inTest Corp (INTT) 2025 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

Welcome to the inTest Corp third quarter 2025 financial results conference call.

(Operator Instructions)

I'll now turn the conference over to your host, Alex Villalta.

Thank you. You may begin.

Good morning, everyone and thank you for joining us. With me on the call are Nick Grant, our President and Chief Executive Officer, and Duncan Gilmour, our Chief Financial Officer and Treasurer.

The earnings release was issued this morning, as well as the slides that management will use during the call. Both of these can be found in the investor relations section of the inTest.com website.

Please turn to slide 2 for a review of the safe harbor statement. During this call, management may make some forward-looking statements about our current plans, beliefs, and expectations. These statements apply to future events that are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from what is stated here and today.

These risks, uncertainties, and other factors are provided in the earnings release, as well as in other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at sec.gov.

Also, as covered on slide 3, management will refer to some non-GAAP financial measures. We believe these will be useful in evaluating our performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP.

You can find reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides. With that, I'll turn the call over to Nick.

Thank you, Alex, and good morning, everyone. Thanks for joining us for our third quarter 2025 earnings call.

We will begin today's discussion on slide 4, the presentation.

After several months of order sluggishness as tariff and economic uncertainties complicated customers' capital investment plans. It's refreshing to see some pockets of customers break free and move forward with capital projects.

We have always contended that a market recovery is a matter of when, not if.

Our funnel of opportunities has been at high levels since Q1, and this quarter, the conversion rate picked up, resulting in orders of $37.6 million, our strongest level since Q2 of 2022, leading to a sequential $11.4 million increase in our backlog.

Most of this improving demand is coming from customers in the Automotive and Defense/Aerospace in markets, a clear testament to the success of our market diversification strategy.

These customers are relying on our innovative and differentiated test equipment that enable better quality control and increasingly complex manufacturing processes.

While this increase in orders is encouraging, conversion rates do vary by end market, and many customers still remain hesitant to commit to new capital projects. This is especially true in Semi.

However, based on what we are seeing and hearing, it feels like we may be moving into a period of gradual recovery.

Revenue for Q3 was $26.2 million, lower than Q2 and below the guidance range we provided on last quarter's call.

During the quarter, our engineers encountered technical challenges in finalizing a few systems which delayed approximately $2 million in shipments.

In one case, the challenges were associated with new capabilities. In the other case, the systems were for a new customer in a new target market. These challenges have since been resolved, and the systems have been shipped.

We are excited about the positive impact our steadfast resolve to drive innovations and add new customers will have on our future as we execute on our vision 2030 strategy.

During the quarter, we continued to strengthen our competitive position in preparation for a broader market recovery by making more progress in penetrating target accounts and driving adoption of new products.

We believe we have the balance sheet, the financial flexibility, and capacity to support our customers as demand improves.

Let me now review orders and backlog on slide 5.

Auto/EV led the climb in orders this quarter, accounting for around three quarters of the sequential growth and doubling to $14.6 million.

Alfamation bookings were at an all-time record level for the business, representing strong demand for test equipment from tier one electronics suppliers as they expand capacity to support 2027 model year programs and start new projects.

Defense/Aerospace orders more than doubled sequentially to $6.4 million, primarily due to the increased test demand for next generation weapons systems.

We continue to see success with our new products. This is especially true at Acculogic, where they have expanded their flying probe capabilities to include radio frequency and oscilloscope measurement test solutions, thereby enhancing our customers' manufacturing efficiencies.

These expanded capabilities drove multiple system orders in the quarter from new customers. In addition, several defense contractors are continuing to qualify our new products.

Year over year orders were up 34.2%. The increase reflects the strength in Auto/EV, which grew $7.4 million, industrial, which increased $2.4 million, Defense/Aerospace, which increased $1.9 million, Life Sciences increased $0.9 million, and Semi, which was up $0.4 million.

These increases outpaced the declines in safety, security, and other markets.

Although we saw some pickup in Semi orders, overall, the Semi market remains sluggish, especially in our analog mix signal business.

Backlog at September 30 was $49.3 million, substantially above where it was at the end of the second quarter, and positioning as well for the upcoming quarters.

Before turning the call over to Duncan to review the financials and outlook in more detail, I want to thank the entire inTest team for their continued dedication and commitment to our shared vision 2030 goals.

Duncan, over to you.

Thank you, Nick. Starting on slide 6. Revenue for the third quarter was $26.2 million compared to $28.1 million for the second quarter, a decrease of $1.9 million.

