Q4 2021 Vishay Precision Group Inc Earnings Call
Good morning, and welcome to the V. P. G fourth quarter 2021 earnings call all participants will be in listen only mode. So do you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you made.
Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I'd 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 <unk> 2021 fourth quarter earnings Conference call. In addition to our Q4 press release and accompanying slides that have been posted on our website PPG sensors Dot Com yesterday, we also introduced 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 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 Ppg'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, <unk>, CEO , and President and Bill Clancy CFO and now I'll turn the call to Z for some prepared remarks, please refer to slide three of the quarter.
<unk> presentation Ziv.
Okay.
Thank you Steve.
I'm pleased to report we delivered another strong quarter, which capped a successful year for V. P. G.
2021 was one of the best years in V. P. G story.
As we grew our sales by 17.8% achieved an adjusted diluted EPS of 1.8, $7 and improved our adjusted EBITDA margin to 15, 7% from 14.1% recorded in the Pie O U.
Moving to slide four.
Before providing more color about our financial results I'm excited to announce today. Some important changes for V. P. G, which we believe will bring us into our next phase of growth and profitability.
This is a momentous time for PPG.
We are really deal in precision measurement sensing technologies, focusing on an expanding array of applications in which you always see reliability and repeatability makes the difference our DP engineering and application expertise help our customers to make the product.
Safer smalto and more productive.
Moving to slide five.
Although the past several years, we have seen the need for precision measurement sensing solutions evolve and expand into new markets and applications requiring levels of precision that's not needed before.
These 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 V. P. G spot that 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 opportunities in fact.
Greater portion of our 2021 sales were in U S or expanded areas. For example, our precision because these tools are used in most semiconductor test and production equipment to meet the global demand for increasingly complex generation of microchips.
Wood sales are helping new precision agriculture equipment optimized seed planting depth to produce higher crop yields.
Our overload money flowing systems I was keeping our votes safe by enabling trucks and vans operate those and divers to stay within load limits and regulations.
Miniaturized data acquisition systems and data logos all used in safety testing of new cars and vans, we've seen growing number of applications emerging consumer market an area. We did not addressed address just a few years ago.
We are addressing this new consumer applications, not only with our advanced sensor business, but in our other businesses as well.
Moving to slide six.
I am pleased to announce the next phase of V. P. G. 's evolution in the first phase of our journey.
As an independent public public company from 'twenty to 'twenty 16, we focused on streamlining our organization and operations.
And instituted the vertical integration structure and strategy for our product and technology in.
In the second phase from 2017 to 2021 we made critical investments leveraging our vertical integration structure.
Operational excellence and several growth initiatives, including our advanced sensors and truck wait one week.
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 <unk>.
Our customers and for that 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 our long long term organic growth and optimize our operating leverage as well as it as well is to acquire additional high value businesses.
Moving to slide seven.
It's a fundamental part of this evolution, we have moved from a strategy of vertical integration twin operationally diversified company that is to say one structure built around three distinct business pillows.
Sensors weighing solutions and measurement systems. This structure will enable us to create value in our businesses by leveraging our strong called corporate competencies shared resources investment and organizational culture.
Each segment pillow has its individual growth strategies built on complementary operational technology and competitive capabilities to address the expanded market opportunities and customers' growing needs.
Moving to slide eight.
As you can see on slide eight 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 growth.
The sensor segment is comprised of two businesses precision resistors and strain gauges, which include our advanced sensors the sensors segment.
Head in 2021 phase of $127 9 million.
Ah we're weighing solutions segment is comprised of four sensors overload monitoring solutions for trucks and other vehicles and process weighing solutions for specialized weighing systems in 'twenty 'twenty. One this segment had sales of 125.
4 million.
The measurement system segment is comprised of four businesses.
It looks highly specialized measurement systems for steel production DSI metal alloy development tools.
Perfect instrument data acquisition systems and D. T S safety testing solutions. Each of these businesses has strong established brands and have built a reputation for providing the highest performing products.
