inTest Corporation

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Intest Corporation Third Quarter 2025 Financial Results Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note, this conference is being recorded. I will now turn the conference over to your host, Alex Fialta. Thank you. You may begin.

Good morning, everyone, and thank you for joining us. With me on the call are Nick Grant, our President and Chief Executive Officer, and Duncan Gilmore, our Chief Financial Officer and Treasurer. The earnings release was issued this morning, as well as the slides that management will use during the call. Both of these can be found in the Investor Relations section of the Intest.com website. Please turn to slide two for a review of the Safe Harbor Statements. During this call, management may make some forward-looking statements about our current plans, beliefs, and expectations. These statements apply to future events that are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from what is stated here and today. These risks, uncertainties, and other factors are provided in the earnings release as well as in other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at sec.gov. Also, as covered on slide three, management will refer to some non-GAAP financial measures. We believe these will be useful in evaluating our performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. You can find reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides. With that, I'll turn the call over to Nick.

Thank you, Alex, and good morning, everyone. Thanks for joining us for our third quarter 2025 earnings call. We will begin today's discussion on slide four of the presentation. After several months of order sluggishness as tariff and economic uncertainties complicated customers' capital investment plans, It's refreshing to see some pockets of customers break free and move forward with capital projects. We have always contended that a market recovery is a matter of when, not if. Our funnel of opportunities has been at high levels since Q1, and this quarter the conversion rate picked up, resulting in orders of 37.6 million, our strongest level since Q2 of 2022, leading to a sequential 11.4 million increase in our backlog. Most of this improving demand is coming from customers in the automotive and defense aerospace end markets, a clear testament to the success of our market diversification strategy. These customers are relying on our innovative and differentiated test equipment that enable better quality control and increasingly complex manufacturing processes. While this increase in orders is encouraging, conversion rates do vary by end market, and many customers still remain hesitant to commit to new capital projects. This is especially true in semi. However, based on what we are seeing and hearing, it feels like we may be moving into a period of gradual recovery. Revenue for Q3 was $26.2 million. lower than Q2, and below the guidance range we provided on last quarter's call. During the quarter, our engineers encountered technical challenges in finalizing a few systems, which delayed approximately 2 million in shipments. In one case, the challenges were associated with new capabilities. In the other case, the systems were for a new customer in a new target market. These challenges have since been resolved, and the systems have been shipped. We are excited about the positive impact our steadfast resolve to drive innovations and add new customers will have on our future as we execute on our Vision 2030 strategy. During the quarter, we continued to strengthen our competitive position in preparation for a broader market recovery by making more progress in penetrating target accounts and driving adoption of new products. We believe we have the balance sheet, the financial flexibility, and capacity to support our customers as demand improves. Let me now review orders and backlog on slide five. AutoEV led the climb in orders this quarter, accounting for around three-quarters of the sequential growth and doubling to 14.6 million. Alphamation bookings were at an all-time record level for the business. representing strong demand for test equipment from Tier 1 electronics suppliers as they expand capacity to support 2027 model year programs and start new projects. Defense aerospace orders more than doubled sequentially to 6.4 million, primarily due to the increased test demand for next-generation weapons systems. We continue to see success with our new products. This is especially true at AccuLogic, where they have expanded their flying probe capabilities to include radio frequency and oscilloscope measurement test solutions, thereby enhancing our customers' manufacturing efficiencies. These expanded capabilities drove multiple system orders in the quarter from new customers. In addition, several defense contractors are continuing to qualify our new products. Year over year, orders were up 34.2%. The increase reflects the strength in auto EV, which grew 7.4 million, industrial, which increased 2.4 million, defense aerospace, which increased 1.9 million, life sciences increased 0.9 million, and semi, which was up 0.4 million. These increases outpaced the declines in safety, security, and other markets. Although we saw some pickup in semi-orders, overall, the semi-market remained sluggish, especially in our analog mixed signal business. Backlog at September 30th was 49.3 million, substantially above where it was at the end of the second quarter, and positioning as well for the upcoming quarters. Before turning the call over to Duncan to review the financials and outlook in more detail, I want to thank the entire in-test team for their continued dedication and commitment to our shared vision 2030 goals.

