inTest Corporation

Greetings. Welcome to Intest Corporation's fourth quarter 2025 financial results conference call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that today's conference is being recorded. At this time, I'll now turn the conference over to Sanjay Hari of Investor Relations. Please go ahead, Sanjay.

Good morning, everyone, and thank you for joining us. With me on the call are Nick Grant, President and Chief Executive Officer, and Duncan Gilmore, Chief Financial Officer and Treasurer. The earnings press release was issued this morning, as well as the slides that management will use during this call. Both 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 Statement. During this call, management will 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 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 in slide three, management will refer to some non-GAAP financial measures. We believe these will be useful in evaluating the company's 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. Good morning, Nick.

Good morning, Sanjay, and thank you. Good morning, everyone. Thanks for joining us on our fourth quarter and year-end 2025 earnings call. We'll begin today's discussion on slide four of the presentation. Our fourth quarter results represent a strong finish to a challenging year. Much of this challenge stemmed from customer hesitation to spend on capital projects driven by tariff and macroeconomic uncertainties, as well as ongoing soft demand in our semi-business. After seeing some pockets of customers move forward with capital projects in the third quarter, we continued to see strong demand in the fourth quarter as our orders once again exceeded $37 million. As a result, we delivered revenue of $32.8 million that was above our guidance range, and we ended the year with a healthy year-end backlog of 53.9 million, representing a 36% increase over year-end 2024. I want to personally thank the entire end-test team for their hard work and steadfast dedication. Revenue for the fourth quarter was at the highest quarterly level for the year, which benefited from approximately 2 million related to orders that slipped out from the third quarter. Demonstrating the effectiveness of our diversification strategy, fourth quarter revenue reflected strength in industrial, defense aerospace, and life sciences and markets. In addition, growing market acceptance of our new products introduced over the past several quarters, particularly from AlphaMation and from AccuLogic, contributed meaningfully to the top line and progressed us towards our Vision 2030 target of generating 25% of revenue from new products. During the fourth quarter, we benefited from the cost actions taken across the businesses throughout the year. We continued to execute manufacturing efficiency initiatives and further scaled our Malaysia operations to support customers in the region. Our efforts were further complemented by growing customer acceptance of new products that drove incremental revenue and a margin lift. Through effective execution of our diversification strategy, we delivered gross margins of 45.4%. Notably, this was achieved without a significant contribution from our semi-business, historically one of our highest margin-end markets. Revenue diversification and new product innovation are two key pillars of our Vision 2030 growth strategy. With nearly 80% of fourth quarter revenue derived from non-semi end markets and momentum in new product sales contributing meaningfully to revenue and gross margin, we believe our strategy is working. Market diversification is creating broader order opportunities for us and fertile ground for new product adoption, while our innovative new products are resonating with customers and earning their place in their purchasing decisions. With that context in place, let's go deeper on orders and backlogs for the fourth quarter on slide five. After deferring spending plans due to tariffs and macroeconomic uncertainties in the first half of the year, we continued to see customers move away from a wait-and-see mode in the fourth quarter as they recognized that the cost of inaction increasingly outweighed perceived market risk. The momentum in our order book demonstrated demand durability engineered through deliberate end market focus. This strategy enables us to expand our addressable market and diversification into higher growth, less semi-correlated verticals. In fact, over the past five years, our non-semi-revenues have grown at approximately a 20% CAGR, which is something we are quite proud of. Equally important, the momentum in our order book also reflects customer adoption in end markets where we are still in the early stages of penetration. During the fourth quarter, we saw continued strength in our life sciences orders as they tripled sequentially, reflecting strong bookings for new alpha-mation products. Encouragingly, semi-orders were up about 18% sequentially as some customers began to move forward with plans to provisioned new test facilities, a trend that builds on the modest order growth recorded between the second and third quarters. Year over year, Q4 orders were up 22%, an increase of 6.8 million versus Q4 2024. This improvement was broad-based with strength in auto EV, life sciences, defense aerospace, and safety security, partially offset by continued softness in SEMI. On a full year basis, life sciences orders were up 137% year over year. Auto EV orders were up 89% and industrial was up 53%. Touching on our semi-business, year over year orders were down from a year ago period and represented about 25% of total orders this past Q4, compared to 40% for the fourth quarter of 2024. This is a compelling testament to our deliberate market diversification strategy succeeding and lessening our exposure to the cyclicality of the semi-business. We ended the year with a healthy backlog of 53.9 million, up 9% sequentially and 36% year over year. Backlog bottomed in the second quarter of 2025 and has steadily improved since. approximately 60% of our backlog is expected to shift beyond the first quarter of 2026, providing forward visibility end of the year. With a higher and more diversified backlog at the end of 2025, we are in a solid position for recovering growth in 2026. With that, I'll turn it over to Duncan to walk through the financial results in detail, starting with revenue on slide six. Duncan, over to you.

