Good morning, and welcome to the VPG Fourth Quarter 2021 Earnings 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 note this event is being recorded.
I would now like to turn the conference over to Steve Cantor, Senior Director of Investor Relations. Please go ahead..
Thank you, operator and good morning, everyone. Welcome to VPG's 2021 fourth quarter earnings conference call. In addition to our Q4 press release and accompanying slides that have been posted on our website vpgsensors.com yesterday, we also issued a press release announcing a change in our strategy and business segmentation.
We will be discussing both on today’s call. An audio recording of today's call will also be available on the Internet for a limited time and can also be accessed on our website. Today's remarks are governed by the Safe Harbor provisions of the 1995 Private Securities Litigation Reform Act. Our actual results may vary from forward-looking statements.
For a discussion of the risks associated with VPG's operations, we encourage you to refer to our SEC filings, especially the Form 10-K for the year ended December 31, 2020, and our other recent SEC filings. On the call today are Ziv Shoshani, CEO and President; and Bill Clancy, CFO. And now I will turn the call to Ziv for some prepared remarks.
Please refer to Slide 3 of the quarterly presentation.
Ziv?.
Thank you Steve. I am pleased to report we delivered another strong quarter which capped a successful year for VPG. 2021 was one of the best years in VPG history as we grew our sales by 17.8% achieved in adjusted diluted EPS of $1.87 and improved our adjusted EBITDA margin to 15.7% from 14.1% recorded in the prior year.
Moving to Slide 4, before providing more color about our financial results, I am excited to announce today some important changes for VPG which we believe will bring us into our next phase of growth and profitability. This is a momentous time for VPG.
We are a leader in precision measurement sensing technologies, focusing on an expanding array of applications in which accuracy, reliability, and repeatability makes the difference. Our deep engineering and application expertise help our customers to make their product safer, smarter, and more productive.
Moving to Slide 5, over the past several years we have seen the need for precision measurements sensing solutions evolve and expand into new markets and applications requiring levels of precision that were not needed before.
This trends have converged with our own core competencies such as technology, innovation, and market presence as well as investments we have made over the past few years.
The result is the emergence of new applications for VPGs product beyond our traditional focus on legacy markets such as industrial, processing, avionics, military, and space and steel production. Compared to five years ago, we believe we are much better positioned to address this new promising opportunity.
In fact, greater portion of our 2021 sales were in a new or expanded areas. For example, our precision resistors are used in most semiconductor test and production equipment to meet the global demand for increasingly complex generation of microchips.
Our load cells are helping new precision agriculture equipment optimize seed planting depth to produce higher crop yields. Our overload monitoring systems are keeping our roads safe by enabling trucks and vans operators and drivers to stay within load limits and regulations.
Our miniaturized data acquisition systems and data logos are used in safety testing of new cars and vans. We've seen growing number for applications emerge in consumer markets, an area we did not address just few years ago.
We are addressing these new consumer applications not only with our advanced sense of business but in our other businesses as well. Moving to Slide 6, I am pleased to announce the next phase of VPG's evolution.
In the first phase of our journey as an independent public company from 2010 to 2016, we focused on streamlining our organization and operations and instituted vertical integration structure and strategy for our product and technology.
In the second phase from 2017 to 2021, we made critical investments leveraging our vertical integration structure in operational excellence and several growth initiatives including our advanced sensors and truck weigh runway. Today we are moving into a new phase of our growth.
As the need for precision measurement technologies continues to accelerate and transform driven by the development of higher functionality in our customers and products, we are changing our operating strategy and business reporting segments.
In order to capitalize on the expanding market opportunities and our strong competencies, we are applying strategy and structure that we believe will accelerate the hour long-term organic growth and optimize our operating leverage as well as to acquire additional high value businesses.
Moving to Slide 7, as a fundamental part of this evolution we have moved from a strategy of vertical integration to an operationally diversified company, that is to say one structure built around three distinct business pillars; sensors, weighing solutions, and measurement systems.
This structure will enable us to create value in our businesses by leveraging our strong corporate competencies, shared resources, investments, and organizational culture.