Duncan, over to you. Thank you, Nick. Starting on slide six,

Revenue for the third quarter was 26.2 million compared to 28.1 for the second quarter, a decrease of 1.9 million. Sales in defence aerospace accounted for 1.3 million of the decline, followed by auto EV, which declined 0.9 million, and semi, which decreased 0.4 million. This decline was partially offset by an increase of 0.7 million across life sciences, safety, security, and other markets. Compared with Q3 2024, revenue declined 4 million, reflecting lower semi, auto EV, defense aerospace, and other sales, totaling 5 million, partially offset by increases in life sciences and safety security, totaling 1 million. Moving to slide 7. Starting with the sequential comparison, gross profit decreased 1 million to 11 million and gross margin declined 70 basis points to 41.9%, primarily due to lower volume. Compared to the prior year period, gross profit declined 3 million and gross margin declined 440 basis points due to reduced volume and unfavorable product mix. We continue to execute tariff mitigation tactics to minimize gross margin impacts. As you can see on slide eight, our operating expenses of 12.2 million decreased 0.7 million sequentially and 1.3 million compared to the third quarter last year as our cost reduction actions are flowing through in an effort to improve our long-term profitability. The consolidation of our Videology Netherlands facility, which we estimate will translate into annualized savings of approximately 500,000 beginning in 2026, remains on track. Turning to slide 9, you can see our bottom line and adjusted EBITDA results. For the quarter, net loss was 0.9 million, or a loss of 8 cents per share. Adjusted net loss, which adds back tax-affected acquired intangible amortization charges and restructuring charges, was a loss of 2 cents per share. Adjusted EBITDA for Q3 was 0.4 million. Slide 10 shows our capital structure and cash flow. In the first nine months of 2025, we reduced debt by 6.2 million, including the 1.2 million we paid down in the third quarter. Total debt outstanding was 8.9 million at quarter end for a total debt leverage ratio of 1.7x. Cash, cash equivalents and restricted cash at the end of the third quarter were 21.1 million up 1.8 million from the end of the second quarter. We ended the quarter with approximately 61 million in liquidity. Intest remains a cash-generating company that we believe has the financial resources to scale the business and achieve our Vision 2030 goals. Turning to slide 11 and our guidance, our long-term fundamentals are solid with Intest maintaining its strong leadership position in specialized high-value applications and our readiness for a market recovery. As Nick said, we are seeing some pockets of renewed capital spending, but many customers still remain hesitant to commit to capital projects, and we do not have visibility into the timing of an overall market recovery. Therefore, we are continuing to offer guidance on a forward quarter basis only. including the shipments which slip from the third to the fourth quarter and the orders in backlog that we anticipate to fulfill and ship during the fourth quarter. We expect revenue in the fourth quarter to rebound to a range of 30 to 32 million. We are forecasting gross margin of approximately 43% and operating expenses of 12.3 to 12.7 million, excluding approximately 200,000 of restructuring expenses. Amortization and interest expense are projected to be consistent with Q3. As usual, our guidance does not include the potential impact from any non-operating expenses, such as corporate development and incremental restructuring that may occur, nor does it include the potential impact from any additional acquisitions we may make. With that, if you will turn to slide 12, I will now turn the call back over to Nick.

Thanks, Duncan. Although the third quarter had its challenges, we are pleased with our performance overall. Our order book expanded, our market diversification strategy continues to take hold, and our innovative new products are gaining traction as we continue to execute our Vision 2030 growth strategy. The adoption of these new products position us well to capture new opportunities and expand our serviceable market. This quarter's increase in backlog, a little more than half of which is scheduled to ship in 2026, and our strong funnel of opportunities suggest that demand in some of our end markets is beginning to recover. Although, as Duncan noted, visibility for a full market recovery remains limited. While our market conditions have been weak this year, we have not been idle. We have been strengthening our market recovery readiness, penetrating new target accounts, broadening our channel networks, expanding our manufacturing footprint to support global customer needs, while introducing new products that deliver more value to our customers. We believe we have the right technologies and that we are focused on the right markets and the right customers to scale the business as we advance towards our Vision 2030 goals.

With that, operator, let's open the lines for questions.

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If at any time you wish to remove your question from the queue, please press star two. For participants using speaker equipment, it may be necessary to pick up your handset before you pick up the star key. Our first question is from Max Michaelis with Lake Street Capital Market.

Hey, guys. Thanks for taking my questions, and thanks for quantifying sort of the push-outs that happened in the quarter of $2 million. I was wondering if you could kind of break out into what verticals that $2 million falls into.

Yeah. Morning, Max. So about a million and a half of it was tied to the life science markets. It was tied to a couple units of A couple systems at our inflammation business, which is really for the medical technology kind of diversification efforts we've been driving there, and they had a little bit of a delay in getting the systems ready to go by the end of the quarter. But the challenges they faced have been resolved, and customers at FATs completed, and the tools have been shipped. So customers are very happy on that side. In fact, they've given us an LOI for additional systems. So while it was disappointing we didn't get those out at the end of the system or end of the quarter, you know, we're pleased at the outcome there. The other was for... are semi-industry at AccuLogic. One tool missed the shipments at the end of the quarter just by ship the following week, but into the semi-market.