Thank you, Nick. Starting on slide 6, revenue in Q4 increased 6.6 million, or 25%, from 26.2 million in Q3 to 32.8 million, reflecting a gradual improvement in the capital spending environment and momentum in new product sales, as well as about 2 million of revenue that slipped out of Q3. Sales in industrial accounted for 3.3 million of the increase, followed by defence aerospace at 3.2 million, life sciences at 2.1 million, and auto EV about 1 million. Partially offsetting these increases was a 2.9 million decline in semi. Compared to Q4 2024, revenue declined by 3.8 million, reflecting lower auto EV, semi, and safety security revenue totaling 11.7 million. It was partially offset by increases in industrial, life sciences, and defense aerospace totaling 7.9 million. Although demand trends in 2025 dampened volume in revenue, roughly three quarters of the nearly 17 million decline between our 2024 revenue and our 2025 revenue was directly attributable to semiconductor market weakness. The remainder reflected a slower than anticipated capital spending recovery in our non-semiconductor end markets. Moving to slide seven. Gross margin expanded 350 basis points sequentially from 41.9% in Q3 2025 to 45.4% in Q4 2025. This improvement was driven by volume gains and higher sales of new Alphamation products, which provided a lift to consolidated gross margin as these differentiated innovative solutions carry higher margin profiles relative to our legacy product portfolio. Notably, as Nick previously mentioned, we achieved Q4's gross margin level without a significant contribution from Semi. On a year-over-year basis, fourth quarter gross margin expanded by 570 basis points. The expansion was driven by the lapping of a 1.6 million one-time acquisition-related inventory step-up charge that pushed the Q4 2024 margin down 430 basis points And the remaining 140 basis point increase reflected improved operating leverage because of cost reduction and manufacturing efficiency initiatives implemented throughout 2025. It also reflected a favorable product mix shift towards higher margin alphanation products. On a full year basis, normalizing for the 120 basis point full year impact of the inventory step up, full year 2025 gross margin of 43% reflected a modest underlying decline versus the prior year, driven primarily by lower revenue volume in our semi-end market that reduced our ability to spread fixed manufacturing costs across a larger revenue base. Moving on to slide eight, operating expenses for the fourth quarter were 13.6 million, an increase of 1.4 million sequentially, driven primarily by higher sales commissions and marketing activity commensurate with the higher levels of revenue in the quarter. We generated 6.6 million in incremental revenue while absorbing only 1.4 million in incremental operating expenses, which resulted in a reduction in operating expenses as a percentage of revenue to 41.5%. This reduction is the operating leverage profile we expect to see as revenue scales And it reinforces our confidence that the cost discipline we have maintained throughout this cycle positions in test to expand margins as market conditions continue to improve. Fourth quarter 2025 operating expenses increased 1.2 million year over year, rising from 12.5 million in Q4 2024 to 13.6 in Q4 2025. The comparison includes a non-recurring 800,000 amortization credit recorded in Q4 2024 tied to the finalization of AlphaMation purchase accounting, while Q4 2025 absorbed 200,000 of restructuring charges. Stripping out these non-recurring and acquisition-related items, underlying operating expenses remained effectively flat year over year. Slides nine and 10 collectively illustrate our Q4 profitability. Starting with slide nine, For the fourth quarter, net income was 1.2 million. Adjusted EBITDA was 3.2 million, representing an adjusted EBITDA margin of 9.7%. You can see here the improvement in adjusted EBITDA for Q4 2025 from the Q3 2025 trough of 400,000 at a 1.5% margin. This demonstrates our operational leverage as revenue recovers. For the full year 2025, net loss was 2.5 million. Adjusted EBITDA was 4 million, representing an adjusted EBITDA margin of 3.5%, compared to 10.8 million and an 8.3% margin in full year 2024. On slide 10, on a per share basis, net income was 10 cents per diluted share, Adjusted EPS, which adds back tax-affected acquired intangible amortization charges and restructuring charges, was $0.16 per diluted share. For the full year 2025, net loss was $0.21 per share. Adjusted net income, which adds back tax-affected acquired intangible amortization charges and restructuring charges, was $800,000 or $0.06 adjusted EPS. This compares to an adjusted EPS of 51 cents in the prior year. Slide 11 shows our capital structure and cash flow. We reduced debt by 1.4 million in Q4 and by 7.6 million in 2025. Total debt outstanding at the end of the year was 7.5 million. We ended the year with approximately 58 million in liquidity, including cash, cash equivalents and restricted cash of 18.1 million. We also maintain full access to our 30 million delayed draw term loan facility and our 10 million revolver. Our ability to generate cash and maintain substantial liquidity, even in a challenging macroeconomic environment, positions us well to scale the business and achieve our Vision 2030 goals. With respect to the waiver on our term loan entered into last August, we expect to return to full compliance with our original covenant terms by mid-year with no anticipated impact on interest expense or reported profitability. Turning to slide 12 and our 2026 guidance, we enter the year with a healthy backlog, of which 60% we expect to ship after the first quarter. Combined with positive indications of a gradual broadening recovery in capital spending that began to take shape in the third and fourth quarters of 2025, we expect 2026 will be a year of returning growth. As a result, we are comfortable resuming our practice of offering guidance for the full year, 2026, as well as the first quarter of the year. Against this backdrop, strong backlog, improving demand, a leaner cost structure, and growing new product contributions, we are well positioned for profitable growth throughout 2026. For the first quarter of 2026, we project revenue of $31 million to $33 million. Gross margin of approximately 44%. This is a step down from the 45.4% we delivered in Q4, primarily reflecting expected Q1 product and customer mix versus Q4's particularly favorable alphamation contribution. Operating expenses of 13.3% to 13.7%. Q1 operating expenses reflect the typical first quarter annual compensation resets. and amortization of 800,000. Before walking through the specifics of our full year guidance, I note that our guidance does not contemplate any material impact, positive or negative, from changes in tariff policy or the broader geopolitical environment. For the full year 2026, we expect revenue of 125 to 130 million, At the midpoint, this represents growth of approximately 12% over 2025's 113.8 million. This guidance reflects the diversified demand, particularly in industrial aerospace defense, auto EV, and life sciences, supported by our growing backlog, but does not contemplate a meaningful rebound in semi-sales. Gross margin of approximately 45%. This reflects the combination of higher volume, the capture of continued manufacturing efficiency and the expanding contribution of new higher margin products. And operating expenses of 53 to 55 million, reflecting higher variable selling costs. Amortization of 2.6 million, an interest expense of approximately 300,000 with an effective tax rate of approximately 18%. We expect amortization expenses to be higher in the first half of the year than in the second half as certain intangible assets reach the end of their amortization lives. And finally, we expect capital expenditures of 1% to 2% of revenue consistent with our historical investment levels. With that, if you turn to slide 13, I will now turn the call back over to Nick.

