INTT - Earnings call transcript Q4 2018

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Operator

Welcome to the inTEST Corporation's 2018 Fourth Quarter Financial Results Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded and a replay will be accessible at www.intest.com. I will now turn the call over to inTEST Investor Relations Consultant, Laura Guerrant. Please go ahead.

Laura Guerrant

thank and joining Call. Year-end and XXXX for Dorey, Quarter Fourth Financial you, you us for inTEST Thank Results Conference us Chief Pelrin, Hugh James today and With and CEO; inTEST's Regan, Officer. Financial President and Treasurer are Jim as business will trends. well current briefly year's as the review highlights the first Hugh will quarter. and detailed discuss guidance for the financial then and results for review quarter inTEST's year the XXXX for have time any then questions. We'll

copy www.intest.com. of obtained If today's a you received have be website, not copy on a inTEST's yet can release,

current Before formal may advise forward-looking that Reform statements and or of expectations. the but These to risks to those cause we materially statements. this statements that information, could subject Securities historical These that XXXX. Private meaning attorneys begin relate future potential statements management's predicted are uncertainties or results company's the remarks, by convey do such expressed the events from to conference actual Litigation contain call of implied the differ upon not Act within are based

this of demand markets of generally, semiconductor business conditions, markets, changes ATE in or In the in with the our Form the the include, Any inTEST for filings time or progress by limited set the not customers, including, general time any successful programs, in limited of made to, other inTEST economic of and operation, products, a only risks other of indications update not serve, Such business or to unanticipated is fabrication timing material raw rates no borrow circumstances or and forward-looking in and but changes our to reports hereof to date our increases SEC finance acquisitions on are and semiconductor obligation reflect our both success change costs conference and available during market markets to by ATE factors to, this in addition on integration XX-Q. press forth outside and occurrence as statements semiconductors globally, our call development and information events. anticipated the InTEST raise product currently the from factors strategy XX-K of in our our made. periodic of circumstances after it the in entering the dispositions events the associated the and which cycles based and capital of uncertainties to on future is markets to expenditures acquired or undertakes in capital the potential to and conditions to the only funds speaks risk domestically to information but major ability possibility Form of changes release. or mentioned acquisitions, to reflect diversify or date we by

non-GAAP reference will we call, to make today's During measures. financial

measures, these Pelrin. have release, additional non-GAAP And on press concerning our call We comparable in provided to the reconciliation James turn to the including Jim. which posted website. me page over go of a the investor measure now that, Please let with ahead, our directly information GAAP is

James Pelrin

welcome to call. fourth everyone like I'd to Laura. and XXXX conference year-end you, Thank our quarter

the electronic spending Let solutions serve a thermal for made test. few of broadening world-class within the presence in provider me outlining manufacturing the by we past markets this start significant year progress as we've our diversify industrial global into and moments we a company

Internet the end strong demonstrating and solid first markets. leverage. markets revenue drive driven we of and of half base sensors, automotive of year a our Things The the semiconductor execution customer continues delivered our consumer further full by our XXXX, end OEMs, heels industry operating and very On to strong of electronics users results with in diversified

of bookings of and markets. aerospace Corporation. be the business of which Our $XX.X the basis, in of to the On driven acquisition industrial defense demand XXXX respectively, impact and and net XX% included Ambrell million increased million XX%, continues $XX.X a revenue by non-semi year-over-year

Excluding gross dollars X% XX% decreased of Ambrell, down grew bookings were XXXX XXXX down XXXX margin XXXX. in to and percentage absolute and XX% in over as XX% a compared revenue revenue in X% were as from to XXXX.