Each segment pillar has its individual growth strategies built on complementary operational technology and competitive capabilities to address the expanded market opportunities and customer’s growing needs. Moving to Slide 8.
As you can see on Slide 8 each of the new segment has its own growth and margin profile and capital requirements to support its growth strategies. We believe, the combination of these businesses will continue to provide both resilience and accelerated the growth.
The sensor segment is comprised of two businesses, precision resistors and strain gages which include our advanced sensors. The sensor segment had in 2021 sales of 127.9 million.
Our weighing solutions segment is comprised of Force Sensors overload monitoring solutions for trucks and other vehicles and process weighing solutions for specialized weighing systems. In 2021 this segment had sales of 125.4 million.
The measurement system segment is comprised of four businesses; KELK, highly specialized measurement systems for steel production; DSI, metal alloy development tools; Pacific Instruments, data acquisition systems; and DTS, safety testing solutions.
Each of these businesses has strong established brands and have built a reputation for providing the highest performing product in that category. The measurement system segment recorded 64.7 million of sales in 2021. Beginning today with Q4 and 2021 results and going forward we are reporting our financial results based on our new reporting segments.
Investors can find eight quarters of sales and gross margin data for the new reporting segments in the appendix of today's presentation slides and on our website. Moving to Slide 9, as we embrace this next phase in our evolution, the underlying foundation will continue to leverage our corporate competencies to create value.
We will continue to drive operational excellence across all our businesses as well as to build strong brands and management teams. Apply manufacturing focus and innovation expand our relationship with top tier Fortune 1000 customers and allocate capital to seek maximum returns.
Most importantly we believe this framework will enable us to build our growth and profitability which can result in the long-term targets of revenue growth in the low double-digits including M&A and adjusted gross margin of 45% and adjusted operating margin of 18%, and adjusted EBITDA margin of 22%.
Moving to Slide 10, turning to the fourth quarter of 2021 we reported record sales of 90 million which increased 9.8% from the third quarter of 2021. And delivered an adjusted earnings per diluted share of $0.56. Book-to-bill was 1.06 reflecting sustained strength in order patterns across the majority of our markets.
Operationally during the quarter, we made significant progress in addressing the label challenges we experienced in the third quarter. While the majority of our open positions have been filled, our operating performance in the sensor segment was impacted by inefficiencies as the new employees were brought onboard and trained.
In terms of other global supply chain constraints, we are continuing to effectively manage the supply of key components although this continues to require close attention. Although this continues to require close attention, we are implementing price increases to mitigate higher labor costs, higher material prices, and logistics costs.
Looking at our business segment performance we grew revenue in the fourth quarter across all three business segments, as we continued our focus on accelerating long-term growth across the company. Moving to Slide 11, beginning with our sensor segment which is comprised of our advanced sensors product and our precision resistors.
Fourth quarter revenue of 34.1 million grew 11.2% sequentially and 7.1% from a year ago. The sensor segment had the book-to-bill of 1.11 as sequentially higher orders in consumer and general industrial markets were offset mainly by the timing of orders in the test and measurements.
I am pleased to report that we continue to make progress in our strategic growth initiatives in the sensors segment. In the fourth quarter, advanced sensors revenues and orders grew 10% and 30% respectively from the third quarter resulting in a book-to-bill of 1.41.
We continued to engage new customers for this product in the range of new application including consumer and PC board testing.
For our precision resistors for the client we are pursuing several new opportunities beyond our traditional applications in such areas as easy battery testing and the testing of optical data network to support 5G infrastructure among others.
To support this growth, we are expanding manufacturing capacity, new automated processes for precision resistors. Similar to the approach, with advanced sensors we believe this additional capacity which is anticipated to be ready by the end of the year -- by the end of this year will allow us to address new higher volume opportunities.
In terms of operating results for sensors, the adjusted gross margin in the fourth quarter of 34.8% included approximately 1.2 million of negative impacts from three factors, unfavorable foreign exchange, labeling efficiencies, and wage increases.
The weaker dollar continues to be a significant headwind to margin impacting sensors results by 600,000 compared to the third quarter and 1.4 million compared to a year ago. Labeling efficiencies which resulting from the hiring and training of new employees had the $400,000 impact versus Q3.
