inTEST Corporation Price & Performance (INTT)

These documents can be found on our website [indiscernible] 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. Now, turn to Slide four, Nick, I'll turn the call over to you.

Thank you, Sean.

Good morning, everyone. [indiscernible] Thanks for joining us for our fourth quarter twenty twenty four earnings call. I'm pleased to report record fourth quarter revenue of $36,600,000 and notably for 2024, we delivered our third consecutive year of record revenue. At $130,700,000 So I'd like to start by acknowledging the entire inTEST team and expressing my sincere appreciation for their commitment to our strategy and their ongoing efforts across the globe. These efforts enabled the record revenue and strong further validating the effectiveness of our market and customer diversification strategy. As well as our focus on innovation. Full year sales growth of 6% was driven by the $25,000,000 contribution from the Alformation acquisition, as well as strong demand from our Auto EV defense, aero and life sciences markets. The combination of the acquisition and higher demand in these targeted more than offset the measurable 26% decline we experienced in semi. We believe that delivering growth against such a severe headwind in semi is proof of the success of our strategy to evolve inTEST into a more diversified test and process technology solutions business. In fact, it was our innovative test solutions that delivered growth in both auto EV and defense aerospace for the year.

Specifically, revenue growth in auto EV was driven by the advanced testing technologies we acquired with AlphaMation that are used to qualify infotainment systems for vehicles. We also saw increased demand for the technology we offer for testing battery packs that are used in various end products not just EVs. Our flying probe automated test systems are used in battery pack testing, to support the megatrend of electrification of a broad variety of equipment such as electric boats and drones. Our systems are frequently preferred by customers because they provide tremendous flexibility and market leading test coverage. Which increases quality assurance and throughput. In the fourth quarter, we received several repeat orders for these systems and we won back a customer who had returned after trying a competitive solution. While the pipeline of opportunities for this technology entering 2025 is healthy, We are carefully monitoring customer spending given the ever changing tariff and buyer For the quarter, our year over year core business sales growth in defense, aerospace, aerospace, semi back end and life sciences more than offset the decline in in industrials. We also benefited from approximately $2,000,000 in previous lead delayed shipments to Life Sciences, Defense Aero and Auto Markets.

Due to the logistic issues in the third quarter. Record sales to the defense aero market was driven by our innovative environmental and test technologies which addressed the demanding requirements for these customers. Gross profit in the fourth quarter decreased sequentially reflecting a $1,600,000 charge to cost of goods sold related to purchase price accounting. For the Alfa Mason acquisition as well as mix. Duncan will provide more details on the inventory step up charge shortly. Let me now review orders and backlog on Slide five. Fourth quarter orders increased 11% year over year. Back end semi continued to show signs of improvement. Offsetting persistent weakness related to our silicon carbide, gallium nitride applications in the front end to drive a $2,400,000 increase in overall semi orders. The $1,700,000 increase in orders for Auto EV included $1,100,000 from AlphaMation. Demand in Life Sciences more than doubled to a record $2,300,000 and reflected sizable orders for our induction heating solutions in multiple Sequentially, orders were up 9% marking our third consecutive quarter of improvement and with strength in semi and life sciences. Auto EV demand slowed reflecting continued softness inTEST end market. While orders for Defense Aero were down in the quarter, we continue to see strong interest for our solutions in this market.

In the quarter, we received orders from multiple commercial space companies and NASA. Backlog at the end of 2024 was $39,500,000 and included $7,400,000 from alfamation. Backlog was 600,000 lower from the prior year period and down $6,000,000 sequentially reflecting the timing of alflamation shipments. With that, let me now turn it over to Duncan to review the financials and outlook in more detail. Duncan, over to you.

Thank you, Nick. Starting on Slide six, as Nick noted, revenue for the fourth quarter was $36,600,000 including $8,500,000 from AlfaMation. [indiscernible] The $8,700,000 increase compared with Q4 twenty twenty three was driven by $7,900,000 of growth in auto EV. All from AlfaMation, dollars 2,700,000.0 of growth in defense aerospace, and $1,500,000 of improved sales in semi as back end improvement more than offset front end weakness. Industrial sales were down 3,700,000.0 due to general market softness and project timing. Sequentially, fourth quarter revenue increased $6,300,000 increased $5,700,000 defense aerospace was up $1,900,000 and security improved $300,000 It should also be noted that as referenced, on our third quarter conference call, the fourth quarter benefited from approximately $2,000,000 of shipments that were delayed out of the third quarter. Moving to Slide seven. In the fourth quarter, we were refined and finalized the purchase price allocation for the AlfaMation acquisition. Adjustments recorded included a $1,600,000 inventory step up, which increases the cost of inventory acquired. This adjustment was made to reflect the fair value value of work in process and finished goods as of the acquisition date. As the related inventory was sold in 2024, this increase was charged to cost of goods sold in the fourth quarter which negatively impacted gross margin for the period.