Thanks, Duncan. In summary, the momentum we're seeing across new product adoption and market diversification and geographic reach is the direct result of a deliberate strategy and disciplined execution. Our non-semiconductor business has grown meaningfully, improving Intest's long-term earnings profile with less dependency on semi-cyclicality. The establishment of our Malaysia manufacturing hub in 2023 An expanded European footprint due to the acquisition of Alphamation in 2024 positions us to better serve customers. They also enable us to deepen relationships in these regions that represent significant long-term opportunities. In addition, our operational excellence initiatives, which are a contributor to our margin improvement story, give us confidence that as conditions improve and we scale the business, we will realize greater operating leverage inherent in our business model. New product revenue contribution is trending in the right direction, reinforcing our confidence that we are on pace towards our Vision 2030 goal of generating 25% of revenue from new product sales. In Southeast Asia, in Europe, and in the U.S., A local presence enables the engineering collaboration and customer intimacy that drives higher-value, long-cycle relationships. And increasingly, it is our new products themselves that are opening doors to customers who are discovering us for the first time and to others who are rediscovering Entest. We enter 2026 well-positioned for diversified growth as capital spending strengthens, with an expanding portfolio of highly valued engineered solutions, a growing in-region presence across key geographies, and a strong balance sheet. We are poised to translate the structural changes we have made to NTEST over the past two years into sustainable, profitable growth for our shareholders. With that, operator, please open the call for questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, you may press star 1 from your telephone keypad, and the confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you, and our first question is from the line of Max Michaels with Lake Street Capital Markets. Please proceed with your question.

