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EX-99.1 - EXHIBIT 99.1 - INTEST CORP | ex_127695.htm |
8-K - FORM 8-K - INTEST CORP | intt20181102_8k.htm |
EXHIBIT 99.2
On November 1, 2018, inTEST Corporation held its quarterly conference call. The following represents a textual representation of the content of the conference call and while efforts are made to provide an accurate transcription, there may be errors, omissions or inaccuracies in this transcript. A recording of the conference call is available for one year on our website at www.intest.com.
Operator: |
Please stand by we're about to begin. Welcome to inTEST Corporation’s 2018 third 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 and then 1, on your push-button phone. As a reminder, this conference is being recorded today and a replay will be accessible at www.intest.com. |
Laura Guerrant: |
Thank you, Cody. And thank you for joining us for inTEST’s 2018 third quarter financial results conference call. With us today are James Pelrin, inTEST’s President and CEO, and Hugh Regan, Treasurer and Chief Financial Officer. Jim will briefly review highlights from the third quarter as well as current business trends. Hugh will then review inTEST’s detailed financial results, and discuss guidance for the 2018 fourth quarter. We'll then have time for your questions. If you have not yet received a copy of today's release, a copy can be obtained on inTEST’s website, www.intest.com. |
James Pelrin: | Thank you Laura. I would like to welcome to everyone to our 2018 Third Quarter Conference Call. While Hugh will go over the financial results in detail, I'll focus my remarks on highlights. We continue to make progress in broadening our presence within the markets we serve as we diversify the company into a global world-class provider of thermal solutions for industrial manufacturing and electronic test. |
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We delivered solid Q3 operating results in both of our segments, driven by our diversified base of end users and OEMs. The semiconductor industry continues to drive revenue for automotive sensors, the Internet of Things, and mobile technologies, while non-semi business is driven by demand in the automotive, industrial, telecom and defense aerospace markets. |
Q3 bookings of $5.1 million declined 15% sequentially and 8% compared to a year ago. The decline in bookings resulted from the combination of two factors. The previous quarter benefitted from orders valued at over $2.5 million from a large IDM, while extended lead times of prober manufacturers that we discussed on our second quarter conference call, resulted in delays of EMS orders. EMS revenues of $5.6 million declined 22% sequentially and 6% compared to a year ago. Overall bookings were driven by three major IDMs for multiple orders of EMS hardware. One for manipulators and docking equipment, valued at $1.3 million, to upgrade test cells for automotive and commercial applications. The second customer will expand production capacity for multiple locations in North America and Asia also valued at $1.3 million. The third IDM purchased test interfaces for an automotive RF application valued at $300,000. While Hugh will go over the outlook for Q4 in detail, I'll close with a few comments. We expect that the fourth quarter will be somewhat softer than the third, and will be consistent with our full year expectation of revenue in the mid to high $70 million range. Q4 comes on the heels of a very strong year-to-date performance, most notably in the second and third quarters and is due in part to the normal ebbs and flows of our markets including various non-repeating large orders received in Q3. In addition, as I just discussed, a carryover of the extended lead times offered by prober manufacturers and others in the supply chain to our customers has affected EMS order timing. We expect this will take a quarter or two to work itself through. We continue to expand our customer base in the markets we serve, while growing our footprint in additional test and industrial process markets. Looking forward, our long-term drivers remain squarely in place and we see solid opportunities as we take advantage of robust markets where we have a strong focus (for example semiconductor, IoT, automotive including electric vehicle, industrial and defense/aero). We will continue to direct our resources in these key markets to further grow market share and broaden our customer base. In closing, we are creating conditions for our long-term success and are well positioned for a strong 2018. And with that I would like to turn the call over to Hugh. Hugh. |
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Hugh Regan: |
