inTest Corporation

Welcome to Intest Corporation's 2021 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. At that time, if you have a question, you will need to press star 1 on your phone. As a reminder, this conference is being recorded today. A replay will be accessible at www.intest.com I'll now turn the call over to Intest Investor Relations Consultant, Laura Garant. Please go ahead, ma'am.

Thank you, Operator, and thank you for joining us for Intest's 2021 Second Quarter Financial Results Conference Call. With us today are Nick Grant, Intest's President and CEO, and Duncan Gilmore, Treasurer and Chief Financial Officer. Nick will briefly review the quarter's highlights as well as current business trends. Duncan will then review Intest's detailed financial results for the quarter and discuss guidance for the 2021 third quarter. We'll then have time for any questions. A copy of today's press release can be obtained on Intest's website, www.intest.com. In addition to our press release, we have issued supplemental information, which can be downloaded from our website on the Investors page just mentioned. The supplemental information is offered to provide shareholders and analysts with additional information and detail for analyzing our results in advance of the quarterly results conference call. Before we begin the formal remarks, please note that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements do not convey historical information. but relate to predicted or potential future events that are based upon management's current expectations. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. In addition to the factors mentioned in our press release, such risks and uncertainties include but are not limited to the risk factors set forth from time to time in our Securities and Exchange Commission filings, including but not limited to our annual report on Form 10-K for the year ended December 31st, 2020. Any forward-looking statement made by us in this conference call is based only on information currently available to us and speaks to circumstances only as of the date on which it is made. We undertake no obligation to update the information on this call to reflect events or circumstances after the date hereof or to reflect the occurrence of anticipated or unanticipated events. During today's call, we will refer to non-GAAP financial measures. We have provided additional information concerning these non-GAAP financial measures, including a reconciliation to the directly comparable GAAP financial measure, in our press release, as well as in the supplemental information and the slide presentation for this call. The release, supplemental information, and slide presentation are posted on the investor's page of our website. And lastly, we will be participating in the following conferences during the third quarter. The Collier's 2021 Institutional Conference, September 9th, and Lake Street's 5th Annual Best Ideas Growth Conference, September 14th through the 15th. In addition, we will be hosting our first Analyst Day in November. We are targeting November 16th or 17th, likely in New York City. We will have more details on the event shortly. And with that, let me now turn the call over to Nick Grant. Please go ahead, Nick.

Thanks, Laura, and welcome, everyone. I'm pleased you're joining us for our second quarter 2021 financial results conference call. I'd like to start by welcoming our new CFO, Duncan Gilmore, to today's call. Many of you will have an opportunity to meet Duncan at the upcoming conferences Laura mentioned, as well as at our analyst event, which we're planning for November. We are delighted to have Duncan on board. Shifting now to the quarter's performance. Strong demand for our innovative test and process technology solutions across a diverse set of end applications resulted in financial results for the second quarter, which exceeded our guidance. Our growth was predominantly fueled by broad end market demand in the semiconductor industry across both of our segments, along with increasing demand for our products outside of semi as our industrial markets continue to strengthen. Once again, I'm pleased with the progress we're making to capture growth within SEMI while investing for growth in developing vertical growth markets and segments outside of semiconductor markets, which over time will serve to lessen our dependency on this cyclical industry. Finally, I want to thank the entire Intest team for delivering a truly solid quarter. Let's look first at bookings and backlog. Our consolidated Q2 bookings of $25.1 million were comparable to the bookings level we reported in Q1, which was a near-record quarter for us. Second quarter bookings continue to be fueled by the semi-markets, with semi-bookings of $16.5 million slightly down versus Q1, and accounting for 66% of our consolidated bookings. Our EMS segment once again had solid orders and back-end tests, And our thermal segment was also buoyed by semi-strength in front-end and lab applications. Q2 multi-market bookings of 8.6 million made up 34% of the overall bookings driven by the industrial and automotive markets, as well as returning strength in defense aero. This represents a 6% increase compared to Q1 multi-market bookings. As a result of the strong bookings, the company's backlog exceeded 20 million at the end of June. a 19% sequential increase. Looking at revenue in the quarter, Q2 consolidated revenues of 21.8 million continued to be driven by the semi-market and exceeded our guidance range, increasing 12% sequentially and 64% year-over-year. The operations teams across the company did an outstanding job managing our supply chains and overcoming resource challenges to support customer demand within the quarter. As a percentage of overall revenue, SEMI comprised 72% of the net shipments and increased 18% sequentially to $15.7 million, while multi-markets made up the balance of 28% of sales in Q2 at $6.1 million, essentially flat sequentially. Turning to net income, I'm pleased to report that net earnings and earnings per share increased both sequentially and year-over-year. With net earnings per share coming in at the high end of our guidance range, while absorbing the CFO transition cost within the quarter. We reported GAAP net earnings of $2.6 million, up compared to $2.2 million in Q1 and $170,000 a year