Hey guys, congratulations on the good quarter and the solid guide for 2026. First question is just around the semi space here. I was hoping you can elaborate a little bit. You talked about modest growth picking up in the back half of 2026. A lot of the companies that are following have been talking about sort of a strong order rebound in the back half of 2026. Is your language in the press release sort of just a case of you guys being ultra conservative or I mean, what else can you guys kind of provide us around the SEMI space?

Yeah, hey, Max, and great to hear from you here. Yeah, as we laid out, you know, our guidance we provided there really is based on just modest recovery in SEMI, which, yeah, could be conservative. SEMI certainly has come back strong historically and consistently. you know, if we look at trends and what have you. And I believe we're well positioned to capture that if it does happen again. But we just wanted to make sure we're providing the guidance we're confident we're able to achieve.

Okay. And then maybe we go back to last quarter. You talked about the 2027 automotive program. How is that progressing as we enter 2026 here? And then can you kind of touch on how we should expect auto orders to trend throughout the year?

Yeah, so auto has been a nice bright spot on our order pattern here the last couple quarters. You know, we really did see customers start moving forward with some 2027 model year programs, making the investments. In Q3, they continued to kick off more of those capacity additions in Q4 there. So we believe well positioned from an auto perspective. with Alphamation to support these new model year programs. And, you know, across the board, I would say auto demand hasn't taken off or what have you. Inventories have been worked down. But, you know, I think we're well positioned now that as demand comes back, these new model programs come out and create greater demand around the new tech and the cars and everything else, you know, that is only going to complement this kind of wave of build-out that we're seeing right now.

Great. Last one from me, guys. Life sciences has really taken off here. I mean, is there anything else you can share? I mean, pockets of strength that you're seeing in life sciences that's really deriving this all growth and orders and revenue?

Yeah, no, life science is a bright spot for sure. And this is really a concentrated effort we've made to go after med tech, the med tech space, testing various technology in this area. And, you know, it's really broader across all the businesses. Had really nice success with Alphamation, diversifying them in the med tech space with some glucometer electronic testing. We did a press release on that in the second half of last year and continue to see good momentum there. We continue winning applications at our AcuLogic group around MedTech. And, you know, even in process technology, we're gaining applications there around induction heating and imaging in the MedTech area. So, really pleased with the progress. It's one of the areas that we highlighted as, you know, still a low penetration area for us. So, we think it'll be a good growth avenue for us.

All righty. Thanks, guys. Thanks, Max.

Our next question is from the line of Dick Ryan with Oak Ridge. Pleased to see you with your question.

Thank you. And also, good job on a strong finish, guys.

Thanks, Dick.