speaks Excluding XXXX year of marked inTEST was employee. that dedication X% of we're And discipline exhibited our metric $XX a of Ambrell, by profitability, of revenues. year-over-year XX% ninth million, all have proud would and as gross very the consecutive to impact of margin we declined which every it the our

combined the the or Ambrell, Thermal industrial to inTEST the Solutions, markets. business serves a test which Turning as Thermal business, markets Thermal process the iTS, of is and serves segment our reminder, which

through We highly engineered diversification thermal strategically products manufacturing diversified opportunities in into provider industrial our This the end-user test and inTEST's a both market, the new applications. this broadening both footprint have applications. of segment, complements electronic and wide OEM as industrial in test penetration resulting for

and contributions XX% end-user up respectively, our year at bookings continues XXXX opportunities strong our and for increase this greater Our partners and segment OEM made leadership Thermal with particularly XX%, with to Ambrell projects. and has revenues

doubled acquired at valued applications And $XXX,XXX the an ordered an applications. new application, order acquired Ambrell an over EKOHEAT customer systems adhesive OEM a annealing throughput. square-foot curing included final paid in for would year in Thermal cash just almost bookings laboratory as previous year for of over all-new manufactures bookings for at We At the easy placed million to for first acquisition of location with for deposition million. for Ambrell. XX million while gained orders efficiencies end-user record personal-care wire heating million in bookings, highlights end-user array history additional several applications placed Ambrell's to $X Ambrell by with Ambrell the over XXXX. the full valuing achieved of in earn-out. company increased up semiconductor to the home revenue the purchase, the manufacturing quarter year $XX.X $XXX,XXX. potential from run $XX valued XXXX excess This this XXXX, floor TAM the now ever $XXX,XXX, made and adjusted to be from included brands Ambrell the a an earn-out with $XX The Excluding million. both in to X% been have very in we applications, XX% XX,XXX is the manufacturing the XXXX of the fourth order from grown XXXX X% a net in segment's at highly tremendous Since growth EBITDA chemical performance systems the company payment XXXX. pay of consider be that, revenue over for EBITDA bookings an declined the vapor well the efficient XXXX, in as solid a manufacturing million the we that and $X will we a new just maximize and Ambrell, month. an an have Add valued $X.X notable heat $XXX possible full we shipments the last Rochester quarter starting over Ambrell expect shipments later which of for at facility, results earn-out, not we Based facility up to floorspace had its our the XXXX, with revenues. size impacted upon million year, record opened highest XX% time from million. The the records being without of combined up prior full $XX record in our with financial

On So a removed, earn-out. which earnings earnings we non-GAAP a quick results. tied $X.XX of a a a consideration be the our adjusted acquired basis, solid included our contingent to have directly exceeded GAAP delivering guidance, associated adjustment will note. diluted going $X.XX And per per amortization we of operational and share, been share. indicative had our net QX more was forward true loss results GAAP diluted intangible just

Ambrell While the not out we we be forward. doing acquisition, data going have will been breaking this since

to Thermal We our segments, will EMS. be two speaking and

of banner highlights included Solutions, of best Thermal known iTS several over broadband with over its companies million. as plates and ordered the totaling had iTS, systems chambers large systems for quarter decade, major XXXX a which a and to from inTEST industrial placed to $XXX,XXX. as valued to - valued at the production satellite other a a chambers over orders of communication of secure and thermal part six $XX.X and several next-generation developer energy defense purchased in $XXX,XXX sector, their energy high-speed year up development $XXX,XXX, X% revenue Turning supplier at year communications

to Product EMS business, test semiconductor market Turning the for the which equipment industry. serves automated

docking EMS us While we softness. X current million radar despite past this in number highlights for the of test and industry communication testers, XX%. business we X growth consistent a and customers visibility digitization with IDM by XXXX, interface EMS provide manipulators, by major of driven multiple XXXX equipment Shifts OSAT major purchased included diversification docking sales our purchased long-term global an for to IoT major the in backdrop while to for for the enough automotive of Where IDM existing including summary, its outlook. with a another expanded and to IDMs continue Two a hardware major healthy a of a with somewhat manufacturers And for second automotive booking location. example, prior increased end-user customers our become bookings, $XXX,XXX. Top limited, into by and an quarter and by valued is XXXX year. interface technology purchased equipment The major on And application year, year-over-year whole execute footprint the fourth a at a positive at bookings compared half industry their one declined semiconductor X% equipment interface computing, significantly interface applications. electronics $X.X to several by EMS manipulator another consumer to XX%. year-over-year an orders cloud for stronger new OSAT and as increased activity increased segments. of growing devices for XX% other In our a strategy first. valued from XG, is expect through two our do a

in our Beyond opportunities where including semi, markets see growing vehicle, well where can the markets. to other footprint lead electric thermal base automotive, food we we as example, robust operate, for while we in in markets medical and expand as our solutions. solid markets the industrial test process beverage serve, continue we and We customer and engineered with additional packaging,

acquisition by approach and business remain tier growth current in two our forward, units Looking force. through to