Sales in Defense/Aerospace accounted for $1.3 million of the decline, followed by Auto/EV which declined $0.9 million, and Semi, which decreased $0.4 million.

This decline was partially offset by an increase of $0.7 million across Life Sciences, Safety/Security, and other markets.

Compared with Q3 2024, revenue declined $4 million, reflecting lower Semi, Auto/EV, Defense/Aerospace, and other sales totaling $5 million, partially offset by increases in Life Sciences and Safety/Security, totaling $1 million.

Moving to slide 7, starting with the sequential comparison, gross profit decreased $1 million to $11 million, and gross margin declined 70 basis points to 41.9%, primarily due to lower volume.

Compared to the prior year period, gross profit declined $3 million and gross margin declined 440 basis points due to reduced volume and unfavorable product mix.

We continue to execute tariff mitigation tactics to minimize gross margin impacts.

As you can see on slide 8, our operating expenses of $12.2 million decreased $0.7 million sequentially and $1.3 million compared to the third quarter last year, as our cost reduction actions are flowing through in an effort to improve our long-term profitability.

The consolidation of our Videology Netherlands facility, which we estimate will translate into annualized savings of approximately $500,000, beginning in 2026, remains on track.

Turning to slide 9, you can see our bottom line and adjusted EBITDA results.

For the quarter, net loss was $0.9 million, or a loss of $0.08 per share.

Adjusted net loss, which adds back tax-affected, acquired and tangible amortization charges and restructuring charges, was a loss of $0.02 per share. Adjusted EBITDA for Q3 was $0.4 million.

Slide 10 shows our capital structure and cash flow.

In the first nine months of 2025, we reduced debt by $6.2 million, including the $1.2 million we paid down in the third quarter.

Total debt outstanding was $8.9 million at quarter end for a total debt leverage ratio of 1.7 times. Cash, cash equivalents, and restricted cash at the end of the third quarter were $21.1 million, up $1.8 million from the end of the second quarter.

We ended the quarter with approximately $61 million in liquidity.

inTest remains a cash generating company that we believe has the financial resources to scale the business and achieve our vision 2030 goals.

Turning to slide 11 and our guidance. Our long-term fundamentals are solid, with inTest maintaining its strong leadership position and specialized, high value applications and our readiness for a market recovery.

As Nick said, we are seeing some pockets of renewed capital spending, but many customers still remain hesitant to commit to capital projects, and we do not have visibility into the timing of an overall market recovery. Therefore, we are continuing to offer guidance on a forward quarter basis only.

Including the shipments which slip from the third to the fourth quarter, and the orders in backlog that we anticipate to fulfill and ship during the fourth quarter, we expect revenue in the fourth quarter to rebound to a range of $30 million to $32 million. We are forecasting gross margin of approximately 43% and operating expenses of 12.3% to $12.7 million, excluding approximately GBP200,000 of restructuring expenses.

Amortization and interest expense are projected to be consistent with Q3.

As usual, our guidance does not include the potential impact from any non-operating expenses, such as corporate development and incremental restructuring that may occur, nor does it include the potential impact from any additional acquisitions we may make.

With that, if you will turn to slide 12, I will now turn the call back over to Nick.

Thanks, Duncan.

Although the third quarter had its challenges, we are pleased with our performance overall. Our order book expanded. Our market diversification strategy continues to take hold, and our innovative new products are gaining traction as we continue to execute our Vision 2030 growth strategy.

The adoption of these new products positions us well to capture new opportunities and expand our serviceable market.

This quarter's increase in backlog, a little more than half of which is scheduled to ship in 2026, and our strong funnel of opportunities suggests that demand in some of our end markets is beginning to recover. Although, as Duncan noted, visibility for a full market recovery remains limited.

While our market conditions have been weak this year, we have not been idle. We have been strengthening our market recovery readiness, penetrating new target accounts, broadening our channel networks, expanding our manufacturing footprint to support global customer needs, while introducing new products that deliver more value to our customers.

We believe we have the right technologies and that we are focused on the right markets and the right customers to scale the business as we advance towards our vision 2030 goals.

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

Thank you.

(Operator Instructions)

Max Michaelis, Lake Street Capital Markets.