And lastly COVID related wage increases which we put in place to fill open positions increased our expenses by 200,000 sequentially and 500,000 compared to a year ago.
While we don't control the exchange rate, we believe the labeling efficiencies our temporary if we adjust for the exchange rate and the labeling efficiencies gross margin for sensors would have been approximately 40%. Moving to Slide 12.
Turning to our weighing solutions segment which is comprised of our Force Sensors, onboard weighing, and process weighing businesses. Fourth quarter sales of 32.1 million increased 4.5% from 30.7 million from the third quarter of 2021.
We are pleased with our Force Sensors OEM initiatives as OEM revenue grew approximately 35% on a sequential basis as well as 16% on a year-over-year basis. The weighing solutions segment had the book-to-bill ratio of 0.98 in the fourth quarter of 2021.
Our strategic priorities in the weighing solutions segment includes expanding our OEM sales of Force Sensors and growing our sales of onboard weighing solutions to enable truck and van operators to meet vehicle overloading regulations in Europe. For Force Sensors we continued to address new applications beyond our industrial ones.
In such, area is consumer and medical. As an example our Force Sensors are now being used in electric bikes by sensing how hard rider is pedaling the sensors to improve battery efficiency in the new generation of electric bikes by providing real time feedback to the motor.
In spite of these successes our truck weigh, van weigh products continue to be impacted by the lack of availability of new trucks and vans in Europe due to the global semiconductor shortage.
While demand for our solutions for the large trucks has improved, we are currently estimating that the supply shortages of the new vehicles will start to ease in the second half of this year. Weighing Solutions adjusted gross margin of 34.0% in the fourth quarter declined from 37.6% in the third quarter.
This sequential decline in adjusted gross margin was primarily due to unfavorable product mix, reduction of inventories, and higher material costs partially offset by an increase in volume and price increases. Moving to Slide 13. Turning to our measurement system segment which is comprised of our KELK, DSI, DTS, and Pacific Instrument businesses.
Revenue in the fourth quarter of 23.8 million increased 15.6% sequentially, reflecting higher KELK and DTS sales. The increasing sales year-over-year was 69.7% primarily due to the acquisition of DTS in June of 2021.
Book-to-bill for measurement systems was 1.08 reflecting sequential order growth in steel, avionic, military and space, and consumer which offset lower orders in transportation. Our measurement systems businesses are strong market leaders in their respective niches.
Demand in these businesses is largely project driven as the systems generally have a longer selling and delivery cycle and higher ASP. Within these niches, there are a number for attractive avenues for growth. For example, DTS is working on NFL related project in sports safety in addition to its core applications in the auto and military safety.
DSI is expanding its market opportunity for its metal alloy development tool by introducing new configuration of its market leading systems. KELK has augmented its product offering for its productivity systems used in steel manufacturing. Adjusted gross margin in the fourth quarter for measurement systems was 56.8%.
Adjusted for purchase accounting related to the DTS acquisition and decline from 59.2% in the third quarter mainly due to unfavorable product mix and inventory reduction partially offset by higher volume.
Looking at our priorities for our capital deployment for VPG as a whole, we intend to continue making investments to support growth and margin expansion and to acquire additional high quality businesses. For fiscal 2022 we expect CAPEX to be in the range of 30 million to 33 million, the highest level in our history.
Approximately 10 million is a carryover from 2021 which had been pushed out due to COVID related matters. Approximately half of our purchases are infrastructure related to support additional capacity expansion for growth initiatives for precision resistors in the sensor segment and Force Sensors in the Weighing Solution segment.
The other 50% CAPEX is mainly for equipment, for expansion and cost reductions mainly in the sensor segment. Before turning the call to Bill for additional financial details, I want to thank our employees and our customers around the world for making 2021 a successful year for VPG.
The passion, dedication, and focus of VPG team on our customers are the engine of our success. I will now turn it over to Bill Clancy for more details. Bill. .