We are share conditions we in to turn for creating and to direct a we our market for the to base. In with resources and key markets further XXXX. Hugh? I'd success a to And Hugh. customer broaden positioned like long-term over will that, our call well continue are closing, grow strong

Hugh Regan

of drove end million a bookings XXXX, representing Fourth sequentially decreased for of - record XXXX. as the year quarter $XX.X of Europe revenues net decrease million major XXXX backlog. were revenues million our a of Consolidated Thermal the the million came sequentially range, with and to X% Jim. decreased XX% of X% sequentially and fourth year-over-year. very year-over-year. QX X% period same December And were guidance sequentially $X million America period consolidated due sequentially, Thanks, new $XX.X XXXX XXXX. but in a entering sequentially to down end-user revenue fourth strong for of bookings flat up XX% year-over-year. for same orders at in quarter XX% applications quarter high of $XX.X XX, million Thermal XXXX $X.X and X% of and ended were increased QX segment in for $XX.X net orders and and the mix quarter X% the to X% XX% year-over-year and X% compared segment OEMs of QX. compared variety the bookings Ambrell's North in A up of

and of bookings revenues revenues Compared flat. compared bookings were demand in million bookings XX% $X.X and bookings of net and reduced revenues period up were net to of net as the the XX% For to X%, in iTS XXXX driven QX to $X were in China. by XX% the both reductions period The $X.X and quarter, XXXX. declined in down same million flat Europe EMS and sequentially QX. million same and compared were fourth respectively, XXXX, were

net were as expected, revenues quarter. $X.X revenues of market million consumer $X compared and quarter. to net QX basis, of industrial XX%, quarter the of the were declined XX% revenues third revenues million product quarter. were in from million net As a or down net semiconductor XX% or both net XX% strong $X OEM the by third compared of revenues revenues EMS expected XXXX IoT, markets Fourth continues million million be million or automotive, QX or Net year-over-year EMS very for revenues from of $XX.X demand after of $XX.X and XX% driven XX% or the in with sequentially or million end-user revenues of net XX% outside net to revenues, third $X.X on of XXXX. electronics. $X.X a

As the I just were million. noted, fourth Ambrell's record net revenues quarter for $X

net revenues for semiconductor our markets market outside $X.X QX. net XX% of Ambrell, were of for million Excluding revenues the or

So clearly, Ambrell markets. continues to served further our diversify

quarter absorbed lower the reduction to revenues. gross an gross for dollar costs. net primarily our quarter. On was or a the an in The QX fourth essentially flat million QX with by which costs Our manufacturing material fixed a net at XX% or the quarter our favorably were compared of million fixed million both manufacturing slight was percentage third in were XX% $X.X on in in our due margin increase - margin a the offset fourth as component and $X reduction in result of costs, less $XX.X revenues, partially fixed as XXXX absolute basis

As our represented a as quarter. to in XX% revenues in fourth these net costs result, the of quarter compared XX% the third

in to Our its Thermal consolidated fourth costs our costs in EMS material favorable the the from segment. a in material to Thermal the in decreased The which costs due slightly - compared and in to the material excuse lower This favorable the mix in product which fourth component costs material saw QX partially product up XX.X% was offset in a our was and more quarter declined mix. in to our segment, quarter XX% third QX, quarter. of the customer material less to customer XX.X% a component XX.X% reflecting quarter as in the from by in reflecting in component decrease quarter slight in component me, from component segment, grow fourth X.X% increase third costs quarter quarter, XX.X% from third the XX.X% decline third the

sequential offset of commission in Ambrell's the Reductions costs acquisition to profit-related impact costs for gross was expenses fourth The of initiatives. salary product expenses and million was levels Increases been and expense spending benefit salary travel $X.X spending million $X.X and was the million administrative decrease third decreased segment's costs. Excluding margin by driven in decreases for or and quarters. quarter, Thermal third Selling and bonuses XXXX sequentially. and $XXX,XXX decrease the increase XX%. of third expense warranty-related benefit in legal million salary and an and for expenses. costs increased by $X.X compared in and would million on at and $XX,XXX million X% our $X.X on have $X.X reduced fourth almost partially offset a expense by development for were unchanged partially fourth quarter was costs, compliance-related the were fully or the or declines and costs, XX%. X%. by our Ambrell, of $X.X these advertising levels and higher both telephone travel lower of gross on margin quarter quarter and fourth essentially or benefit the was quarters Engineering in IP materials offset development General costs, both spending fourth

