Good morning. Thank you for attending today's VPG Q1 2022 Earnings Call. My name is Hannah, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Steve Cantor, Senior Director of Investor Relations. Please go ahead.
Thank you, Hannah, and good morning, everyone. Welcome to VPG's 2022 Q1 E arnings Conference Call. Our Q1 press release and accompanying slides have been posted on our website, and an audio recording of today's call will be available on the Internet for a limited time and can also be accessed on the VPG 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 31 December 2021, and our other recent SEC filings. On the call today are Ziv Shoshani, CEO and President, and Bill Clancy, CFO. Now I'll turn the call to Ziv for some prepared remarks.
Please refer to slide three of the quarterly presentation. Ziv.
Thank you, Steve. I will begin with some commentary on VPG's consolidated financial results and sales trends for the Q1 . Bill will provide financial details and our outlook for the Q2 of 2022. Moving to slide three, I am pleased to report that VPG achieved solid performance in the Q1, which included record orders and backlog as we navigated well through the supply chain and labor challenges impacting companies around the world. Before providing additional color on the Q1 results, I want to review the long-term strategy and priorities we laid out in February, which we believe will accelerate our long-term growth and profitability. As a leader in precision measurement sensing technologies, we are focusing on an expanding array of applications in which accuracy, reliability, and repeatability makes the difference.
Our deep engineering and application expertise enable our customers to make their products safer, smarter, and more productive. The need for precision measurement and sensing solutions is evolving and expanding into new markets and applications requiring levels of precision that were not needed before. Moving to slide four. In the Q1 of 2022, we reported sales of $87.7 million, which was 24.2% higher than a year ago. From the Q4 of 2021, sales declined 2.6% as lower Measurement Systems revenue offset growth in our Sensors and Weighing Solutions segments. The decline in Measurement Systems revenue was expected due to the timing of shipments for these project-driven systems. Record orders of $109.6 million grew 15.3% sequentially, reflecting growth across all three segments.
The strong order performance contributed to our book-to-bill of 1.25 and a record backlog of $170.6 million. This represents a strong start and underscores the strength of our business model and our strategy. We improved our adjusted gross margin to 41.0% as compared to the Q4 adjusted gross margin of 40.3%, and generated an adjusted EBITDA margin of 14.4% and adjusted earnings per diluted share of $0.49, which was in line with our quarterly target model. Operationally, we performed well.
Given the ongoing global supply chain challenges, labor availability and surge in COVID-19 cases in some parts of the world in the first half of the quarter, we have filled the majority of our open positions, and we expect improved operating efficiencies in the sensor segment going forward as new hires climb the learning curve. Year over year, we realized $1.6 million from price increases, which we have put in place to mitigate higher labor, materials, and logistics costs. We expect these increases to contribute $6 million-$8 million of incremental revenue in 2022. Looking at our business segment performance in the Q1 , all three business segments reported positive order trends and book-to-bill ratios of over 1. Moving to slide five. Beginning with our Sensor segment, which is comprised of our advanced sensors product and our precision resistors.
Q1 revenue of $37.7 million grew 18.7% from a year ago and was 10.5% higher sequentially. The sequential growth was driven by advanced sensors, which grew 41.5% sequentially to a $50 million annualized run rate. As we benefited from the expanded capacity we've put in place. The increase in advanced sensors revenue was mainly for consumer and medical applications and in our general industrial market. Total orders for the sensor segment grew 26.5% sequentially, resulting in a book-to-bill of 1.27. Order growth was driven by strong bookings in the test and measurement for precision resistors, resulting from continued robust demand for front-end and back-end semiconductors.
Our efforts to address future applications for our precision resistors in EV battery management and in 5G data systems, where the reliability and stability of our solutions provide key performance advantages. We also had continued high demand for advanced sensors as orders grew approximately 9% sequentially and were 50% higher than a year ago, resulting in a book-to-bill of 1.09. In addition to the traction of advanced sensors for consumer electronics application, we are achieving design wins in medical equipment such as infusion pumps. In terms of operating results for sensors, the adjusted gross margin in the Q1 was adjusted to exclude $200,000 of start-up costs for the new advanced sensor facility and $100,000 related to COVID.
The Q1 adjusted gross margin improved to 38.6% as compared to 34.8% in the Q4 of 2021, reflecting higher revenue and favorable product mix, which was partially offset by wage increases. Moving to slide six. Turning to our Weighing Solutions segment, which is comprised of our Force Sensors, Onboard Weighing and Process Weighing businesses. Q1 sales of $32 million increased 2.2% from $32.1 million from the Q4 of 2021. The sales growth was primarily due to higher shipments of our Onboard Weighing products for heavy trucks. Orders for Weighing Solutions were 10.9% higher than in the Q4, resulting in a book-to-bill ratio of 1.06, reflecting positive trends in transportation as well as for OEM precision agriculture equipment.