This is the $1,600,000 charge impacting gross profit and four thirty basis point impact to gross margin that Nick noted earlier. Fourth quarter gross profit of $14,500,000 increased $500,000 sequentially on higher revenue and improved operating efficiencies that more than offset the $1,600,000 charge. Compared with the prior year period, gross profit increased $2,100,000 dollars Including the four thirty basis point impact, and four ninety basis points year over year. As you can see on Slide eight, our operating expenses were $12,500,000 Compared with the prior year, operating expenses were up $1,100,000 reflecting the addition of Alphination, which added 1,500,000.0 Alformation operating expenses benefited from an $800,000 amortization credit the current quarter. Overall, the increase in operating expenses were partially offset by cost reduction efforts and operational improvements in our core business. Compared with the trailing third quarter, operating expenses declined $1,100,000 dollars as a result of the sequential reduction in amortization expense of $800,000 dollars as well as the impact of ongoing cost cutting actions and operational improvements. Turning to Slide nine, can see our bottom line and adjusted EBITDA results. For the quarter, net earnings were $1,500,000 or $0.12 per diluted share. Adjusted net earnings were $2,800,000 or $0.23 per diluted share.

Adjusted EPS reflects adding back the tax affected impact of the inventory step up and acquired intangible amortization charges. On an after tax basis, these totaled approximately 1,300,000.0 or about $0.11 per diluted share in the fourth quarter. Adjusted EBITDA for Q4 was 4,400,000.0 representing a 12.1% adjusted EBITDA margin For clarity, this is inclusive of adding back the $1,600,000 inventory step up in back Slide 10 shows our capital structure and cash flow. During the quarter, we generated $2,600,000 of operating cash. Capital expenditures in the fourth quarter were approximately $200,000 and the resultant free cash flow dollars We ended the quarter with total debt of $15,000,000 This reflects a total debt leverage ratio of 1.4x. During the quarter, we repaid approximately $1,100,000 of debt. Cash and equivalents at the end of the fourth quarter were 19,800,000.0 up $1,800,000 from the trailing quarter. We continue to have $30,000,000 available with our delayed draw term loan and an incremental $10,000,000 available under our revolver. Turning to Slide 11. We provide our outlook. For 2025. Our outlook for 2025 is cautious and we expect full year revenue to be approximately $125,000,000 to $135,000,000 with profit Amortization expense for 2025 is expected to be $3,400,000 Our effective tax rate for the year is expected to be approximately 18%.

Capital expenditures for 2025 are planned percent to 2% of revenue. For the first quarter, revenue is forecasted to be $27,000,000 to $29,000,000 with gross margin of approximately 41% and operating expenses of $13,600,000 to 14,000,000 reflecting the typically higher levels in the first quarter. This estimate excludes approximately $200,000 of restructuring expenses related to Videology. Our expectations for the quarter reflect recent customer push outs of approximately $3,000,000 of orders in backlog to the latter half of the year. We have also taken into account the slowing receipt of orders we are seeing due to the uncertainty in end markets as a result of recent and impending tariffs.

As usual, our guidance does not include the potential impact from any non operating expenses such as corporate development and restructuring that may occur from time to time. 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. As we closed 2024, we had solid momentum coming off a strong Q4 performance and our opportunity funnels were expanding. However, as Duncan just mentioned, the uncertainty related to the change administration is now delaying customer investment. As to tariffs, we continue to assess the potential impact from both the supply chain as well as market competitive position even as this situation is rapidly changing. We do have suppliers in Canada and China that support our U. S. Operations, But for the most part, our supply chain is relatively localized around our manufacturing facility. Because of the work we did during the supply chain disruption in 2022, we are in a better position and have alternate supply options. If we are not able to mitigate costs, we do expect We also think our competition is on the same playing field from a supply side perspective. Our greater focus currently is the impact tariffs may have on a market competitiveness for our businesses. AcuLogic, which is based in Canada, has a large portion of their sales into The U. S. Our semi test equipment also is sold into China and we are working with those customers to understand their mitigation strategies given they are global manufacturers.