$XX.X XXXX adjusted based accrued payable. me, primarily foreign As tax The in was in a third million due income in and for Other have XX, quarter. was earn-out losses exchange other this record at reduction we million transaction $XX,XXX XXXX, fourth to $X.X the earn-out in EBITDA to the sequentially. during our result Ambrell. $XX a for for expense earn-out to XXXX Ambrell The to for performance, $XXX,XXX quarter capped liability fourth was of December compared $XX liability of a was consideration in - earn-out, quarter compared $XX,XXX of million third to $XX,XXX the quarter we payment was have compared the million million $XX in After expense quarter. Xx in accrued will XXXX reduction paid $X.X the related XXXX the $XXX,XXX excuse recorded fourth Ambrell's we million. quarter. accrued third expense a contingent increase At for and both the the increase upon We

Our effective to in in third rate tax the quarter. XX% QX compared XXX% was

in quarters were of those in consideration high impact quarters X.X Our rates of booked unusually the the respectively, result deductible. million $X.X liability adjustments of tax effective contingent and million, the fourth the tax and third not being - $X.X

December effective have tax deduction of contingent to our In addition, for to rate XX.X% third derived XXXX, we and in after allowable the years of to liability compared been adjustment would the a during beginning deduction, benefit of $X.X related we of When the XX, the fourth deferred had the of intangible to December income XXXX. for and At quarter. currently tax a impact derived of XX, intangible quarter fourth the tax the range accrued the tax benefit we XXXX income adjusted XX%. related tax to for consideration XX% remove our tax recording that will foreign XXXX, million the XXXX foreign of $XXX,XXX the rates quarter XX.X% be expect for effective

share of result diluted million earnings $X.XX quarter shares consideration of for by derived adjusted the liability for quarter a net XXXX. third contingent by quarter loss net or of from per earnings the adjusted earnings a acquired compared compared the tax weighted diluted fair $XXX,XXX contingent change net derived loss average a $X.X per with fourth outstanding. to third intangible or for net any diluted the Adjusted Adjusted net of accruing for income Adjusted were fourth earnings our to adjusted of $X.XX adding per we net earnings consideration and is share. diluted net or is net $X.XX $X.X the net removing earnings a dividing diluted As adjustment incurred diluted per quarter share amortization share $X.XX million in $XXX,XXX or expense share related non-GAAP million is of by per $X.X value earnings. Ambrell, measure, which

of was the of adjusted outstanding issue at reported $X.X the fourth quarter quarter. the $XXX,XXX $XXX,XXX computation XX,XXX,XXX December loss for to from for periods, the diluted for intangible QX. diluted - the shares not quarter. for was were million quarter. liability of for to $XXX,XXX average computation XX, of during the EBITDA for XX,XXX,XXX. would repurchase quarter. average quarter, from any When Depreciation amortization quarter or did recorded down diluted adjusted for per expense net Acquired the outstanding weighted $XXXX EBITDA the For diluted were both We third fourth compared weighted during adjusted in shares fourth fourth for shares share, $XXX,XXX the while consideration earnings, $XXX,XXX down third contingent $X.X QX was for million been compared third have the adjustments

same expect decreased quarter. fourth at the down sequentially expenditures December Inventory $XXX,XXX and at For $XX.X XXX, September fourth quarter. periods XXXX, from and activities. million Cash cash $XX.X XXXX. for quarter million $XXX,XXX $XX.X EBITDA increase today the in million at had $XX.X September Capital to we from compared impacts equivalents end the the quarter million, December, EBITDA receivable was million XX. temporary any of were Accounts person $X.X $X.X staff, third $X.X was now at was fourth decreased for end during prior acquisition-related staff those up XX. headcount stands were respectively. to $XXX,XXX sheet. $XX.X $XX,XXX, balance cash the throughout the at level the end of million I'll equivalents to turn to to includes million, XXXX cash We million an the from Consolidated the to increase $X.X X of Adjusted XX. million. Cash of and the which currently of at