Thanks Jim. Third quarter 2018 end user net revenues were $17.2 million, or 85% of net revenues, compared to $18.2 million or 86% of net revenues in the second quarter. Q3 OEM net revenues were $3 million or 15% of net revenues, up from $2.9 million or 14% for the second quarter. Net revenues from markets outside of the semiconductor market were $8.7 million, or 43% of net revenues, compared with $8.1 million or 38% of net revenues in the second quarter. |
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This increase was partially offset by a reduction in the component material costs of our EMS segment, which saw its component material costs decline from 33.9% in the second quarter to 33.2% in the third quarter, reflecting a more favorable product and customer mix. |
The second quarter adjusted net earnings of $0.34 per diluted share included the aforementioned effect of the reversal of the $476,000 federal transition tax payable (which was an impact of $0.05 per diluted share.) When adjusted to eliminate this item, the second quarter 2018 adjusted earnings per diluted share would have been $0.29 per share. Adjusted net earnings is a non-GAAP measure, which is derived by adding the acquired intangible amortization, adjusted for the related income tax expense, to net earnings and removing any change in the fair value of our contingent consideration liability from net earnings. Adjusted net earnings per diluted share is derived by dividing adjusted net earnings by diluted weighted average shares outstanding. For computation of the diluted loss per share, diluted weighted average shares outstanding were 10,355,673 as of September 30th, while for the computation of adjusted net earnings, diluted weighted average shares outstanding were 10,396,890. During the third quarter, we issued 4,500 shares of restricted stock and options to purchase 13,400 shares at $7.25 per share. We did not repurchase any shares during the third quarter. Depreciation and amortization expense was $530,000 for the third quarter, up from $435,000 in the second quarter. Acquired intangible amortization of $323,000 in the third quarter was up from $247,000 in the second quarter. EBITDA was $693,000 for the third quarter compared to $4.8 million reported for the second quarter. When adjusted for the contingent consideration liability adjustments recorded during both periods, adjusted EBITDA would have been $3.8 million for Q3 compared to $4.1 million for Q2. Consolidated headcount at the end of September (which includes temporary staff) was 225, a reduction of one staff person from the level we had at June 30th. I'll now turn to the balance sheet. Cash and cash equivalents at the end of the third quarter were $14.2 million, up $3.5 million from June 30th. Cash today stands at $15.6 million. During the fourth quarter, we expect to receive $550,000 in grant funding to offset a portion of the costs of the $2.1 million tenant improvements for Ambrell's new facility. We currently expect cash and cash equivalents to increase in the fourth quarter of 2018, prior to the impacts of any acquisition related activities. Accounts receivable decreased slightly to $11.4 million at September 30th. Included in quarter-end receivables was $3.2 million for Ambrell. Inventory increased $245,000 sequentially to $7.1 million at the end of the third quarter. Included in this amount was $2.2 million for Ambrell. Capital expenditures during the quarter were $214,000, down from $752,000 in the second quarter. Jim provided consolidated and segment revenue and booking data earlier in the call. The backlog at the end of September was $13.4 million, down from $13.6 million at the end of June. Included in the September 30th backlog was $5.5 million for Ambrell. In terms of our financial outlook, as noted in our earnings release, we expect that net revenue for the quarter ended December 31, 2018, will be in the range of $17.5 million to $18.5 million and that net earnings will range from $0.15 to $0.19 per diluted share. We expect that adjusted net earnings will range from $0.18 to $0.22 per diluted share. We currently expect that our Q4 2018 product mix will be less favorable as compared with the third quarter of 2018 and that the fourth quarter gross margin will range from 47% to 48%. Operator that concludes our formal remarks. We can now take questions. |
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Operator: |
Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again that is star 1 if you would like to ask a question. And we'll take our first question from Theodore O'Neill with Litchfield Hills Research. |
Theodore O'Neill: |
Oh hi. Hey great quarter. |
Hugh Regan: |
Thank you Theo |
James Pelrin: |
Thank you. |
Theodore O'Neill: |
Great. So first question is on the thermal orders and automotive -- was any portion or all of that related to companies that are in the electric vehicle sector? |
James Pelrin: |
A very small portion. |
Theodore O'Neill: |
Okay |
James Pelrin: |