Thank you Ziv. Referring to Slide 14 and the reconciliation tables of the slide deck, in the fourth quarter of 2021 we achieved record revenues of 90.0 million, gross margin of 38.7%, operating margin of 9.7%, and diluted earnings per share or $0.44.
On an adjusted basis which we lay out in a reconciliation table in the press release, our gross margin was 40.3%, operating margin was 11.4% of sales, and diluted earnings per share was $0.56. Our fourth quarter 2021 revenues grew 19.3% as compared to 75.4 million in the fourth quarter a year ago and were 9.8% above the third quarter of 2021.
Foreign exchange for the fourth quarter of 2021 had a negative impact on revenues of $500,000 compared to a year ago and a negative impact of $700,000 as compared to the third quarter of 2021. The gross margin in the fourth quarter was 38.7% compared to 38.8% in the third quarter.
On an adjusted basis, fourth quarter gross margin of 40.3% compared to 41.8% in the third quarter of 2021 excluding 916,000 of facility start-up costs for advanced sensors and 516,000 of acquisition purchase accounting adjustments. Our operating margin was 9.7% for the fourth quarter of 2021.
Our fourth quarter adjusted operating margin was 11.4% excluding 76,000 of restructuring costs and the adjustments I just mentioned above. Selling, general, and administrative expenses for the fourth quarter of 2021 was 26.1 million or 28.9% of revenues compared to 24.6 million or 30% of revenues for the third quarter of 2021.
The increase in SG&A of 1.5 million mainly relates to 600,000 for stock compensation expense, $500,000 for increase of working days, and $400,000 of travel and commissions.
The adjusted net earnings for the fourth quarter of 2021 was 7.7 million or $0.56 per diluted share compared to 7.1 million or $0.52 per diluted share in the third quarter of 2021. Adjusted EBITDA was 14.2 million or 15.7% of revenue and grew 28% compared to 11.1 million or 14.6% a year ago.
CAPEX in the fourth quarter was 5.9 million, the majority of which reflects purchases and related infrastructure for the new advanced sensor facility. We generated adjusted free cash flow of 9.6 million for the fourth quarter of 2021 as compared to 3 million for the third quarter of 2021.
We define adjusted free cash flow as cash from operating activities less capital expenditures plus sales of fixed assets. Total CAPEX for 2021 was 17.1 million or 5.4% of revenues mainly due to the growth related investments in our advanced sensor facility. The GAAP tax rate in the fourth quarter was 23%.
We are assuming an operational tax rate in the range of 25% to 27% for the full year of 2022. Moving to Slide 15. We ended the fourth quarter with 84.3 million of cash and cash equivalents and total long-term debt of 60.7 million.
We believe that we have a strong balance sheet and ample liquidity to support our business requirements and to fund additional M&A opportunities. Moving to the outlook, for the first fiscal quarter of 2022 at constant fourth fiscal quarter of 2021 exchange rates, we expect net revenues to be in the range of 83 million to 91 million.
In summary, 2021 was one of the most successful years in VPG’s history. We are excited about this next evolutionary step for VPG and the path for faster growth and operating leverage it provides.
As a leader in precision measurement technologies our change in strategy and structure will enable us to pursue emerging opportunities driven by the development of higher functionality in our customers and products. And with that let's open the line for questions. Thank you. .
[Operator Instructions]. Our first question today comes from John Franzreb with Sidoti. Please go ahead. .
Good morning Ziv and Bill, how are you doing today. .
Good morning John..
I guess I will start with the advanced sensor business, couple of questions there.
Firstly, how much in revenues did that business contribute for the full year fiscal 2021? And secondly, were there any start up related issues in the fourth quarter and are you fully satisfied with the tooling effort and are you done tooling it for now?.
Okay. We -- and good morning John. We never gave the complete number for 2021 but as we indicated the roundabout number is at the level of $40 million.
It's important to stay and I already indicated that in advanced sensor, I mean due to the direct label shortages we were in a certain situation where we had to apply wage increases in -- I would say around November time frame. We started to fill in and to have -- and to hire more people. So we are in a ramp up situation.
One, we should still expect to see some residual inefficiencies in the way in respect to a learning curve and hiring more people.