In the categories. The measurement systems segment recorded $64 7 million.
Of saves in 2021 .
Beginning today with.
With Q4 in 2020 , one results and going forward, we are reporting our financial results based.
On our new reporting segments invest those 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 nine.
As we embrace this next phase in our evolution.
The underlying foundation, we 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.
Applying manufacturing focus and innovation expand our relationships 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 digit, including M&A and adjusted gross margin of 45% and adjusted operating margin of 18% and adjusted and adjusted EBITDA EBITDA margin of 22%.
Yeah.
Moving to slide 10.
Turning to the fourth quarter of 2021 .
We reported record sales of 19 billion, which increased nine 8% from the third quarter of 2021 .
And delivered an adjusted earnings per diluted share or 56 cents.
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 labor challenges, we experienced in the third quarter.
While the majority of our open positions.
I've been field, our operating performance in the sensor segment was impacted by inefficiencies as the new employees will bought on board 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.
We are implementing price increases to mitigate higher labor costs higher material prices and logistics cost.
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 sensors segment, which is comprised of our advanced sensors product an.
In our precision resistance.
Fourth quarter revenue of $34 1 million.
Grew 11, 2% sequentially and seven 1% from a year ago.
The Central 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'm pleased to report that we continued to make progress in our strategic growth initiatives.
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 one point for one week.
We continue to engage new customers for this product in the range of new applications, including consumer and P. C. Both testing.
For our precision resistors product line, we are pursuing several new opportunities beyond our traditional applications.
In such areas as EV battery testing.
And the testing of optical data network to support five G infrastructure.
Among others.
To support this growth, we are expanding manufacturing capacity, new automated processes for precision resistors.
Hello 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.
Three factors.
Unfavorable foreign exchange.
Labor inefficiencies and wage increases.
So we feel dollar continues to be a significant headwind.
Margin.
Impacting sensors results by 600000 compared to the third quarter, and one 4 million compared to a year ago Les.
Labor inefficiencies, which resulting from the hiring and training of new employees had the $400000 impact versus Q3.
And lastly, COVID-19 related waging pieces, which we put in place to field opened positions increased our expenses by 200000 sequentially and 500000 compared to a year ago.
While we don't control the exchange rate, we believe the labor inefficiencies out temporarily.
If we adjust for the exchange rate.
And the labor inefficiencies gross margin for sensors would have been approximately 40%.
Moving to slide 12.
Turning to our weighing solutions segment.
Which is comprised of our full sensors onboard weighing and process weighing businesses.
Fourth quarter sales of $32 1 million increased four 5% from 37 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 there.
The weighing solutions segment had the book to Bill at a ratio of <unk> 98 in the fourth quarter of 2021 .
Our strategic priorities in the weighing solutions segment includes expanding our OEM sales force sensors and growing our sales of onboard weighing solutions to enable truck and van operators to meet vehicle overloading.
<unk> in Europe .
For force sensors, we continue to address new applications beyond our industrial ones in such.
Areas as consumer and medical.
As an example, our force sensors are now being used in electric bikes.
By sensing how hot cause I, though.
He's peddling the sensors to improve battery efficiency.
In the new generation of electric bikes by providing real time feedback to the model.
In spite of these successes our truck way runway for that Kantar.
Continued 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 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.
Sequential decline in adjusted gross margin was primarily due to unfavorable product mix reduction of inventory and higher material cost, partially offset by an increase in volume and price increases.
Moving to slide 13.
Turning to our measurement systems segment, which is comprised of our calc DSI D T S and Pacific instruments businesses.
Revenue in the fourth quarter.
Of 23 8 million increased 15, 6% sequentially.
Selecting higher calc and D. T S sales the increase in sales year over year was 69, 7% primarily due to the acquisition of V. P. S. In June of 2021 .
Book to Bill for measurement systems was 1.08, reflecting sequential order growth in steel.