unchanged XXXX expect back XXXX. expenditures million, of in of will levels related to occupied million for the backlog our included We expenditures that Ambrell capital $XX.X from as new end The a go $X.X April historically spent was normal December us at facility at September. in capital to they $X.X XXXX million

for in In as that quarter the share. to $XX expect to our earnings terms ended range March of of from diluted XXXX, range the million $X.XX noted release, XX, financial net net will in $XX million, be outlook, $X.XX revenue will our earnings per we

can quarter $X.XX XX% quarter will formal XXXX will as earnings We We mix with compared will questions. adjusted expect that range now that to QX concludes per that expect from product range first be diluted of margin currently our the favorable $X.XX our the to that and from XX%. less take We gross XXXX Operator, net share. fourth remarks.

Operator

take at time, Instructions]. our [Operator from Research. O'Neill At Theodore first Litchfield question Hills this we'll

Theodore O'Neill

And been the third the one it into on the in and its said automotive seeing you lowered between semi. industrial and there's close and but that and fourth into Instruments, quarter, semiconductor who sequentially your like lot customers lower in quarter. and its Texas the like of call, split to channel wafer It getting quarter of diversifying automotive, you in we're has applications were starts. for fourth channel have also industrial they're industrial said up inventory It So, weakness quarter says, year. QX, a first a

seeing So you trends? is, are the question similar

James Pelrin

Yes, that not think the how kind TI softness long case. marketplace. certainly to sure it's I'm in are of sees our we persist going I that same the in experiencing

the but of said, our than the customers claim we ball. going the say, are a persist TI to crystal half half, we to don't what year, it's As many think second have first but more positive for of we has much

lookout can't far. really we So that

Theodore O'Neill

this what And I impact that the - what's it, but having dispute or explain was going from not what the trade an of about - or stir wondering couldn't on you're tariff TI out I the whether China? rest seeing. know tariff in was you

James Pelrin

is subject million. very heating limited tariffs induction China, the equipment Well, a had $X We in Ambrell's under all with exception of impact exposure place not to of very, system, but situation the little tariff Ambrell has first on us. - very our a

see So we affected, don't any that been certainly but great effect has from tariffs.

Operator

from question Lake Jaeson Schmidt Instructions]. our We'll take next at [Operator Street.

Jaeson Schmidt

a how you bit based far half such I from visibility you that about snapback extends expect just patterns know first your to? up on on based? second coming but that Can is previous actually half following is mainly a depressed talk that order or little here, just Just question. a

James Pelrin

Well, it's for known and don't on that based think our the semiconductor The all see. industry, abrupt. much customer its very and I and it ups personally can we know, what as is base sometimes downs interviewing they be is any going in can are to say. what and more our decline a pickup customers date, all X expect amount us what seen significant softness than to X I we've that Qs and that's they telling and healthy

Jaeson Schmidt

Okay. That's helpful.

Hugh Regan

in Yes. in we've months, And, Ambrell other question visibility, at somewhat that backlog visibility opaque another we we typically, see have that's most. than beyond Jason, a to clarity, you your it's respond really extend past, we can't that see sometimes about the to but months on - three beyond six may as six business, three anything said with to our and month months

Jaeson Schmidt

looking been think changes at umbrella you an has now, that inTEST And And grow for Okay. the can standpoint? do there your some how Ambrell it's any quite that basis? annual now you from under business, on time the fast business been

James Pelrin

think somewhere beginning a our in Well, from high grow possibly single think has the market, at - than We we've continue in about GDP. double the heating rest Ambrell certainly, to induction that. the basis we to stand which greater in the by year-over-year be that can and I and digits low said always digits, that of the goal grows far Ambrell been

Jaeson Schmidt

should from OpEx trending jump queue. year? about and think I'll we throughout the back last one into this And Okay. me How