Thank you for that. And then next question. So if we look at your order growth, really solid in the quarter, especially with the A&D and then automotive, you highlighted uh 2027 automotive programs kind of driving the demand and that's in that vertical i mean how what's the i mean how long does that last like is that a few more quarters of strong momentum or kind of give us like an idea on how long we can expect this strong uh automotive orders to continue yeah no as you uh as you noted there um that you know the front end or the uh

The automotive programs tied to these new 2027 model years really started last quarter. We saw Alphamation have a nice strong quarter in Q2 and then really picked up here in Q3. What's encouraging is their funnel, even though they've booked quite a bit of this activity, still remains healthy. They're filling in new opportunities. And so we do see that this – test investment for the new technologies around infotainment, CCUs, displays, lighting, et cetera, in these vehicles, you know, should continue for a foreseeable future here.

Awesome. Great, guys. Thanks.

As a reminder, to ask a question, please press star 1. Our next question is from Dick Ryan with Oak Ridge.

Thanks. So, Nick, just to discuss the challenges again in the quarter, were they a continuation of the ones that you saw in the first quarter, or are they kind of more one-off and those issues are behind?

Yeah, very different than the ones we saw in the first quarter. Those were... challenges at our ITS thermal solution, and where we were seeing more, I'd say, repetitive challenges there for that business, and we needed to make a change, which we did. These were really two shipments that were tied to new technologies at Alphamation and AcuLogic. And as you know, Dick, we're always – you know, pushing the envelope, working with customers to solve some of their toughest challenges. And it doesn't always lead to us being able to hit our, our, our timelines there, but the important thing is that we do solve the challenges, the customers are happy, and we build that install base to position us for future growth with these customers, and that's where we're at. The timing was unfortunate, but certainly, you know, something we see from time to time just because of the work we do.

Sure, sure, okay. Thanks for that clarification. Say on the semi-side, you talked sluggish. Can you talk a little bit about front-end, back-end? I mean, I think some of the commentary for the analog side says, you know, at least that market is stable. You know, there may not be much growth over the next couple of quarters. But then it seems on the silicon carbide side, commentary for 26% seems to be more growth-oriented coming off of a transformational 2025. What are you seeing in those two markets from your customer conversations?

Yeah, I mean, let me just touch on that, Dick. I mean, I think on the front-end side, activity pretty anemic still, as I think we see across the marketplace. Although there are signs of life, I think we're starting to see a little bit more activity. As we've talked about before, customers are still interested. We still have good dialogue in terms of projects that they're still working on. But as you indicate, looking further out into later 26, into 27, things like that. So we're still very optimistic about the future in that space. but not a great deal happening right now in terms of order placement, revenue generation. On the back end, things have been a little bit softer, as we indicated. And I would characterize that as some of our larger customers, for example, are still struggling a little bit with the tariff situation, still struggling a little bit with where to place their chips investment-wise. So things like investment into, say, China is perhaps a little bit slowed. So we're certainly seeing a little bit of that. And again, I think the rhetoric around analog mixed signal with a number of the larger players, a very similar story.

Great. Okay. Thanks, guys, and congratulations on the order at the order level. That's pretty impressive.

Great. Thanks, Dick.

Our next question comes from Ted Jackson with Northland Securities.

Thanks. Morning, guys.

I want to talk a bit about how are you? Good. I want to talk a bit about what happened during the quarter and what maybe has changed in the near term vis-a-vis when you entered the quarter, let's say. The timing stuff, stuff like that happens, but I'm a little surprised that we didn't see with regards to the guidance in the fourth quarter, you know, maybe a little bit more because, you know, you're basically bringing $2 million of revenue from the third quarter into the fourth. So, you know, the high end of your range at 32 is, you know, pretty much where the, you know, the consensus and everyone was looking for anyway. And so, and you know, when I, when I think about that, does that, was there a downtick in terms of kind of, you know, the, the economic environment for you and, and, You know, was there a shift in something or some part of the business, you know, as we, you know, kind of went through this quarter, this last quarter and got into this quarter relative to what you, you know, where things were, you know, all three months ago? That's kind of my first question.

Yeah, so the first part of that, you know, the issue really is around these new technologies, as we highlighted earlier. And, you know, once our teams get these things implemented, you know, for the applications, building the next follow-on tools is, you know, less risky of challenges or what have you. So from there on, it's pretty much, you know, rinse and repeat. So we're confident that the initial challenges in this life sciences market that delayed some shipments have been resolved and, you know, additional shipments that will occur, you know, will go much smoother from that side of it. The other being the the around the technology specifically around our RF probes and new probes that we launched for the customers application there it slipped by a few days just timing wise the important thing is we get it right and and that's what the team did so Yeah, again, positions us well. And in fact, that business at AcuLogic has received multiple new orders for their RF and oscilloscope in the quarter from a new system. So that technology is really resonating with the market out there. So we're excited about that. You know, as for Q4 kind of range we put out there, I would say our teams are, you know, very... confident given providing numbers on what they're going to hit this quarter. We made it very clear slippage, you know, things that are at risk, but I don't want them in the forecast. So that's what we're kind of seeing, things that we're able to deliver on with minimal risk. Now, if we get some other stuff out, then that's all upside. But these guys, you know, they've got the message loud and clear.