As more clarity is provided regarding the tariffs including the length of time they'd be in effect, and the other countries that may be impacted, we can better evaluate our market position. In the meantime, we are in close conversation with our customers. The manufacturing build out at Almer Leisure was facility is underway and we plan to be producing products there by the end of the year. The in the region for the region approach will save costs for both supply chain and logistics and should improve market competitiveness. In addition, we recently announced our intention to consolidate our Videology Netherlands facility into our Mansfield, Massachusetts location which houses our U. S. Videology operation. This consolidation is intended to streamline operations to enable us to better serve customers while reducing cost. We are expecting approximately $600,000 of restructuring charges to be recognized through 2025 associated with this consolidation. [indiscernible] We also expect these actions will result in annualized savings of approximately $500,000 beginning in 2026.

While our outlook is cautious for 2025, our sales teams are focused on the right markets and applications. We expect to continue to see gradual improvements in some of our back end semi along with increasing activity with defense aerospace customers. Currently, the front end semi market remains paused and we expect it to remain so throughout the year. We are confident that Silicon Carbide, Gallium Nitride And Epitaxy Applications Where Our Solutions Are Used Will Provide Longer Term Growth Opportunities. We Continually Work To Optimize Our Go To Market Channels To Improve Sales And Expand Geographic Reach. In Addition To Expanding Our Malaysia facility, we have added sales resources and channel partners in Malaysia, Singapore, We also recently announced a new agreement with a channel partner in Japan.

Today, we announced our Board of Directors has renewed our stock repurchase plan.

This is a confirmation of our belief in the long term value we are creating through innovation with solutions that solve our customers' most challenging problems. It is also a statement of our as we deepen our reach into targeted markets broaden our customer base and expand our geographic presence. On March 26, we will host a strategy briefing at the New York Stock Exchange Exchange where we will present Vision 02/1930. And our strategy to achieve those long term goals. With that operator, let's open the line for questioning.

Thank you. We'll now be conducting a question and answer session. Our first question is coming from Jason Schmidt from Leach Tree Capital Markets. Your line is now live.

Yes. Thanks for taking my questions and congrats on a strong finish to the year.

Just want to start, Nick, with some of your commentary regarding push outs into the second half. Are you seeing any cancellations in your pipeline? Hey, good morning, Jason. And thanks for the question. At this time, we aren't seeing cancellations. We have seen some customers kind of change one product over to a different product to different say, powered solution, if you will, but no cancellations. Really just more of a timing issue. Okay, got you. And then looking at the life sciences business, some really strong orders in Q3.

Was that driven by a couple of customers or was it really just broad based? It was pretty broad based across the our induction heating solutions was a big driver of that. And And as the team really focuses on opportunities in markets there, given the falloff they've seen in that front end semi. It's good to see the momentum we're gaining. Okay. And then just the last one from me and I'll jump back into queue. Looking at your annual guidance, when we think about potentially reaching the higher end of that range, Would that really just be driven by a couple [indiscernible] broad based improvement in the demand environment across the board?

I mean, on the high end, as we mentioned, we have seen some large crusades from Q1 that get delivered in the back half. So So there's an element of backlog that we know will be delivered in that back half. Other than that, your backend has been showing pockets of improvement. So there's an element of of continuing to see that. At this stage, front end, as we've talked about before, the assumption is that doesn't really pick back up until really 2026 at this point. Broader industrial markets, we do feel challenged right now as people are trying to understand a little bit more from a a tariff perspective as we talked about and just general market uncertainty. But we do anticipate as things stabilize a little bit, those markets will improve as well as the year progresses.

Okay.

That's helpful. Thanks a lot guys. Thanks, Jason.

Thank you. Next question is coming from Ted Jackson from Northland Securities. Your line is now live. Well, Duncan and you just answered my main question, which was on revenue, but I'll ask you in a different way. And when you go into the 2025 outlook, can you just provide a little color with regards to cadence? And by cadence, I mean, like how you see the quarter progressing by kind of end market? I mean, like you've kind of talked with regards to back end being semi being stronger, front end being weaker, but maybe just a little more color and then maybe a way either kind of first half to second half, that would be my first question.

Sure.

Obviously, with our Q1 guide and the full year numbers, there's a perspective that quarterly revenues increased during the course of 2025. As I referenced with respect to back end particular, we do see that stronger in the second half given some of the delays we've seen shipments being pushed to that back half. I would say other markets a little tougher to discern pickup in Q2 versus back half. Of the year. As I said, I think Q1 we're certainly seeing a little bit of uncertainty out there across many of our markets. As people just try to get their arms around what's happening from a general economic kind of perspective. I mean the other big market that is a little softer that we've talked about and is important is the auto the auto sector. That is a little bit slower for us. Again, a lot of uncertainty across that marketplace. Which we do see as resolving and picking up towards the the back end of the year.