Have you only military and space end consumer.
[noise] offset lower orders in transportation.
Our measurement systems businesses are strong.
Our 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's.
We think these niches there are a number of attractive <unk>.
Revenues for growth.
For example, D T S. He's 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.
So its metal alloy development tool by introducing new configuration of its market leading systems.
Carol here.
He's augmented in its product offering for its productivity systems used in steel manufacturing.
Adjusted gross margin in the fourth quarter for measurement systems was 56, 8%.
Yeah.
Adjusted for purchase accounting related to the Dts acquisition and declined from 15 nine 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 V. P G as a whole.
We intend to continue making investments to support growth and margin expansion and to acquire additional high quality businesses.
Well fiscal 2022 we expect capex to be in the range of 30 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-19 related matters.
Approximately half of our.
Purchases of infrastructure related to support additional capacity expansion for growth initiatives for precision resistors in the sensor segment and for sensors in the wing solutions segment.
The other 50% Capex is mainly for equipment.
For expansion and cost reduction mainly in the sensor segment.
Before turning the call to bill for additional financial detail.
I want to thank our employees and our customers around the world for making 2021 a successful year for V. P. G.
Passion dedication and focus of <unk>.
P. G team when our customers are the engine of our success.
I will now turn it over to Bill Clancy for more detail.
Bill.
Thank you Zee.
Referring to slide 14, and the reconciliation tables or the slide deck in the fourth quarter. Our 'twenty 'twenty. One we achieved record revenues of 90.1 million gross margin of 38, 7%.
Operating margin of nine 7% and diluted earnings per share of 44 cents.
On an adjusted basis, which we lay out in a reconciliation table in the press release, our gross margin was 43%.
Operating margin was 11, 4% of sales and diluted earnings per share was 56 cents.
Our fourth quarter 2021 revenues grew 19, 3% as compared to $75 4 million in the fourth quarter a year ago.
There were nine 8% above the third quarter of 2021.
Foreign exchange for the fourth quarter of 2021 had a negative impact on revenues of $500000 compared to a year ago, and a negative impact of $700000 as compared to the third quarter of 2021.
Uh huh.
The gross margin in the fourth quarter was 38, 7%.
Probably the 38, 8% in the third quarter.
On an adjusted basis fourth quarter gross margin of 43%.
Compared to 41, 8% in the third quarter of 2021.
<unk> 916000 facilities start up costs for advanced sensors.
516000 of acquisition purchase accounting adjustments.
Our operating margin was nine 7% for the fourth quarter of 2021.
Our fourth quarter adjusted operating margin was 11, 4%.
Excluding 76000 of restructuring costs and the adjustments I just mentioned above.
Selling general and administrative expenses for the fourth quarter of 2021, or $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 600000 for stock compensation expense.
$500000 of increase in working days.
And $400000 of travel and commissions.
The adjusted net earnings for the fourth quarter of 2021, or $7 7 million or 56 cents per diluted share compared to $7 1 million or <unk> 52 cents per diluted share in the third quarter of 2021.
Adjusted EBITDA was $14 2 million or 15, 7% of revenue.
<unk> 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.
Capital expenditures plus sale of fixed assets.
Yeah.
Total capex for 2021 was $17 1 million or five 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.
Yeah.
Moving to the outlook.
For the first fiscal quarter of 2022 at constant fourth fiscal quarter of 2021 exchange rates.
We expect net revenue to be in the range of 83 million to $91 million.
Yeah.
In summary.
2021 was one of the most successful years in <unk> history.
We are excited about this next evolutionary step for V. P G 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 and our customers and products.
And with that let's open the lines for questions.
Thank you.
Okay.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
A speakerphone please pick up your handset before pressing the keys.
Your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yes.
Our first question today comes from John France, Rabb with Sidoti. Please go ahead.
Hi, good mornings, even bill how are you doing today.
Good morning, John .