Weighing Solutions gross margin of 36.9% in the Q1 increased from 34.0% in the Q4 , driven by higher volume, higher selling prices, and favorable product mix, offset by higher material costs. Moving to slide seven. Turning to our Measurement Systems segment. Revenue in the Q1 of $17.1 million declined 27.9% sequentially, reflecting primarily lower sales due to the steel market. As I indicated earlier, demand for these products is largely project-driven, as these products generally have longer selling and delivery cycles. KELK reported strong bookings in the Q1, reflecting good demand for its productivity systems for hot strip mills. As part of its development plan, KELK is expected to launch new combo solution that provides additional features for the steel manufacturers for productivity enhancement.
Total measurement system orders grew 2%, resulting in a book-to-bill of 1.56, reflecting sequential order growth in steel. Adjusted gross margin in the Q1 for measurement systems was 54.1%, adjusted for purchase accounting related to the DTS acquisition, and declined from 56.8% in the Q4, mainly due to lower revenue and unfavorable product mix. Before turning the call to Bill, I'll make few additional comments. In terms of COVID, all our facilities are currently open and operating normally. Finally, our priorities for deploying our capital continue to be on funding internal growth-oriented investments that are intended to accelerate our top line and bottom line growth. In addition, our solid balance sheet supports M&A activity to expand our markets, product portfolio, and generate attractive returns.
I will now turn it over to Bill Clancy for additional financial details. Bill?
Thanks, Ziv. Referring to slide eight and the reconciliation tables of the slide deck, in the Q1 of 2022, we achieved revenues of $87.7 million, gross profit of $35.3 million, or 40.2% of sales, operating income of $8.3 million, or 9.5% of revenues, and diluted net earnings per share of $0.46. On an adjusted basis, our gross profit was $35.9 million, or 41.0% of sales. Operating income was $9.2 million, or 10.5% of sales, and diluted net earnings per share was $0.49. Our Q1 2022 revenues decreased 2.6% compared to $90 million in the Q4 of 2021, and were 24.2% above the Q1 a year ago.
Foreign exchange for the Q1 of 2022 negatively impacted revenues by $1.5 million compared to a year ago, and negatively impacted revenues by $500,000 as compared to the Q4 of 2021. Gross margin in the Q1 was 40.2% compared to 38.7% in the Q4, which benefited from higher inventory and higher selling prices, offset by lower volume, higher material costs, and manufacturing inefficiencies related to new higher learning curve. On an adjusted basis, Q1 gross margin was 41% as compared to 40.3% in the Q4 of 2021, excluding $400,000 of acquisition purchase accounting adjustments, $200,000 of facility start-up costs for Advanced Sensors, and $138,000 of COVID-19 related costs.
Our operating margin was 9.5% for the Q1 of 2022. Our Q1 adjusted operating margin was 10.5% excluding the adjustments I just mentioned. Selling, general, and administrative expenses for the Q1 of 2022 were $26.7 million, or 30.4% of revenues, as compared to $22.2 million, with 31.4% of revenues for the Q1 of 2021. The increase in SG&A of $4.5 million mainly relates to $4 million for the DTS acquisition, $300,000 of wage increases, and $200,000 of other costs.
The adjusted net earnings for the Q1 of 2022 were $6.6 million or $0.49 per diluted share, compared to $4.2 million or $0.31 per diluted share in the Q1 of 2021. Adjusted EBITDA was $12.6 million or 14.4% of revenues, compared to $9.5 million or 13.5% a year ago. CapEx in the Q1 of 2022 was $4.3 million, the majority of which reflect equipment purchases and related infrastructure. For fiscal 2022, we expect CapEx to be in the range of $30 million, the highest level in our history. Approximately $10 million of that CapEx 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 expansions for growth initiatives for precision resistors in the Sensors segment and force sensors in the Weighing Solutions segment. The other 50% of CapEx is mainly for equipment for expansion and cost efficiencies in the Sensors segment. Free cash flow is -$4.6 million, as compared to -$120,000 for the Q1 of 2021. We define adjusted free cash flow as cash from operating activities, less capital expenditures, plus any sale of fixed assets. Cash flow was impacted in the Q1 due to working capital needs from our high backlog, as well as performance long-term incentive compensation. We expect to return to positive free cash flow in the Q2 of 2022.