I want to go back to the semi side. If we can talk a little bit about the back end and your front end. And maybe it focuses more on the positioning, you know, up and down the line. SemiCap is talking about a strong WFE for this year. Your back end, you know, typically is kind of lagged at to as back end test is a little bit out of sync with what happens on the front end. But nonetheless, you know, you brought automation into the back end. And how do you think you're positioned on your back end test with customers or with some of the new products you've rolled out?

Yeah, we're very well positioned in that back-end test space, not only from our traditional EMS business, but also on our thermal solutions supporting testing of chips and electronics back there. So, yeah, you're right. A lot of companies are out there talking about it, and we're well positioned to capture that growth as it materializes out there. And the new products we've been launching really has broadened our customer base, winning back some competitive accounts. So I believe, you know, when that comes back, we're in a better position to, you know, benefit from the growth as the investments in these testing spaces take off.

Okay. Okay. And probably more importantly, I'm more interested maybe on the front end. You know, the comments coming out of the silicon carbide space is, you know, pretty encouraging. You know, one of the players saying that after the downfall, they're looking for a ramp in 26 with getting back to the 24 levels by 27. I mean, you guys generated... you know, a lot of revenue in that silicon carbide space in the heyday 23, 24. How are you positioned there? And would you also, you know, kind of echo those comments that you're, you know, you may be seeing some growth come back in, not necessarily 26, but 27 and beyond?

Yeah, we're very well positioned in that space. As you know, we're really serving a number of players in the silicon carbide, gallium nitride space, not only on the crystal growth, but on the epitaxy side of things as well. And as we've been talking about it, as these technologies get adopted into new applications, you know, and creates more demand as auto comes back, you know, demand for auto is It's only going to drive the need for additional capacity down the road, and we're staying very close to our customers and ready to support them as they need it going forward here. And you're exactly right. It was a very meaningful part of revenue growth that we achieved there, and we have the capacity to scale right up to support them at those levels and beyond.

Okay. Would you think any of that comes in in this year, or is that more of a 27 story?

I think we do see it. It'll be more in the second half of this year starting to come back, but 27 should be a more meaningful impact on that. Duncan, your thoughts on that?

No, agreed. As we said, modest increases in semi, big 10, the front end side has been slow. We think the outlook looks great, but we're really not banking on a great deal in 2026.

That's encouraging. Good. All right. Thanks, guys.

Thanks, Dick. The next question is in the line of Ted Jackson with Northland Securities. Please proceed with your questions.

Hey, guys. Congrats on the quarter.

Thanks, Ted.

Bye. So, Nick Duncan, my first question, I want to jump over on gross margins and guidance and kind of, you know, just kind of thinking it through. So, you know, you put up some – you showed improving margin as you've been putting a lot of efficiencies in your business, and you're clearly scaling, and it's non-Semi, and Semi is your higher margin business. And so, you know, like, if you look at your revenue – in prior periods, in some historical periods, when you were hitting some of these revenue targets, your gross margin was actually almost close to 50%. And so my first question is, is the lack of semi keeping you from getting to that? And then behind that is, given that the margin is probably substantially better than it might have been you know, for the non-SIMI business. If SIMI does tick around and turn, could we be seeing your margins through that next cycle, you know, not only, you know, retrace back to those, you know, kind of close to 50% margin levels, but maybe even exceed it?

So I think a lot of your observations are correct. We had a nice, strong Q4 from a margin perspective. some favorable product mix within some of our businesses, so certain product lines within AlphaMation in particular. The Semi contribution was low, as we've indicated, yet we still had a nice gross margin quarter. We don't have, as we said, tremendous growth baked into Semi. Our back-end Semi in particular is where we see higher margins, command higher margins. So it's correct to assert that if that comes back, in a strong fashion at some point, then we'd expect margin to tick up. Whether it would tick up to the 50s, some of those 50s were when the business was much less diversified and much more dependent upon that business and smaller. But we'd certainly expect positive margin contribution as and when back end semi in particular bounces back up. I mean, in summary, I would say almost yes, yes, and yes to what you've said, albeit 50 would be probably spectacular. I'm not going to say unachievable, but would require a high percentage of that back-end semi-contribution.