I guess I'll start with the advanced sensor business a couple of questions. There firstly, how much revenue did that business contribute to the full year fiscal 2021 and secondly were there any startup or related issues in the fourth quarter and is fully satisfied with the tooling effort and.
No you've done tooling it for now.
Okay.
Okay, we are in.
Good morning, John We never gave the complete number for 2021 , but as we indicated the roundabout number it is at the level of $40 million.
And it's important to stay and I already indicated that in advance and so I mean due to the direct labor shortages.
We were in that.
Certain situations, where we had to apply wage increases in our I would say around November timeframe, we started to fill in and to have and to hire more people. So we are in.
Situation.
One we should still expect to see some residual.
The inefficiencies in the way in respect to a learning curve and hiring more people I would say starting Q2 things should stabilize we we all fully I would say there is some equipment that is on the way that has been delayed during COVID-19 , but at this point in time, it does not limit our operational.
Keep the ability to deliver more it was mainly more personnel related as I indicated, which we have addressed and I would say that too.
I believe that we have booked in Q4 were around the $3 million of startup costs related to our two advanced sensors, we should.
Particularly go down in Q1, and we should not have anything as of Q2.
Perfect and regarding the price increases.
Can you talk about the timing of the impact of those increases are you starting to see the benefit is they're delayed.
Timing to visitors, that's 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 couple of quarters ago, you know given the the day environment higher 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 will.
We can increase prices, but at the same time not to jeopardize the relationship with the customers format for a price increase standpoint are we in Q in this quarter. We we are heavily we are reporting around $800000 of pricing.
In respect to prior quarter and around 1.1 million in respect to Q Q4, a year ago. So.
I think Chris already start to take in effect already deep water and we will see a bigger momentum moves.
Moving into this year.
Okay and just one last question if I can the capacity expansions you'd kind of referencing.
Our precision resistors in force sensors.
What's driving that is there a particular end market that you think there's opportunity in those two businesses that you want to capture the customers coming to you and asking you a with something and Youre just addressing those needs can you just little bit more color about driving that big increase in spend.
Yes, yes, absolutely I think its coming on both ends on one hand as we 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 out well.
N D teams are developing your product is one of those once those two.
You know once those two vectors are meeting each other we.
We see higher demand therefore is one.
One indication that we mentioned here during the call for precision resistor was five G, hi, and infrastructure, which we see much more need than we already started to get more and more design into that and on the on the full central side, we indicated a more and more consumer application, which we never had.
Before.
Like the electric kit by the electric bikes, so we see more and more opportunities and we believe we have to capitalize on that and this is definitely.
The the biggest perrigo also for the change in the in the business strategy.
For the company.
Great. Thanks for the clause, even congratulations on a good quarter I'll get back into queue.
And if you'd like to ask a question Thats Star then one.
Our next question will come from <expletive> Ryan with Colliers. Please go ahead.
I'll take your alignment. Thank you yep. Thank you.
So you leave you you talked about some easing in the European market for trucks and vans figure onboard weighing systems.
Can you give us a little more color I mean, it has a demand.
Or is demand still there being driven by regulations and how do you think that it's going to flow are you kind of mentioned the second half of the year, but can you give us a little more specifics on the rebound in that market.
Oh, absolutely. So on one hand, we have our own let's call. It standout business, which we have developed for what I would say since a while ago and this is where we have seen.
[noise] certain certain shortages, which they affect these is around 900000 of potential revenue, which will not be able to book I mean, because we didn't get the orders because I will.
And our customers well had lack of microchips. So this is only referring to the standout business. In addition to that there is a potential in respect to if you will which you indicated.
Kate It and this is the <unk>.
This is the regulation that has been the.
As of me regarding the <unk>.
Onboard onboard weighing.
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 that there is a certain I would say delay in respect to the debt.
Except insofar customers to to move.
We the regulation given the shortage. So we're 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 definitely see an upside in respect to order intake coming from those two two potential vectors.