I would say starting Q2 things would stabilize, we are fully, I would say, there is some equipment that is on the way that has been delayed during COVID but at this point in time it does not limit our operational capabilities.
To deliver more it was mainly more personnel related as I indicated which we have addressed and I would say that I believe that we have booked in Q4 around $3 million of startup cost related to advanced sensors which should dramatically go down in Q1 and we should not have anything as of Q2. .
Perfect, thank you Ziv.
And regarding the price increases, can you talk about the timing of the impact of those increases, are you starting to see the benefits, is there a delayed timing to receive those benefits offsetting those higher input costs and when do you expect to reach equilibrium?.
Okay, so in regards to price increases as we have seen already a couple of quarters ago, given the environment, higher logistics cost, and already there was a certain sense that we will have to take steps in order to increase wages and also material costs.
I would say that we have selectively went to each of the product lines and looking at where we can increase prices but at the same time not to jeopardize the relationship with the customer.
From a price increase standpoint, we -- in this quarter we are reporting around $800,000 of price increase in respect to prior quarter and around 1.1 million in respect to Q4 of a year ago. So, price increase already start to take effect, already this quarter, and we will see a bigger momentum moving into this year. .
Okay and just one last question if I can, the capacity expansions you kind of referenced in precision resistors and Force Sensors, what's driving that, is there a particular end market that you think there is opportunity in those two businesses that you want to capture of the customers coming to you and asking you for something and you're just addressing those needs, can you just give a little bit more color about what’s driving that big increase in spend?.
Yes, yes, absolutely. I think it's coming on both ends. On one hand as we said there is a higher functionality.
We see more and more potential due to the higher functionality from a customer standpoint in respect to precision application while our R&D teams are developing newer products once those two vectors are meeting each other we see higher demand.
Therefore, one indication that we mentioned here during the call for precision resistors was 5G high-end infrastructure which we see much more need than we already started to get more and more design into that. And on the Force Sensors site we indicated more and more consumer application which we never had before like the electric bikes.
So we see more and more opportunities and we believe we have to capitalize on that. And this is definitely the biggest trigger also for the change in the business strategy for the company. .
Great, thanks for the color Ziv and congratulation on a good quarter. I will get back in the queue. .
[Operator Instructions]. Our next question will come from Dick Ryan with Colliers. Please go ahead. .
Thank you, yep, no thank you. So Ziv, you have talked about some easing in the European market for trucks and vans for your onboard weighing systems.
Can you give us a little more color I mean, has demand -- is demand still there being driven by regulations and how do you think that it's going to flow, you kind of mentioned second half of the year but can you give us a little more specifics on the rebound in that market?.
Absolutely Dick.
So on one hand we have our own let's call it standup business which we have developed for I would say since a while ago and this is where we have seen certain shortages which the affect is around 900,000 of potential revenue which we will not be able to book, I mean because we didn’t get the orders because our customers had lack of microchips.
So this is only referring to the standard business. In addition to that there is a potential in respect if you -- which you indicated and this is the regulation that has been effective as of May regarding the onboard weighing.
We have been proactively -- I would say that we have been proactively promoting that but given the situation and the constraints of microchip we -- there is a certain I would say delay in respect to the acceptance of our customers to move with the regulation given the shortage.
So we are looking at to effect that one, once and we do believe that in the second half of the availability of components would improve, we should definitely see an upside in respect to order intake coming from those two potential vectors. .
Okay, thank you. So when you look at the supply chain you have had some revenue pushes in previous quarters.
Have you caught up with that and was there any revenue pushing from Q4 into Q1?.
Excellent. So you are absolutely correct Dick, in the last quarter we have report -- we did report challenges and are pushing out of $4 million to $5 million of revenue from Q3.
This quarter we were able to capture approximately half of that and there is still another 50% which is around 2 million to 2.5 million which is expected -- the remaining we are expecting to capture in Q1 this quarter. .
Okay. One last one, when you look at the longer term perspective you laid out in one of the slides, kind of the low double-digit growth. You're combining both organic and acquisitions in that perspective.