Okay. And then going kind of into guides, and I'm going to keep with this theme, is, you know, the guides you provided show some, you know, nice solid year-over-year growth. Can you talk a bit about the cadence? Is it the kind of thing where we'll see, you know, you've given first quarter guidance that we'll see, you know, continued sequential improvement as we roll through the year? Will there be any type of seasonality within it? And then going back into the revenue guidance, if it's going to be building over the year and then the back half of the year, it's going to have more contribution from semi. Should we be thinking of you know, a bit more of a step up in terms of margin improvement in the second half of 26 vis-a-vis the first half?

Yeah, so we're cautiously optimistic about 2026. As we've mentioned, haven't built in a tremendous amount of semi-upside, and I think that's reflected in the guide vis-a-vis what we saw in Q4, what we're laying out for Q6, Q1. Q4 was if we back out the 2 million of delayed shipments, we did see growth in Q4 over Q3. We are projecting a similar quarter in Q1, a little bit of growth. And I'd say we're expecting cautious sequential growth throughout the year with respect to our cautiously optimistic guide, if that's the best way to put it. As we've mentioned a couple of times, if there was a really strong recovery in semi in particular, we would expect to see the benefits of that. Just a reminder, we are a back-end semi business squarely in the analog mix signal space, which is an area that I think a lot of people are cautiously optimistic about and seeing some green shoots of recovery, but we haven't seen the turn yet.

Okay, next question. We're well into the first quarter. You've had two quarters in a row now of really nice bookings. Can you give us a little color in terms of what you're seeing with regards to bookings activity, quarter to date, both in terms of momentum and maybe in terms of sector?

Yeah, so as noted, we've had really two strong quarters of bookings, and let's say really fueled by our automotive exposure at Alphamation on these 2027 model year programs. Our funnel, overall funnel, is healthy, and, you know, but I would expect Alphamation's order rate to kind of moderate back a little bit. They've been running at, you know, 12, 13 million the last two quarters. That business was, you know, in the, you know, 25 million when we bought it, kind of run right there. So really strong quarters. I think, you know, they're going to continue to see nice booking levels, but more traditional for that kind of business. So we also in Q1 have a little bit of the lunar new year, It's going to impact on some activities out of Asia. They're a bit slower. But for the most part, the funnels are healthy and the opportunities are there. If customers move forward with spending as we believe they will here, you know, orders are well positioned to deliver on the year we've laid out.

And then my last question is, you know, you've come through a rough patch, and it's just more because I've seen it with several companies I cover because it seems like everybody's been going through a rough patch. When you've laid out your guidance for OpEx, I mean, are you – I assume you guys have really dialed back on a lot of incentive comp over the last year. Are you factoring in in your guidance, you know, kind of a reinstatement of, you know, kind of basically more variable compensation? this optimistic conservative guidance that we'd see an expense structure adjustment as you have to layer in and stuff.

That's my last question. Yes, we have.

Obviously, if we did a lot better than laid out, then there would be an operating expense impact from an incentive comp standpoint. you know, reflective of the dynamic you're talking about. But yes, we have factored in the incentive comp side of the numbers that we've laid out with respect to the spending guidelines.

Okay. All right, great. Thanks for the time and, you know, congrats on the quarter and looking forward to 2026.

Same here, Ted. Thanks. At this time, if you'd like to ask a question, you may press star one from your telephone keypad. Once again, if you'd like to ask a question, you can press star one at this time. Thank you. At this time, I'll turn the floor back to Nick for closing comments.

Thank you, Rob. We appreciate everyone joining us today. Thank you for your time, and we welcome the opportunity to answer any additional questions you may have. Please reach out to our investor relations team to coordinate. On slide 14, please note the details regarding the replay of this call, as well as our upcoming investor event schedule. We will publicize additional conference attendance as they arise via press release advisories and on our website. I want to thank everyone again for participating today, and I wish you all a great day. Thanks, everyone.

Thank you. This will conclude today's conference. Let me disconnect your lines at this time. Thank you for your participation.