Okay. Thank you. So when you look at the supply chain you have had some revenue push as in previous quarters have you caught up with that and was there any let me revenue pushing from Q4 into Q1.
Excellent. So so you are absolutely correct because.
In the last quarter, we have reported we have we did report challenges in and around pushing out to $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 two to two and a half a million which is expected the remaining.
Expecting to capture it in Q1.
Quarter.
Okay.
One last one when you look at the the longer term perspective, you laid out in one of the slides.
The low double digit growth you're.
Combining both organic and.
Acquisitions in that.
Uh huh.
You know perspective can you parse the two what do you kind of looking at for organic growth and how should we view.
Your M&A activity going forward.
Okay. So.
So let's talk about let's talk about organic growth.
When we speak to both to organic growth we are looking at.
But we are looking at two to few factors.
One is at each of the reporting segment.
And then look at each of the reporting segments potential.
And then we are looking at what.
We tend M&A, what would be the expectation at least from you know from what we are we may have seen in the past so are coming back to the to the.
With respective to their respective reporting segments.
I think that too.
I know, we we did say that.
We are looking at.
High single digits on the sensor side, giving those consumables trinity's AR in the wing systems.
So it's a blend of different the.
Product lines, they're higher higher end growth would come from truck, where you run weight and OEM for sensors, while the lower or slower pace would come from the forces weighing or more of the general.
Wayne and on the measurement systems, we all still also looking at the high single digits historically.
And it's on one of our slides we have reported for the last five years, 7% topline growth, which I would say, it's the highest it's one of the highest in our industry now and in the industrial Tech.
Five 7% over five years from 2017 to 2021 so given that 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 digit yeah.
Can be achieved.
This is a three to five you'll still get and this is something that I do believe can be achieved.
Okay, great. Thanks, Steve and congratulations on the strong execution here.
Our next question will come from Sarkis <unk> with B Riley Securities. Please go ahead.
Hi, Thank you for taking my question here I just wanted to go back to the growth and profitability slide slide nine 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% umbrella as to what you guys posted here for fiscal 'twenty. One what is kind of the glide path look like to expand the margins and it sounds like you're able to get some nice drop through.
Where your operating margins would accelerate faster given kind of the topline growth can you maybe speak to the glide path of the margins from here to that three to five year target.
Yes, absolutely. So if you so what when you were looking from a margin perspective, we have few moving parts first of all we.
We are looking at.
You know at current exchange rate.
And given the fact that.
The label inefficiencies, which we have recorded on one hand are temporarily temporary it.
The temporary effect, which is expecting to go away in the second quarter. We are looking at the wage increase in 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 to ease.
Additional volume I would say, 10% around 10% volume.
In order to generate to improve our well ER.
Operating efficiencies or to improve the operating efficiency efficiencies.
Shoot would trigger more cost reduction.
And.
And as we expect with this.
I would say low double digit growth, we should be able to achieve with the additional volume we should be able to achieve those financial.
How it gets in respect to our adjusted gross margin adjusted EBITDA as well as adjusted operating margin.
Mhm understood and I think if I go back to the top slide slide eight where you're laying out.
The segment, a reclassification in kind of the growth and margin highlights it looks like for sensors and measurement systems. That's the areas that youre looking for potential M&A opportunities.
And then for weighing in the wing solutions segment, Youre, 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 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 that has been late.
In the market is.
The inflationary environment is getting.
He is continuing and we would expect to see the valuations becoming more reasonable.
Therefore, we would expect to see more opportunities its not the fact that we have not seen opportunities before but we will as always extremely selective and extremely disciplined.
To pay the right price for the right company, so the number of opportunities.
With 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.
Hum emanate transaction should be will go is expected to be accelerated.
I'm sorry, what was your other question.
So 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.
Yeah, Yeah, absolutely. So if it as you know in the sense that let's start on the sensor side on the sensor side, we have two unique.
Technologies.