Can you parse the two, what are you kind of looking at for organic growth and how should we view your M&A activity going forward?.
Okay. So let's talk about organic growth. When we speak about organic growth we are looking at few factors. One is each of the reporting segment and then look -- each of the reporting segments potential. And then we are looking at what -- with an M&A what would be the expectation at least from what we may have seen in the past.
So coming back to the respective reporting segments, I think that as far as I know we did say that we are looking at high-single-digits on the sensor side giving those consumer opportunities in their weighing systems since it’s a blend of different product lines.
The higher end growth would come from truck weight, van weight and OEM Force Sensors while the lower or slower faced would come from the process weighing or more of the general weighing. And on the measurement systems we are still also looking at the high single digit.
Historically and it is on one of our slides, we have reported for the last five years 7% top line growth which I would say it's the highest -- it's one of the highest in our industry, now in the industrial sector. 7% over five years from 2017 to 2021.
So given the expectation and the acquisitions that we are looking at, some of them are bolt-on, some of them may be a little bit larger. I do believe that a low-double-digits can be achieved. This is a three to five years target and this is something that I do believe can be achieved. .
Okay, great. Thanks Ziv and congratulations on the strong execution here. .
Our next question will come from Sarkis Sherbetchyan with B. Riley Securities. Please go ahead. .
Hi, thank you for taking my question. I just want to go back to the growth and profitability slide, Slide 9 with a three to five year targets.
More specifically just kind of focusing on your margin profile, if I look at adjusted gross margin targets of 45%, adjusted operating margin of 18%, unrelated to what you guys posted here for fiscal 2021, what does kind of the glide path look like to expand the margins and it sounds like you're able to get some nice drop throughs where your operating margins would accelerate faster, given kind of the top line growth.
Can you maybe speak to the glide path of the margins from here to that three to five year target?.
Yes, absolutely Sarkis. So when we are looking from a margin perspective we have few moving parts. First of all, we are looking at current exchange rate and given the fact that the label inefficiencies which we have quoted on one hand our temporary effect which is expecting to go away.
In the second quarter we are looking at the wage increase and material prices but on the other hand we are looking at the price increases to customers.
So in order to meet that we should expect what we need is additional volume, I would say around 10% -- around 10% volume in order to improve our operating efficiencies or to improve the operating efficiencies which would trigger more cost reduction.
And as we expect with this I would say low double digit growth, we should be able to achieve -- with additional volume we should be able to achieve those financial targets in respect to adjusted gross margin, adjusted EBITDA, as well as adjusted operating margin. .
Understood and I think if I go back to the top slide on Slide 8 where you're laying out the segments, reclassification, and kind of the growth and margin highlights, it looks like for sensors and measurement systems that's the areas that you're looking for potential M&A opportunities and then for the weighing solutions segment you're just kind of relying more on organic growth.
Can you maybe delineate the potential for M&A and then perhaps the pace of M&A that you're anticipating for the two respective segments?.
Okay, on one hand as you know the M&A environment in the last few years was quite challenging due to the low interest rates and the amount of cash that has been laid around in the market. As the inflationary environment is getting -- is continuing we would expect to see the valuations becoming more reasonable.
Therefore, we would expect to see more opportunities. It's not the fact that we have not seen opportunities before but we were as always extremely selective and extremely disciplined to pay the right price for the right company. So the number of opportunities were more limited.
Looking forward given the environment today, we do believe that we should expect to see many more opportunities. Therefore, I do believe that our M&A transaction should be -- will or is expected to be accelerated. I'm sorry, what was your other question. .
If you can kind of talk to sensors versus measurement systems, in the slide deck it seems like those are the two respective areas for M&A, so maybe size or anything to that effect?.
Yes, yes, absolutely. So as you know in -- let's start on the sensor side. On the sensor side we have two unique technologies. One is precision resistors where we have really a unique technology. We do have competitors but the competition is with a different technology.
But in respect to our technology we are in a way really -- we do have a proprietary unique technology which nobody else has in the world.
On the other hand therefore, excuse me, therefore the valuable position is very, very high and the prospective opportunities are even moving from mission critical to non-mission critical applications, higher volume, the projection is also I would say there is a higher probability to materialize on that.
