Welcome to the inTEST Corporation's 2011 Fourth Quarter and Year-end Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today. A replay will be accessible at www.intest.com. I would now like to turn the conference over to Laura Guerrant, inTEST's Investor Relations Consultant.

Thank you, Britney. Joining us today from the company are Robert Matthiessen, President and Chief Executive Officer; and Hugh Regan,'s inTEST Treasurer and Chief Financial Officer. Mr. Matthiessen will briefly review highlights from the fourth, as well as current business trends. Mr. Regan will then review inTEST's detailed financial results and discuss guidance for the first quarter of 2012. We'll then have time for any questions. If you've not yet received a copy of today's release, please e-mail me at laura@guerrantir.com, or you can get a copy of the release on inTEST's website, www.intest.com. Before we begin the formal remarks, the company's attorneys advise that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements do not convey historical information but relate to predicted or potential future events that are based upon management's current expectation. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, changes in business conditions and the economy, changes in the demand for semiconductors, changes in the rates of and timing of capital expenditures by semiconductor manufacturers, progress of product development programs, increases in raw material and fabrication costs associated with our products, implementation of restructuring initiatives, and other risk factors set forth from time to time in the company's SEC filings including, but not limited to, inTEST's periodic reports on Form 10-K and Form 10-Q. The company undertakes no obligation to update the information on today's conference call to reflect events or circumstances after the date hereof or to reflect the occurrence of anticipated or unanticipated events. And with that, let me now turn the call over to Robert Matthiessen. Please go ahead, Bob.

Thanks, Laura. Welcome everyone, to our 2011 fourth quarter and year-end conference call. While Hugh will review the financial results in detail, I would like to highlight some of our achievements. Let me start with the year's results. 2011 was a banner year for inTEST. Over the last few years, we have been transforming inTEST by diversifying our Thermal Products segment and evolving from a semiconductor ATE company to a broad industrial test company. The growth markets we now address are in both semiconductor and non-semiconductor areas, including aerospace, defense, automotive, telecommunications and medical pharmaceutical. Our results for 2011 were fueled by both our traditional semiconductor markets and those new markets addressed by inTEST's thermal solutions. During the year, we further strengthened our operations and increased operational efficiencies while maintaining our fiscal discipline and cost controls, delivering a very strong operating performance, which improved over 2010. Net revenues of $47.3 million have steadily improved each year since 2007 and are approaching prerecession results. Gross profit of $22.9 million improved by $748,000 and gross margin of 48% was the highest level since 2006. We ended 2011 with our second consecutive year of profitability, culminating a net income of $9.9 million or $0.96 per share. A testament to our diversification strategy and the hard work of our entire team. On a quarterly basis, Q4 2011 marked 9 consecutive quarters of profitability. As we had anticipated, the fourth quarter reflected a turbulent macroeconomic environment, which resulted in a softening of the overall ATE industry. And while it was our weakest quarter of the year, Q4 revenue of $10.1 million and net earnings per share of $0.07 were in line with our guidance. While total bookings for the fourth quarter of 8.1 million declined from Q3 bookings of 10.5 million, we continue to leverage…

Thanks, Bob. Net revenues for the quarter ended December 31, 2011 of $10.1 million decreased 14% from third quarter net revenues of $11.7 million and were flat when compared with fourth quarter 2010 net revenues of $10.1 million. Fourth quarter end-user net revenues were $9.2 million, or 91% of net revenues, compared with third quarter end-user net revenues of $10.6 million or 91% of net revenues. OEM net revenues were $894,000, or 9% of net revenues, compared with third quarter OEM net revenues of $1.1 million, or 9% of net revenues. Net revenues for markets outside of semiconductor test were $4 million, or 40% of net revenues, compared with $3.6 million, or 31% of net revenues in the third quarter. On a product segment basis, fourth quarter net revenues for the Mechanical Products segment were $1.9 million or 19% of net revenues, as compared with third quarter Mechanical Products net revenues of $3.2 million or 27% of net revenues. Our Thermal Products segment had net revenues of $7.4 million or 73% of net revenues as compared with third quarter Thermal Products net revenue of $7.6 million or 65% of net revenues. And finally, our Electrical Products segment reported net revenues of $823,000 or 8% of net revenues as compared with third quarter Electrical Products net revenues of $940,000 or 8% of net revenues. The company's overall gross margin for the third quarter was $4.9 million or 48% as compared with $6.1 million or 53% in the third quarter of 2011, and $4.8 million or 47% in the fourth quarter of 2010. A less favorable product mix in our Mechanical Products and Electrical Products segment drove the reduction in gross margin in the fourth quarter. Our consolidated material cost in the third quarter of 2011 was 31.4% -- excuse me --…

[Operator Instructions] Our first question comes from the line of Mark Miller with Noble Financial.