One is precision resistors.
Well, we have a well we have really a unique technology, we do have competitors, but the competition ease with the different technology, but in respect of our technology. We are in a way that really are we.
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.
He's very very high and the perspective opportunities.
Even moving for mission critical to non mission critical applications high yield volume.
The projection is he's also I would say there is a higher probability to materialize on debt.
In advanced sensors again, its a unique technique it it's a the technology.
This is an evolution.
Next.
Our next generation technology from our legacy, but again the date.
The report that we are able to produce.
At existing cost has a unique value proposition I do believe that it is we are going to expand our precision sensors, we would continue to buy or we would expect to buy.
Companies at similar attributes.
Attendant Jason.
And adjacent sensors technologies.
Which we believe can support wood 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 other niches very strong brands.
A very again very high value propositions.
So we believe that those two.
Segments.
We.
We can we can expand much faster than the Wang.
Weighing solutions, which is mostly based on on load cells based technology, which is also a very I would say.
Very strong, but the potential for expansion moving out of the low til basic blow till strain gauge based technology is.
He's definitely or the ability to expand and to develop that is much higher.
On the sensor side than on the measurement system side.
Great. Thank you that's all for me.
Okay.
Our next question comes from Bill does all of them with <unk> capital. Please go ahead.
Thank you.
Well, let me start by picking up on something you mentioned on the conference or on your opening remarks relative to the.
Increased number of new applications versus five years ago, what percentage of revenues are in are in those new applications.
Versus where are where you would've characterized it.
Five years ago.
And we've never reported the number but currently we are selling for example to consumer and to other applications, which did not exist five years ago. It is in the tens of millions of dollars, but we have not disclosed the exact percentage.
So some of those are some of those applications, we have strict N D. As you know.
All of them, but what we are speaking about tens of millions of dollars, which we which we which we did not had five years ago.
And given what you've been describing today's east would you anticipate that.
That.
If that same question were posed five years from now and five years after that.
The number continues to be larger and larger or.
Or the dynamics are different than that.
Okay.
Look I think it's a if we look at the macro picture I think it's quite clear where the world is heading.
Well our customers he's 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.
Which has never been part of that potential customer base or potential ecosystem. So this is so I would say that we are looking really in a way in the Mega trend. Therefore, I do believe that we should expect to see more and more for Tony is coming in in the future.
I'm, calling customers and potentially new customers because that's as I said, that's a megatrend.
Try and 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.
And then before before your opening remarks.
Hey, a question that was going through my mind was weather.
At the end of the calendar quarter.
Yet your advanced sensors sensor plant was kind of at the fully efficient mature level.
You noted that it is not as a result of labor.
Given the strength that you see in and the advanced sensor applications and the fact that youre going to use.
It sounds like be in a constant mode.
A ramping that facility up to accommodate additional demand.
Do you believe it will will.
Ever achieve kind of fully efficient and mature a level or will you always be in some level of inefficiency as youre ramping that plant up of course until you reach that fully fully tooled and and no more expansion in the four walls possible.
Sure sure sure Okay that that that's a very good question. So I will tell you that the fact that we went into a tremendous oh.
I would say too and inefficiency and I speak about the inefficiency not the startup of course, which is part of a normal transition you know starting in your manufacturing facility, especially if you are running full steam ahead, the the learning curve or so called the inefficiency due to hiring more people in their learning curve. This is a cause of.
The Covid as you know the big resignation and the fact that Oh now it's harder to get direct label hiring a 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 pace that the base fee. So we did that and now we are in a hiring mode from an equipment standpoint, we were slightly behind due to COVID-19 and due to the fact that there was probably.
Actions and the fact that the manufacturers had long lead time of equipment supplier there.
The long lead time of equipment and the equipment has been ordered and it's underway. So we should be we should be in a good shape by by midyear, but at this point in time equipment is not the constraint once the people are hired and and as I indicated.