Yeah, I would also add a lot of the strong order activity in Q3. which was great to see, testament to the work that the teams have all been doing. A lot of that is for delivery in Q1 and beyond of 2026. So a lot of that is slightly longer lead time stuff that isn't necessarily turning in Q4 here. So I think that's another piece of the puzzle in terms of putting together those components.

But you see what I'm getting at is like, so you had 2 million that slipped out that you were expecting to come in the third quarter. So your third quarter, instead of being, you know, 26-2, it should have been 28-2. And then if you take that out, that would mean that your, you know, your third, your fourth quarter guidance, you know, is, you know, at best flat. See how I'm going with this? Yeah, I see where you're going. So my question is, is like, has, you know, does that, does, my sense is that that's, you know, kind of a, and I think you can give guidance that's not like a guide down, but, you know, that, you know, that that's a bit disappointing vis-a-vis perhaps what you would have thought last time we had a call. And maybe I'm wrong with that, but that's just sort of my sense. And so I'm just kind of curious, you know, is that because there's been some kind of change within the dynamics or that you're just kind of tightening up the things that you're putting in, you know, and counting on, you see what I'm saying, for your budget. And why I bring all this up, because, you know, to be honest, like the tone of this call, it's the best tone that you've had all year. I mean, clearly, you know, you're feeling better about your business today than you were three months ago or six months ago. You see where I'm going? And so, you know, there's just a disconnect with that.

Yeah, I mean, I think I think, Ted, obviously the tone is positive. The orders were extremely encouraging. Quite honestly, there were literally two or three systems that make up the $2 million, a very small number of tools, which, and quite frankly, the story behind those misses is a very positive one in terms of the new technologies, the new capabilities that just took a little bit longer to turn around, as well as on the alphanation side, into the life sciences, penetrating new markets. Although disappointing that it was a revenue miss, the fact that it was literally slippage of a few days, a few weeks, very positive aspects. In terms of the sequential revenue, I think we were looking at revenue growing Q2 versus Q3 versus Q4. The 2 million slips, we would have been in the low 28s, flattish with Q3, had all of those systems gone out the door. Then we'd have been looking at, say, around a 30 instead of a 30 to 32. So not a spectacular ramp. I think we have indicated the recovery is going to be gradual here. We do feel most of our markets are at a relatively low point. We don't see a spectacular ramp back up. So I think we feel... somewhat in line with what we had painted. We're always disappointed when the numbers, we'd always like the number to be higher, I suppose, is one way to look at it.

Don't we all? Okay, then my next thing, let's go into something a little different. So when you look at, you know, kind of the book to bill and you look at your different segments, like I'd like to talk a little bit maybe just about industrial. No one brings it up anymore, but you've actually put up a book to bill number better than one for the four quarters in a row, and actually five of the last six. So, you know, with regards to industrial, I know it's not, you know, it's been, let's just say it hasn't been a problem for you, per se. You know, like, kind of like, you know, what's happening within this segment of your work?

Yeah, no, you're right. Industrial hasn't been the most challenging segment for us. And, you know, it's stable, I would say, but we do have a number of projects in the funnels on the industrial side of things there that are still kind of delayed as customers hold back on CapEx, so it could be better. But the teams are, you know, capturing what they can capture out there. So we still believe industrial's throttled back a little bit. As we've commented, Semi is still – slow for us on that. But on the positive, Defense Aero, you know, really robust for us. The activities we're seeing there, the orders we're getting, the automotive, these programs, and the you know, the life science activities we're driving. So the diversification we drove really is paying off as CME will come back and our industrial base will pick up stronger here as economy improves. And so we're in a good position as we go forward here. And it's great to see a few of our target markets, you know, coming in nicely.

All right. That's it for me. Thanks for the time. Oh, thanks, Ted.

Ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the call back to Nick Grant for closing remarks.

Thank you, David. We appreciate you joining us today, and thank you for your time, and we welcome the opportunity to answer any further questions you may have. On slide 13, please note that in addition to the details regarding the replay of this call, We will be participating in two conferences before the end of the year. We hope to see some of you there. Coming into this call, I understand there was some website technical challenges for a few folks there. Our team's been working to get that resolved, and we'll continue to do so as quickly as possible if it's not already completed. So thank you again for taking the time, and you all have a great day.

This concludes today's conference. And Tess, thank you for your participation. You may disconnect your lines at this time.