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

Yeah, morning, Max. So, about $1.5 million of it was, tied to the life science, markets. It was the, tied to a couple of units, a couple of systems at our Alfamation business, which is really for the medical technology, kind of diversification. Efforts we've been driving there, and they had a little bit of a delay in getting the systems, ready to go by the end of the quarter. So, but the challenges they faced have been resolved and the customers that FATs completed, and the tools have been shipped. So, customers very happy, on, from that side. In fact, they've given them, given us an LOI for additional systems. So, very, while it was disappointing, we didn't get those out at the end of the system or end of the quarter, it's, we're pleased that, the outcome there. The other was for our semi industry at archaeologic. One tool was missed the shipments at the end of the quarter just by shipped the following week. So, it but into the Semi market.

Yeah, thank you for that and then next question, so if we look at your order growth really solid in the quarter, especially with the A&D and then Automotive, you highlighted, 2027 automotive programs kind of driving the demand, and that's in that vertical I mean how, what's the, I mean how long does that last? Like is that a few more quarters of strong momentum or kind of give us like an idea on how long we can expect this strong Automotive orders to continue.

Yeah, no, as you noted there, that, the front end or the Automotive, programs tied to these new pro, 2027 model years, really started last quarter. We saw Alfamation have a nice strong quarter in Q2, and then really picked up here in Q3. What's encouraging is their funnel, even though they've booked quite a bit of this, activity still remains healthy. They're filling in new opportunities. And so, we do see that this test investment for the new technologies around infotainment, CCUs, displays, lighting, etc. in these vehicles, should, continue for a foreseeable future here.

Awesome great guys. Thanks.

(Operator Instructions)

Richard Ryan, Oak Ridge.

Thanks.

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

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

Sure, okay, thanks for that clarification. Say on the Semi side you talked, sluggish. Can you talk a little bit about front end back end? I mean, I think some of the commentary for the Analog side, says, at least that market is stable, there may not be much growth over the next couple of quarters, but then, it seems on the silicon carbide side commentary for '26.

Seems to be more growth oriented coming off of a transformational 2025. What are you seeing in those two, markets from your customer conversations?

Yeah, I mean, let me just touch on that, Dick. I mean, I think on the front-end side, activity, pretty anemic still, as I think.

We see across the marketplace. Although there are signs of life, I think we're starting to see a little bit more activity, as we've talked about before. Customers are still interested. We still have good dialogue in terms of projects that they're still working on, but as you indicate, looking further out into later '26, into '27, things like that, so.

We're still very optimistic about the future, in that space, but not a great deal happening right now in terms of order placement, revenue generation. On the back end, things have been a little bit slow. After, as we indicated, and I would characterize that as some of our larger customers, for example, are still struggling a little bit with the tariff situation, still struggling a little bit with where to place their chips investment wise. So, Things like investment into, say, China is perhaps a little bit slowed, so we're certainly seeing a little bit of that. And again, I think the rhetoric around Analog mixed signal with a number of the larger players a very similar story.

Great, okay.

Thanks guys and congratulations on the order that the order level that's pretty impressive.

Great, thanks, Dick.

Edward (Ted) Jackson, Northland Securities.

Thanks, good.

Morning guys, I want to talk a bit about--

Morning Ted.

Yeah, how are you?

Good.

So, I wanted to talk a bit about just sort of, what happened during the quarter and kind of, the what might maybe has changed in the near term vis a vis, when you entered the quarter, let's say I mean, I, the timing stuff, I mean stuff like that happens, but I was, I'm a little surprised that.

We didn't see with regards to the guidance in the fourth quarter, maybe a little bit more because, you're basically bringing $2 million of revenue from the third quarter into the fourth. So, the high end of your range at $32 million is, pretty much where the consensus and everyone was looking for anyway. And so, and when I think about that, is that this was there.

A downtick in terms of kind of, the economic environment for you and you know there was there a shift in something or some part of the business, as we, kind of went through this quarter, this last quarter and got into this quarter relative to what you, where things were, about 3 months ago, that's kind of my first question.

Yeah, so, the first part of that, the issues really is around these new technologies as we highlighted, and once our teams get these, things implemented, for the applications. The building the next follow-on tools is, less risky, and of challenges or what have you. So from there on it's pretty much, rinse and repeat, so we're confident.

That the initial challenges in this life sciences market that delayed some shipments have been resolved, and, additional shipments that will occur, will go much smoother from that side of it. The other being the The around the technology specifically around our RF probes and new probes that we launched for the customer's application there it slipped by a few days just timing wise the important thing is we get it right and and that's what the team did so. Yeah, again, positions us well, and in fact that business at Achaeologic has received multiple new orders for their RF and oscilloscope in the quarter from a new system. So that technology is really resonating with the market out there.