In advanced sensors again it's a unique -- the technology -- this is an evolution or next generation technology from our legacy but again the product we are able to produce at the existing cost has a unique value proposition.
I do believe that as we are going to expand our precision sensors we would continue to buy or we would continue to buy or we would expect to buy companies with similar attributes at an adjacent sensors technologies which we believe can support the growth on one hand but can also bring a similar value proposition to our customers.
In the measurement systems on the other hand we are market leaders in all our niches, very strong brands, again very highly value propositions. So we believe that those two segments we can expand much faster than the weighing solution which is mostly based on load cells based technology which is also were very I would say very strong.
But the potential for expansion moving out of the load cells strain gage based technology is difficult or the portability to expand and to develop that is much higher on the sensor side and on the measurement system side. .
Great, thank you. That's all for me. .
Our next question comes from Bill Dezellem with Tieton Capital. Please go ahead. .
Thank you. Let me start by picking up on something you mentioned on the conference, on your opening remarks relative to the increased number of new applications versus five years ago.
What percentage of revenues are in those new applications versus where you would have characterized it five years ago?.
We have never reported the number but currently we are selling for example to consumer and to other application which did not exist five years ago. It's in the tens of millions of dollars. But we have not disclosed the exact percentage. In some of those applications we have strict NDAs around them.
But we are speaking about tens of millions of dollars which we did not have five years ago. .
And given what you've been describing today Ziv, would you anticipate that if that same question were posed five years from now and five years after that, that the number continues to be larger and larger or if the dynamics are different than that?.
Look, I think it's -- if we look at the macro picture I think it's quite clear where the world is heading.
Well our customers is heading in respect to functionality, in respect to precision, in respect to data collection, therefore we would only expect to see more and more sensing applications in various pieces of equipment which has never been part of that potential customer base or potential eco system.
So this is -- so I would say that we are looking really in a way in mega trends therefore I do believe that we should expect to see more and more opportunities coming in the future from current customers and potentially new customers because that as I said, that is a mega trend.
Trying collecting more data and one of the ways to collect more data is via sensors, applying more and more sense sensing applications. .
That's very helpful, thank you. And then before your opening remarks, a question that was going through my mind was whether at the end of the calendar quarter net your advance sensor plant was kind of active, fully efficient, mature level. And you noted that it is not as a result of labor.
But given the strength that you see in the advanced sensor applications and the fact that you're going to -- it sounds like being in a constant mode of ramping that facility up to accommodate additional demand.
Do you believe it will -- well I mean ever achieve kind of fully efficient and mature level or will you always be in some level of inefficiency as you're ramping that plant up of course until you reach that fully to old and no more extension in May if possible?.
Sure, sure. Okay, that's a very good question. So I will tell you, the fact that we went into tremendous or I would say to inefficiency and I speak about the inefficiency not the start of course which is part of a normal transition starting a new manufacturing facility especially if you are running full steam ahead.
The learning curve or so called the inefficiency due to hiring more people in a learning curve, this is a cause of the COVID as you know the big resignation and the fact that now it is harder to get direct label hiring much more challenging around the world. We were able to address that in November of last year.
So once this has been resolved and how did we do that, of course we had to increase the pay, the base pay. So we did that and now we are in a hiring mode. From an equipment standpoint we were slightly behind due to COVID and due to the fact that there were travel restrictions and the fact that manufacturers had long lead time of equipment supplier.
The long lead time of equipment has been ordered and it is on the way. So we should be in a good shape by mid-year but at this point in time equipment is not the constraint. Once the people are hired and as I indicated, at the end of Q1 we should be fully staffed, we will have excess equipment capacity.
I would say that originally when we have been looking at the advanced sensors we wanted to ensure that at any given point in time we have 20% excess equipment capacity to capitalize on any upside we would see from a business standpoint. So we would reach that position already, this year for advanced sensors.
So I would expect that the inefficiencies as well as any potential equipment capacity limitation would be resolved this year given the investments we made on the equipment side and on the personnel side. So I don't expect it to continue next year or even I would dare to say to the end of this year we should be in a good shape in advanced sensors.