Hugh Regan

prior in fairly we've an thought we that. Jason, one, where which the adjustment, we expect significantly, trend I as we current to acquisition for ex seem us last - not you XXXX, contingent activities. before, ex that and with that the this of trend again the between related into does we in acquisition, line adjustment, may that that consideration get consideration would look the continuing any the - contingent quarters, several be changing was Inflation of think would we QX quarter further although can close be ex noted expected next - pushing seen signs to that but into to OpEx On to QX see as our

Operator

our this will Ryan time, take we Dick And from Dougherty. question at next at

Richard Ryan

So, quarter pretty quarter, strong QX, bookings last Jim, had point? a this guys looking is at market optical transceivers. from you that How in

James Pelrin

see we've as starts. that it discussed Dick, quite QX any time. general. And market don't by I'm full fits as QX. we QX be strong but expect past, what by be affected build-outs happening the it geopolitical expect in in major to than don't in That now. affected see wasn't - was to It present be whole at the the China. industry the in be strong is the QX. Well, in softness in more partly of situation and sure, QX, We could that's could like we right We not

Richard Ryan

not? And, the Okay. Hugh, was or it gave I'm what revenue breakout geographically? not sure if you

Hugh Regan

asking? mean When group what or you you say by you are geographically,

Richard Ryan

have you of geo? any if China, Europe, kind U.S.,

Hugh Regan

a with Dick, have K. the now, I'm actually draft right for the do statistics with I Yes, my we of I room as Bear looking don't matter me. me Okay. fact. apologize. in actually

Richard Ryan

year, How ops either the was flow one? quarter the the problem. Okay. flow No or for from the cash cash for

Hugh Regan

Cash was front the that million and for I flow have the for the me most of year, about quarter, quarter, recent number in well, $XX for $X my was million. recollection

Richard Ryan

Okay. on of pretty a there? Jim, pipeline I sticky business business. to the how does be it's tended how the Ambrell, mean, is - look just

think in indicated but I how the going forward? does pipeline you opportunities, your overall new look some highlights,

James Pelrin

good, it looks healthy. looks It

are that business the great us XXXX, sign in very placing be going Our industry, which they significant some us major industry. of are with OEMs to is a telling just general

year on what we Ambrell see. looking from a I based for think we strong are

Richard Ryan

Or facility? for Have from new now come have other build-out? or any the tax on benefits grants, the they in all you are waiting that grants

Hugh Regan

the for York. We've We grant yet are that. of the one New final not waiting State received from

Richard Ryan

that, is And Hugh? how much

Hugh Regan

$XXX,XXX. it's believe, I

the our You'll from the at balance got city of $XXX,XXX Rochester reflected. see on we've XX/XX,

Richard Ryan

And one concentration How last one. just customer Okay. quarter? does the the look for

Hugh Regan

It reported was I Top seen we've first on for day time, a other consolidated XX of Board XX.X%. below just Actually, Directors our XX%. our basis the to the far

been was and So seeing the clearly, XX% one TI benefit the with Ambrell has broader customer diversification transaction over only from at XX%. that we're that a

Richard Ryan

quarter or In the for the year?

Hugh Regan

year. quarter fourth clearly, for down was That's the Yes, significantly. spending their

Operator

appears it [Operator at phone there this no time. questions are And further Instructions].

While we like lines, will any go have that questions to to the been from I to the over wait over submitted phone things for for everyone their Hugh queue prior to questions back turn calls. would

Hugh Regan

operator. this by $XXX your mentioned much, want Thank do previous you has your Jim, revenue was for that get to respond to very road is that still million Is the was, a advance. conferences, in goal? The question And end in then you in target? what We question investor that? map provided XXXX. achieving did of management

James Pelrin

Certainly. target. this our remains Yes,

We active achieve pursuing in that acquisitions are help to very goal.

- target of been active, can but And pipeline as has Our we there. that holding to get know is do that get we to we late. continue there, a and our stretch as particularly everything it's very will

Hugh Regan

Thank advance, no you. questions We've got operator. have that been in submitted further

So are no can go if there further we closing questions, to remarks.

Operator

time. further are the There at this in queue no phone questions

James Pelrin

Well, our in updating forward progress our look is results. quarter first when Operator, We call report thank inTEST. to your on you, interest everyone, concluded. you for we the

Operator

call. for today's Thank concludes this participation. And your you

disconnect. now You may

inTEST (INTT) 7 Mar 192018 Q4 Earnings call transcript