG’s higher priced resistors as an insurance policy due to the precision necessary for larger data transmission, and noted it is a great example of how performance can come to VPG.
When asked if they are the sole source provider for this laser manufacturer, they said it is difficult to say, but the investment needed in the communications infrastructure to support this next wave of data requirements is driving a large opportunity. The leading companies like Cisco $CSCO, Ciena $CIEN, Lumentum $LITE are seeing outsized activity and growth.
Overall Business Update
VPG stated that they expect the gross margin target to be better than Q4. They still have some headwinds like FX and product mix that could impact it.
They are also in the process of finalizing the refresh of their long-term financial targets and they expect to roll that out in the next month or so.
45% GM Target and 18% operating for next 3-5 years was the old target. When discussing why the new targets are coming out in the next month, they noted the changes they have been making to the company going back to what was announced in November. Management is hyper focused on driving faster growth and continuing to reduce their cost structure and increasing operating efficiency. The organic revenue growth target for the next 3-5 years will be going higher than the original target set.
When discussing what management plans to do with current cash on hand, we talked through buyback and M&A opportunities. In terms of share buybacks, they did have a buyback in 2022 - early 2023, but they didn't believe it was a needle mover. The challenging thing about buybacks is that a majority of the company’s cash is held offshore. They also noted historically they were constrained in terms of how much they can buy given the average daily trading volume, but the pickup in average daily trading volume has eased that issue a bit.
As VPG thinks about capital allocation, there is a view that if they were to deploy capital, they would go for value accretive M&A. They noted there are many discussions around M&A targets and they have an ongoing program to evaluate opportunities. They noted they have been in the final stages of a few of them, but the challenge is price and what they bring to the company. There has been a lot of competition surrounding the most attractive assets. VPG noted there are some unique M&A targets, including players in the broader Physical AI space and that they have a pretty well thought out net that they could cast.