So we're excited about that.

As for Q4 kind of range we put out there, I would say our teams are, very, confident, given providing numbers on what they're going to hit this quarter. I, we made a very clear slippage, things that are at risk, but I don't want them in the forecast. So that's what we're kind of seeing things that we're, we were able to deliver on, with minimal risk. Now, if we get some other stuff out that. Then that's all upside. But these guys, they've got the message loud and clear.

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

You see what I'm getting at is like, so you had $2 million that that slipped out that you were expecting to come in the third quarter. So, your third quarter, instead of being, $26.2 million, what it should have been $28.2 million, and then if you take that out, that would mean that your fourth quarter guidance, is, at best flat.

Here I'm going with this and--

Yeah, I see where you're going.

And so, I, but I mean, so my question is like, has, does that, is, does my sense is that that's, kind of a, I think you can get guidance. It's not like a guide down, but you know that, the that that's a bit disappointing vis a vis perhaps what you would have thought.

Last time we had a call and maybe I'm wrong with that but that's just sort of my sense and so I'm just kind of curious, is that because there's been some kind of change within the dynamics or that you're just kind of tightening up the things that you're putting in and counting on.

You see I'm saying for your budget and why I bring all this up because to be honest, like the tone of this call, it's the best tone that you've had all year. I mean, clearly, you're feeling better about your business today than you were 3 months ago or 6 months ago, you see I'm going and so there's just a disconnect for me with that. So I'm just trying to understand that.

Yeah, I mean, I think, Ted, obviously the tone is positive. The orders were extremely encouraging. Quite honestly, there were literally 2 or 3 systems that make up the $2 million a very small number of tools which, and quite frankly, the story behind those misses is a very positive one in terms of the new technologies, the new capabilities that just took a little bit longer to turn around, as well as. On the alpha nation side into the life sciences penetrating new markets. So, although disappointing that it was a revenue miss, the fact that it was literally slippage of a few days, a few weeks, very positive aspects in terms of the sequester. Revenue. I think we were looking at revenue growing, Q2 versus Q3 versus Q4. The $2 million slips, we would have been in the low 28s, flat-ish with Q3, had all of those systems gone out the door, then we'd have been looking at, say, around a $30 million instead of a $30 million to $32 million. So, not a spectacular ramp. I think we have indicated the recovery is going to be gradual here.

We do feel most of our markets are at a relative, relatively low point. We don't see a spectacular ramp back up, so.

I think we feel somewhat in line with what we had painted. We're always disappointed when the numbers are.

We'd always like the number to be higher, I suppose, is one way to look at it.

Don't we all? Okay, then, my next thing, let's go into something a little different. So when you look at, kind of the book to build and you look at your different segments, like I'd like to talk a little bit maybe just about industrial. No one brings it up anymore, but you've actually put up a book to bill number better than one for the 4 quarters in a row and actually five of the last 6. So, with regards to industrial, I know it's not, it's been, let's just say it hasn't been a problem for you per se, like kind of what's happening within that segment of your world.

Yeah, no, you're right, industrial hasn't been the most challenging segment for us, and it's stable, I would say, but we do have a number of projects in the funnels on the industrial side of things there that are still kind of delayed as customers hold back on CapEx, so it could be better, but the teams are, you know.

Capturing what they can capture out there. So we still believe industrials throttled back a little bit, as we've commented, semi is still, slow for us on that, but on the positive defense arrow, really, robust for us, the activities we're seeing there, the orders we're getting, the automotive, these programs, and.

The life science activities we're driving. So, the diversification we drove really is paying off as Semi will come back and our industrial base will get pick up stronger here as the economy improves. And so we're in a good position, as we go forward here and it's great to see a few of our target markets, coming in nicely.

All right; that's it for me.

Hey, thanks for the time.

Oh, thanks, Ted.

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

Thank you, David. We appreciate you joining us today and thank you for your time, and we welcome the opportunity to answer any further questions you may have. On slide 13, please note that in addition to the details regarding the replay of this call, we will be participating in two conferences before the end of the year. We hope to see some of you there.

Coming into this call, I understand there was some website technical challenges for a few folks there. Our team's been working to get that resolved and we'll continue to do so as quickly as possible if it's not already completed. So, thank you again for taking the time and you all have a great day.

This concludes today's conference, inTest, thanks you for your participation. You may disconnect your lines at this time.