The GAAP tax rate in the Q1 was 20.7%, as compared to 26.3% in the Q1 of 2021. We are assuming an operational tax rate in the range of 21%-23% for the full year of 2022. Moving to slide nine. We ended the Q1 with $78.2 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 fiscal Q2, we expect net revenues to grow sequentially and be in the range of $88 million-$96 million at constant fiscal Q1 2022 exchange rates. In summary, we achieved another strong quarter of results.
Record orders contributed to a record backlog, which underscores the strength of our business model and strategy. Finally, we continue to execute on our long-term initiatives to accelerate growth of sales and profits. With that, let's open the line for questions. Thank you.
Certainly. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question is from the line of John Franzreb with SIDOTI & Company. Please proceed.
Good morning, Ziv and Bill. Thanks for taking the questions. I'd like to start with the revenue profile in the quarter. Could you talk a little bit about which end markets were the biggest drivers on a year-over-year basis overall for the quarter?
If we are looking on a year-over-year basis for the quarter.
Mm-hmm.
The largest increase came from precision resistors as test and measurement, mainly for semiconductor is a very strong market.
Mm-hmm.
Followed by Micro-Measurements, which is headed by Advanced Sensors, also consumer electronics and consumer goods. In fact, I have to say that, in addition to the DTS acquisitions that we have not accounted for a year ago, we have seen increase-
Mm-hmm.
Increase in volume in all our reporting segments.
Okay. As we pivot and look at the June quarter, okay, are there any new markets that you expect to improve, or do you expect these existing markets to continue to be the drivers in June versus March quarter?
I would say at this point in time, we see a very, I would say, a solid and strong tailwind in respect to demand since we are also running at record backlog in all our reporting segments. I would say that we may see some inventory in the industrial weighing part of the force sensors. As you know, we already indicated that in the prior quarters, due to the lack of microchips in the market, there was a slowdown which already started a few quarters ago in respect to the transportation. All in all, I would say we see a continuation of the good momentum moving forward.
Okay. How much did DTS contribute to revenue in the quarter and profitability, either on a gross or op income line?
DTS revenues for the Q1 were around $7.7 million.
Got it.
With the gross margin over 50%.
Okay. Just shifting to the Advanced Sensors business. I think you mentioned it's running at a $50 million annual run rate. Bill mentioned that CapEx was gonna go up sizably this year. I don't think I heard him say that any of it's being targeted towards the Advanced Sensors line. Do you have ample capacity in the Advanced Sensors business right now? Last quarter, we had some inefficiency costs of $3 million. To what impact was inefficiency on the Advanced Sensors in the quarter?
Yes, John. As we indicated this quarter, the $900,000 of startup costs, which we have booked in prior quarter for Advanced Sensors due to the learning curve and moving to the new facility has dropped to $200,000 in Q1 and is expected to drop to a very, I would say sub-$100,000 in the coming quarter, and then there will be no startup cost. We see the decline in a quick way. In regards to the capital spending, as Bill indicated, 50% of the expected investment is expected to go for precision resistors in our facility.
Mm-hmm.
In India in order to support or to optimize the cost structure for Weighing Solutions in addition to support future designs. Now, the other part, which is equipment related, mostly related to the Sensors segment, and in the Sensors segment, it's a combination of precision resistors and advanced sensors. There is further investments, equipment investments, which we are intending to make, this year for expanding further advanced sensor capacity.
Got it. One last question, I'll get back into queue. Can you just talk a bit about your exposure to China, and the impact the shutdowns may or may not be having on you?
Sure. Absolutely. As we indicated in the past, the strategy was. I mean, okay, let me take a step back. Our operational footprint in China is fairly limited. We had in prior years, three facilities. We have shut down two facilities, consolidated to India, and we are left with one facility, a fairly smaller facility in Tianjin, China, just for force sensors. Our operational footprint is very limited in China. Fortunately, we have not seen due to the very recent lockdown. It did not happen in our vicinity, therefore we have not been impacted. If something would come, we would expect fairly limited exposure.
Okay. All right. I'll get back into queue. Thanks for taking my question, Ziv.
Thank you, Mr. Franzreb. Once again, to ask a question, press star one. There are no additional questions waiting at this time, so I will turn the call back over to Steve Cantor for closing remarks.
Before closing the call, I want to note that we will be participating in the B. Riley conference this month and the Stifel conference in June. With that, thank you for joining our call this morning, and have a great day.
That concludes today's call. Thank you for your participation. You may now disconnect your lines.