ago, with non-GAAP adjusted net earnings of $2.9 million, up compared to $2.5 million in Q1 and $474,000 a year ago. This equates to GAAP net earnings of $0.24 per diluted share and non-GAAP adjusted net earnings of 27 cents per diluted share when adjusted for intangible amortization, both of which reflect an increase of three cents sequentially and 22 cents versus the same period a year ago. And our EBITDA for the quarter was 3.5 million. Duncan will fill you in on the details around these figures in just a few minutes. So let's now turn to the quarterly performance over two operating segments, along with some customer highlights starting with EMS. In EMS, we continue to capture growth from our current customers while driving installed base diversification by securing new customers and broadening our geographic reach. The segment's traditional end markets remain strong with automotive consumer electronics and 5G all driving demand. Specific to back-end SEMI, Extremely strong customer demand continued through Q2 as customers worked to address chip shortages by procuring our products to expand and upgrade their production capacities. Both booking and revenues in the first half of the year represent one of the best six-month periods for EMS. As we communicated last quarter, we shipped more manipulators in the first half of 2021 than were shipped in all of 2019 and 2020 combined. We see improved precision, higher levels of integration, and a shift towards automation as the primary reasons for increased adoption of our solutions by new and existing customers. Q2 EMS bookings remain strong, finishing at 10.3 million, decreasing 2% sequentially off of a very strong Q1, and essentially tripling on a year-over-year basis. EMS continues to be successful penetrating new accounts. In addition, And perhaps more importantly, we are replacing incumbents at targeted accounts. Lastly, we're seeing our backlog stretch out further over time as our customers adapt to increasing industry lead times. Q2 EMS revenues of $9.1 million increased 6% sequentially and 138% year over year, which once again was a terrific performance, actually the highest in a dozen years for this business. Let me now share with you some specific EMS highlights in the quarter. The business shipped a prototype interface unit to a global semiconductor manufacturer for use in the development of next-generation ultra-high-definition automotive radar. This is an initial shipment that we expect will drive significant production orders in 2022 and 2023. EMS also had multiple interface design wins against the competition at a multinational electronics and semiconductor manufacturer, which could drive an additional $500,000 of growth per year at this account. The recurring themes around these wins are reliability, performance, and flexibility. On the new products frontier at EMS, in the second quarter, We delivered our initial production units of high-voltage, high-current test systems to one of the leaders in sub-assemblies for EV power management solutions. Volume orders are expected in either Q4 2021 or Q1 2022 from this account, and they continue to work with a leading ATE manufacturer to standardize the product for more customers. In the quarter, EMS placed an LS4 manipulator in the applications laboratory of a major ATE manufacturer. This is an example of our strategy to team up with complementary test equipment manufacturers to further advance sales of our automated manipulators. From a new customer perspective, EMS made good progress penetrating a targeted strategic account in the analog mixed signal market as they received their first order for a docking solution in the quarter. It's great to finally get this door open as this account had been a stronghold for their competitors. A well-known maker of communication processing chips also ordered 1.5 million of automation equipment for testing their 5G power management ICs. This is a confirmation in a big way of our new success at this marquee customer. Lastly, EMS also received their first orders from an OSAT in Thailand for their COBOL 250 manipulator and docking solutions. So to summarize, we're seeing solid evidence that our strategy to grow and win new business while penetrating adjacent verticals is indeed working. Shifting now to our thermal segment, which includes ITS and AMBRL. Thermal bookings for the second quarter of 14.8 million were also comparable to Q1, and up 42% year over year. In the quarter, bookings exceeded shipment by $2 million. This growth was fueled by continued strength in the front end semi and industrial markets, as well as automotive and defense aero. In fact, our defense aero bookings in the quarter were up 97% versus Q1. Q2 revenues for the segment of $12.8 million were up 15% sequentially, and 35% year-over-year. Diving deeper into the orders, our semi-lab market continues to be strong, with bookings up greater than 20% sequentially from what was a relatively strong Q1. In the second quarter, they had 10 different backend semi-customers each order over $100,000, and they continue working with several semiconductor crystal manufacturers on new applications that could leverage our carbon-friendly induction heating solutions. The automotive electric vehicle segment keeps expanding for our thermal businesses as we continue to receive orders from OEMs and integrators supplying the auto industry. During the quarter, Ambril received another order from their large existing EV manufacturer, which was just shy of a half a million dollars, bringing their total to approximately $900,000 for the first half of the year. They also continue to work with numerous EV OEMs and their sub-suppliers to develop induction heating solutions for their applications. They've already identified over $300,000 in new potential opportunities from our targeted marketing campaign that was initiated in the quarter. ITS received a new blanket order for approximately 1.5 million in thermonics chillers from a key automotive OEM manufacturer of materials used in catalytic converters. This represents the largest single order in ITS company history. Units will ship in Q4 2021 and Q1 2022 and should lead to more in the longer term as they upgrade additional manufacturing lines over time. Our service business has recovered from the pandemic-driven low of 2020 as customers are now allowing visitors to