At the end of Q1, we should be fully stuff, we will have excess equipment capacity.
I would say that.
What would you lead that.
When we have been looking at the advanced sensors, we wanted to assure that at any given point in time, we have 20% excess equipment capacity to capitalize on any upsides, we would see from a business standpoint, So we would reach that position all of J D.
This year for advance sensors, so I would expect that to.
The inefficiencies as well as any potential equipment capacity limitation would be resolved this year given the.
Given the investments.
We made on the equipment side and and on the personnel side. So I don't expect it to continue next deal I or even I would dare to say that through the end of this year, we should be in a good shape inadvertent Central's also in respect to inefficiencies.
Thank you and one final question.
Your inventories are in both the measurement systems and Wayne solution segments were down.
Where were those declines as a function of the supply chain challenges or were you all intentionally drawing our inventories down and we can address it a part a measurement systems part D Wayne solutions sure.
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 certain delivery date and given the fact that Q4 was strong for measurement systems, we had those inventory waiting to be delivered at the finished goods.
And this is what we have the highest value with the finished the finished goods level. So.
It's those finished goods.
We're ready to be delivered has been delivered to the customers immediately you see it the wap.
In inventory. So this is just part of the cycle of building inventory to be shipped and then.
Since you're selling a complete system then you see a drop in inventory why do a you know while an increase in the revenues. So this is that the nature of measurement systems in a way weighing solutions has a combination of system related product.
And selling pool, that's out of a out of stock since we have two large regional warehouses. So.
Over there, we just see a kind of a cycle.
Of Oh, those being sold more from inventory on the wing systems, but there was no.
There is no plan of inventory reduction all 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 <unk> and Cogs finished goods and sales cycles for both of our reporting segments for both people things that.
Great. Thank you for taking all the questions.
Again, if you'd like to ask a question today. The Star then one star then one to ask a question on <unk>.
Question comes from Brett Hendrickson with Nikola capital. Please go ahead.
Hey, guys, it's great to see advanced sensors are moving forward.
I think Steve in your prepared remarks, I heard you say that the drivers for the growth in orders and 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 because I think people think of PC board testing. They think if semi cap equipment in a relatively low value added application, but I'm I'm, assuming that's a higher value added application and maybe higher units because in the past you've talked about.
Getting the form factor and the costs down and in advanced sensors to be able to do.
Higher unit volumes.
Yes, you are correct, our breadth to the P. C. Both testing this is a knot on the device itself, but it's on the production line, our our gauges, it's especially design of gauges all embedded.
All embedded in the in the testing line you know the to assure the quality and the specification of the P. C. Bold, but this is on the testing line.
And regarding the consumer you know yeah sorry.
Oh go ahead.
No no. It's regarding the consumer since we have sneaked N D as I cannot elaborate but but what I can say is that we that we we do enjoy a very stronger.
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 with with V. P. G does does.
Are you able to take that into into I mean, like I had you know theres printed circuit boards that have issues.
There's just so many printed circuit boards like theirs printed circuit boards and irrigation systems.
[noise] circuit boards out in the field that have all sorts of pressure issues and the units are in the millions can you take that into various P. C. D applications or does the intellectual property resides with one or two customers.
Okay. So on the PCB on the PCB testing, we have it in a way two types of products that we sell on one hand, those other gauges, but on the other hand, we do sell also.
Some of our large data acquisition systems. So we do also sell that to the placebo.
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 you find me say lower spec application.
Those designs are probably are I was gauges of overdesigned. Therefore, the use of hours gauges.
A little more for the complex P C. Both whether you have.
Multiple layers within those be seabold 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 and much more cost effective for that but at this point in time, given the complexity and and and the nature of those products.
All designed only at the <unk>.
Uh huh.
Hi layer or hi, yes, hi layer amount more complex PC boards.
Okay, Okay, well, thanks, Congrats Dave on Undrawn, that's and we'll follow up afterwards.
Thank you.
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.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.