And then with all the uncertainty and just things going around, I mean, does this have any impact I know you guys have a strategy of looking for acquisitions and stuff. So kind of an update on what's going on with regards to the M and A pipeline, how active are you in it, particularly given kind of the current environment? I guess see part of it being something that might make more opportunity for you and also see it give you more caution with regards to pulling the trigger on anything. So be my second question.

Yes. And that's a good question, Ted. And as you know, M and A is an important part of our strategy. And we are constantly working on building relationships with customers, identifying targets and the teams are are actively doing that. Out there. As noted, certain times of the year or certain times companies are more attractive from a valuation perspective, other times they're they're a little too rich for our blood. So I think these kind of times makes it more favorable for us.

And we just want to be ready to be able to act if the right strategic opportunity presents itself. So I think we're in a good position. And it's not like we're pausing M and A. So you're active in the market, inTEST just you plain and simple.

Then my last thing is really just for Duncan. And so you put out some more color and breakdown with regards to your financials. We're at least in the press release, you took your, let's call it your kind of three segments, electronic test environment and process and not just gave out the revenue, but gave some cost structures. [indiscernible] presentation, you provided some of that color historically, but you did not provide kind of a gross margin view like you did in the press release. Is there any chance that we could get some historics that are in the structure of what's in the press release? So I'd like to restructure my model around that. It's not really a question, but it is a question.

Yes. I mean, I think we do provide the numbers to do that. [indiscernible] don't really manage our segments at the gross margin level, but really looking at that divisional operating income profitability, which is why quite honestly, the information is provided. There is a new reporting requirement actually in our 10 ks that requires us to break down those expenses in a little bit more detail. But as I said, we're not really managing our segments to gross margin. We're managing our segments to divisional operating income. So the elements I believe the elements are there and we certainly can provide you the elements But Yes, I mean, it's just hard to understand. I would I understand what you would do, but if I want to slow my model down at those segment levels to get to that operating, I just kind of want I'd need the line to do it or I really wouldn't be able to. That's all.

Yes.

I think we're going to provide the numbers we're required to present for the segment reporting. Is where we is where we are on that.

Okay.

All right. Well, that was it. That's it for me. Thanks. Much for taking the questions from Thank you. Next question is coming from Dick Ryan from Oak Ridge Financial. Your line is now live. Thank you. Most of my questions have been answered Nick and Duncan, but I have a question on the not a question, just an observation. You've got the Investor Day coming up where you're going to give a view into 02/1930. But previously, you had kind of a 27 target out there of whatever it was $200,000,000 to $250,000,000 dollars When you look at the flattish guidance for '25 and you consider the end markets, whether you've got the right products for the end markets and your competitive position, Is there any reason to back away from that aspirational 2027 goal or is that something that will be discussed on the Investor Day?

Hey, good morning, Dick, and thanks for the question. And absolutely, we'll be discussing that on Investor Day here in March. Later in March, March 26. But in general, yes, we are not giving up on our targets that we laid out from our prior strategic plan to try to get this business to to north of $200,000,000 We absolutely believe there's room in our served markets to do that. We have the ability to drive the right initiatives and generate the right level of cash from our business is which we've seen in certain quarters. So it's a matter of getting some of these markets to cooperate with us and that's really kind of kicked the can down the road a little bit here. But yes, we'll get a lot more into it on the twenty sixth coming up.

Great. Do you when you look at I mean other than the tariff uncertainty, but do you think you still have product and competitive position that you're satisfied with? Obviously, you're going to be introducing new solutions and systems as we go forward. But anything changing on your competitive landscape at this point?

No, nothing at all. We are generating tremendous value add for our customers with our expertise know how solving their challenges out there. So our competitive position remains extremely strong. And as you noted, our innovation to can stay step ahead or two steps ahead of the competition is a key part of our strategy as well. So yes, no, we like where we are.

Great. Thank you. Thanks, Dick.

Thank you. We reached the end of our question and answer session. I'd like to turn turn the floor back over for any further or closing comments.

Thank you, Kevin. We appreciate you joining us today. 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 slide, we have our inTEST and Analyst Strategy briefing listed along with the link to register. I hope to see some of you all there. Thanks again for participating and have a great day.

Your line at this time and have a wonderful day. We thank you for your participation today.