the sites and our service team members are back to making in-person service calls. Our thermal business strategies are much like EMS, focusing on new products, growth applications, and customers. Relative to new products, Ambrose recently launched EcoHeat Compact Series and Compact Workheads for under 50 kilowatt applications, have begun production shipments, and represent broad offerings that Intest can ship in volume in relatively standard product formats. These two lines cover a large swath of applications and stand to become industry standards within their footprints and power ranges. And they will be expanding the work headline further in the coming months to extend power ranges. From an ITS perspective, in a press release earlier this week, we highlighted the success we had working with a strategic OEM partner in the cannabis space to develop a chiller solution that incorporates an ultra-low thermonics chiller combined with a condensing chiller to precondition solvents in order to drive efficiency, increase capacity, and lower costs. Working with C1D1 Labs, a recognized leader in providing extraction solutions, has been a good experience for our team, and I'm looking forward to the success it will bring in the months and years ahead. Now let me shift the discussion to our vision and strategic plan, along with the strategies we're driving to transform this business. As I've communicated, I plan to spend a portion of each quarterly conference call sharing a particular aspect of these core strategies along with our progress. On our Q1 call, I focused on geographic and market expansion. Today, I want to discuss investments we're making in talent and culture across the organization. As I've indicated, ensuring the right people are in the right roles and empowering them to deliver results is critical to our success. Since joining, I believe we're making good strides towards building a winning team to drive execution of our strategy. Among the investments we have made include realigning our proven in-house leaders, as well as invigorating our team by bringing in external talent to drive change. To date, we've strengthened our leadership teams in finance, sales, and R&D, providing intests with a best-in-class leadership team with industry experience and core commitments to achieving our strategic priorities. Our most recent appointment, as you know, is our new CFO, Duncan Gilmore. Duncan is enhancing our financial discipline and operating efficiencies as he succeeds Hugh Regan, who retired from Intest after 25 years of service. Duncan's strong financial acumen and public audit experience combined with proven P&L oversight skills are already having a positive impact on the company. We strengthened our leadership team with a focus on R&D and product innovation within our EMS segment with the appointment of Joe McManus as Vice President and General Manager of that business. Joe has extensive experience in driving organic growth of similar companies with a focus on technology and product development and has already added significant strength as we focus on organic growth opportunities. We have also introduced a new pay for performance compensation plan to reward employees for meeting performance targets. We did this by changing our annual review from an inflation adjustment process to one that awards increases based on merit, achievement, and performance. In addition, a new performance management software system was implemented in Q1 of this year across the company, which will be the cornerstone for talent development going forward. In Q2, our shareholders approved the proposed employee stock purchase plan, which allows employees to share in the success of our company. We intend to implement the plan in October of this year. In addition, the GMs have been given more control to reward and set priorities to drive growth, and each regional manager is now incentivized to bring in new accounts and increase our customer penetration levels with a focus on growth and targeted segments like EV and cannabis extraction. I'm a strong believer that reward and ownership drives motivation, and I believe these changes will aid in keeping everyone focused and motivated to meet our targets. We will end up spending a bit more in compensation in the long run, but I see a disproportionate payoff in the top-line growth and customer diversity as the real rewards. Finally, in Q2, we conducted the first-ever employee engagement survey across NTEST, and I was quite pleased with the level of optimism and support for the new vision and forward direction of the company. The culture is indeed slowly changing. While Duncan will review Q2 results and give our guidance for the third quarter in just a moment, I'd like to share with you my perspective on where we see things midway through the year. On all accounts, the first half of 2021 has been an exceptional year for the semiconductor industry, despite supply chain challenges. Equipment companies continue to experience substantial demand as global production capacities expand. As we enter the third quarter, we expect many of our larger customers will be focused on digesting the deliveries we and others have made to their test floors in the first half, and therefore expect semi-related orders to moderate in the second. To be clear, we simply see this as a digestion period. Listen, COVID is not going away anytime soon, which will continue to drive consumer electronics. The 5G build-out is still in its early stages. Technology advances are ongoing, and we believe the regional infrastructure build-outs that have been announced will drive further demand for our products. There's a lot of positives driving semi-demand, which we are well positioned to take full advantage of as they happen. Likewise, we are investing in multi-market growth opportunities like EV, cannabis, and the medical market. As a part of our growth plans, we've made investments in sales, marketing, R&D, and service since I joined the company, and more are planned. In Q3, we're experiencing more travel and are rejoining in-person trade shows, which will help drive Topline. I like where the company is today, and I like the diversification plans we're executing. I will now turn it over to Duncan to walk you through the details of our most recent quarter's performance and discuss our guidance for Q3. Duncan, over to you.