Most of the thermal orders were for - had to do with - infotainment and the sensor portion of the automotive industry which do go into electric vehicles but we can't identify - you know, they also go into electric vehicles. |
Theodore O'Neill: |
Okay. So next question is and I hate to sort of rag on this -- is the fourth quarter… |
James Pelrin: |
Right. |
Theodore O'Neill: |
...there's a number of your peers out there that are talking about the recovery in the semiconductor business not being V-shaped but be more of a U and who knows how big a U-shaped recovery it's going to be and sort of given what we've been hearing out there, how confident are you on the fourth quarter revenue guidance? |
Hugh Regan: |
I think we're reasonably confident, Theo. I don't expect much upside to our fourth quarter revenue guidance as we've had in the past. You know we do see softness in Q4 and Q1, but we do see semi demand, at least according to our internal forecasts, picking up in Q2 and Q3 of next year. |
Theodore O'Neill: |
Okay. And so is this more of a seasonal issue, like you usually see, or is this more related to sort of the pushouts and orders that…? |
James Pelrin: |
I feel it's a combination of both. Certainly there has been such a demand for orders that our customers are satiated and they are busy commissioning all over the world. So I think has something to do with it, but certainly for EMS, the prober extended lead times has caused a delay and we see that and orders that they normally would have booked by now, are being held, because there's nothing to meet. |
Theodore O'Neill: |
Thank you very much. |
Hugh Regan: |
Yes, and Theodore, we see that condition lasting for the next six months approximately -the prober related supply chain issues. |
Theodore O'Neill: |
All right. Helpful. Thank you. |
Operator: |
We will now take our next question from Dick Ryan with Dougherty. |
Dick Ryan: |
Thank you. Say Jim when you look at the thermal side, you know you've talked about the softness on the prober side for EMS, how about the semi outlook for the thermal side? What do you kind of see going into 2019 and maybe just on the industrial part of the thermal business, how does that pipeline look? |
James Pelrin: |
Well the pipeline looks strong on the industrial side. They are really benefitting from the semi front-end market. They have converted some customers to their product and those customers are going gangbusters and that's a major driver for - we're speaking of Ambrell there. |
Dick Ryan: |
Okay. And just the customer diversification at Ambrell, I mean it looks like it's been pretty sticky business and now the transceivers seem to be coming back. What's the outlook there? |
James Pelrin: |
Well the transceiver business as you know is at iTS, inTEST Thermal Solutions… |
Dick Ryan: |
Yes, yes. |
James Pelrin: |
…and that business is just very choppy. Last quarter business was not strong. The quarter before that it was very strong. This past quarter Q3 it was very strong again. It's very difficult for us to predict it, very difficult for our customers to predict it - because it depends upon the orders that they win. |
Dick Ryan: |
Are you seeing Ambrell's customer base expand at all? |
James Pelrin: |
Oh yes. As a matter of fact, you know Ambrell's customers do tend to be very sticky, but I think of note is that they have successfully wrestled some pretty significant accounts away from competitors. So they're growing their market share… |
Dick Ryan: |
Okay. What was the, because - sorry go ahead. |
James Pelrin: |
I'm saying across a number of industries this is happening. |
Dick Ryan: |
Oh okay. What was the customer concentration here in the quarter? |
Hugh Regan: |
For the quarter, top ten customers represented 41.2% of business and we had one customer TI at 11%. |
Dick Ryan: |
Okay. And just a couple of housekeeping. Do you have cash flow for the year-to-date and what was stock based comp in the quarter? |
Hugh Regan: |
Yes, cash flow from ops year-to-date is $7.2 million and what was the final question Dick, I apologize? |
Dick Ryan: |
Stock based comp. |
Hugh Regan: |
Stock based comp was yes, one moment, stock based comp was $180,000 for the quarter. |
Dick Ryan: |
Okay. Great. Thank you guys. |
Hugh Regan: |
You're welcome. |
James Pelrin: |
Thank you. |
Operator: |
Thank you and once again as a reminder that is Star 1, if you would like to ask a question. Thank you and with no additional questions in the queue, I would now like to turn the conference back over to Mr. Jim Pelrin for any additional or closing remarks. |
James Pelrin: |
Well thank you for your interest in inTEST. We look forward to seeing you at the conferences Laura noted and updating you on our progress when we report our fourth quarter results. Operator the call is now concluded. |
Operator: |
Thank you and that does conclude today's conference. Thank you all for your participation. You may now disconnect. |