Also in respect to inefficiencies. .
Thank you and one final question, your inventories in both the measurement systems and weighing solution segments were down.
Were those declines as a function of the supply chain challenges or were you all intentionally drawing inventories down and we can address it to Part A measurement systems, Part B plain solutions?.
Sure, sure. So let's speak about measurement systems. Measurement system what do we sell. We sell complete piece of equipment. So since we have a certain delivery date and given the fact that Q4 was strong for Measurement Systems, we had those inventory waiting to be delivered, the finished goods.
And this is where we have the highest value at the finished goods level. So as those finished goods that were ready to be delivered, has been delivered to the customers, immediately, you see a drop in inventory.
So this is just part of the cycle of building inventory to be shipped, and then since you are selling a complete system, then you see a drop in inventory, while an increase in revenues. So this is the nature of Measurement Systems.
In a way, Weighing Solutions has a combination of system-related products and selling products out of stock since we have two large regional warehouses. So over there, we just see a kind of a cycle of orders being sold more from inventory on the Weighing Systems.
But there was no -- there is no plan of inventory reduction or, I would say, on the other hand, excuse me, due to supply chain related matters, having lack of inventory. This is just part of the COGS and -- COGS, finished goods and sales cycles for both of the reporting segments -- for both reporting segments..
Great, thank you for taking all the questions. .
[Operator Instructions]. Our next question comes from Brett Hendrickson with Nokomis Capital. Please go ahead. .
Hi guys, it's great to see advanced sensors moving forward. I think Ziv, in your prepared remarks, I heard you say that the drivers for the growth in orders in advanced sensors was consumer and printed circuit boards.
Could you expand on printed circuit board testing, is that testing that's being done on the production line or is that some kind of testing that's attached to the device permanently and because I think people think of PC board testing, they think of semi-cap equipment and relatively lower value-added application but I'm assuming it's a higher value-added application and maybe higher units because even in the past, you've talked about getting the form factor and the cost down in advanced sensors to be able to do higher unit volumes?.
Yes, you are correct, Brett. The PC board testing, this is not on the device itself, but it's on the production line. Our gauges, it's a special design of gauges are embedded -- are embedded in the testing line in order to assure the quality and the specification of the PC board, but this is on the testing line.
And regarding the consumer, it's -- yes, sorry..
Go ahead..
No, no, regarding the consumer, since we have strict NDAs, I cannot elaborate. But what I can say is that we do enjoy a very strong momentum, which we see this continues into next year..
Okay, and then on the PCB testing, is there -- I don't know, where the intellectual property resides, hopefully, it's with VPG.
Does -- are you able to take that into I mean, like I had -- those printed circuit boards that have issues there's just so many printed circuit boards, like there's printed circuit boards in irrigation systems, there's printed circuit boards out in the field that have all sorts of pressure issues and the units are in the millions.
Can you take that in the various PCB applications or does the intellectual property reside with one or two customers?.
Okay. So on the PCB testing we have in a way two types of products that we sell. On one hand, those are the gauges; but on the other hand we do sell also some of our large data acquisition system. So we do also sell that to the PC board industry.
Now regarding the application itself, since our gauges are highly engineered, I would say that for the simple PC boards for the irrigation and other type of, if I may say, lower spec application, those designs are probably -- our gauges are over designed.
Therefore, the use of our gauges are more for the complex PC board, where you have multiple layers within those PC boards. The simpler ones so far have not been using those type of gauges. So this is something that probably we may have to -- we may look to develop a much, much -- if we can, a much more cost-effective product.
But at this point in time, given the complexity and the nature of those products, they are designed only at a high layer or high -- yes, high layer amount, more complex PC boards..
Okay, okay. Well, thanks. Congrats, Ziv on growing this and we'll follow up afterwards. Thanks..
Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Steve Cantor for any closing remarks..
Thank you. Before concluding, I want to let investors know that we will be at the Sidoti Conference in March, and we look forward to meeting with you then. In the meantime, thank you for joining the call, and have a great day..
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..