Just talking about the Thermonics integration. And you're saying that's going to hit you for some restructuring costs this current quarter but then you see that becoming accretive. How does that phase in? Does that come at all within 1 quarter or 2? Or does that literally progress throughout the year in terms of the accretion of that acquisition?

We currently expect, as I said, that our acquisition costs will hit in the first quarter. And the restructuring costs are really related to a facility in California, which we closed down in the 2nd week of February, so we'll be taking the full hit for the balance of that lease, which was a one-year lease, in the first quarter. I did say that we expect a 30% return on the revenues we earn on that segment in the second quarter, and then we do expect that to increase sequentially throughout 2012, gradually going up by 1% or 2% a quarter. An ultimate or a top target for that at this point has not been fully established yet. We had originally thought that we would get up to a 40% return on those, our net return on those revenues. We're not sure that we can get to that point at this point, but we fully expect that we can get to the 35%, 36% return level on those revenues.

That's by the end of this year?

It might be -- that might not get to it by fourth quarter, it might be the first quarter of next year, the second quarter of next year. But we don't expect it out beyond that point at this time.

Okay. You mentioned you had some flood-related bookings, is this basically -- which helped you in the third quarter. Is this -- are you seeing any more for that? Or is this basically done in terms of replenishment of equipment?

We think replenishment's pretty much done in that area.

Okay. Just one other question. Could you give me your cash flow from operations?

For the year -- bear with me one second. Cash flow from ops for the year was $7.8 million.

Our next --

Mark, let me go back to the replenishment question. I was referring to the Thermal group, and we think the replenishment has been addressed there. There are a lot of testers that were damaged during that thing, and not all of the decisions have been made on how they will replace them yet. And so there's going to be some ongoing tester sales throughout the year for that, and I would expect that we'll get some of the Docking Hardware and Manipulator business from that. But we don't have anything specific yet.

Do you see any positive -- just on that note again, about what's going on in the disc drive industry. Do you see any positive or negative from -- China has kind of limited Western Digital's integration of Hitachi, it's kind of pushed out for 2 years. Is that a help or a hurt or the same with the Seagate Samsung deal that was pushed out one year by China?

I don't see that it affects us very much. I think possibly the biggest benefactor from this whole thing will be flash memory. It will give them a chance to get a bigger foothold.

Our next question comes from the line of George Mirma [ph] with GameCo [ph] Capital.

I have a few questions. The first one -- thank you for the guidance on the tax rates and the Thermonics acquisition; that's helpful. I wanted to get a -- I'm trying to get a feel a little bit for the operating model, looking forward here, for 2012. Can you give me any kind of rough guidance on what your targets are for gross margins and operating expenses are, either expressed in dollars or in percents of revenues?

Sure. As far as gross margins, we've been averaging in the upper 40s for the last several quarters in 2010 and 2011, and I would expect that we will continue to range in the -- at the low-end, the to mid to upper 40s. And when I say mid, that's like 46%, 47%. The first quarter of this year will probably be our lowest margin for the year. And that's because you've got revenues dipping, which caused our fixed costs as a percentage of revenues to increase and therefore reduce our margins slightly. But -- and we also are expecting probably the most unfavorable product mix we'll see for the year, and that's because of some heavy sales of tester interfaces to an OEM at less than our typical margin profile. I think -- for the balance of the year, I'm optimistic that we'll see the margin returning to the 48% to 50% level, depending on how revenues trend up over the balance of the year, depending on the slope of the curve of the recovery. SG&A, we -- it was 25% for the last 2 years and I would expect that -- of our revenues -- and I would expect that, that would hold for the foreseeable future. Q1, again, will be an aberration due to the acquisition of Thermonics and costs associated with the closing of that transaction. But beyond the first quarter, I see us going back to that 25% level. Product engineering and product development was at 7% for the last 2 years, I would see us ranging from 7% to 10% depending on where we are in the cycle and where our spending is on related to new product initiatives. And the operating margin, for instance, for the last year was approximately 16%. We're optimistic that we can have a -- achieve a similar target in 2012, but clearly, it depends on the slope of the semiconductor recovery and how prolonged it is.

Okay, that is helpful. And looking out this year, you did 2010, $46 million revenue, 2011, $47 million, due to the semis going down and your non-semi going up a little bit, it's offsetting some of that. In 2012, when you add in the Thermonics acquisition, if things were flat I guess that'd put you around a $52 million revenue? Would a number $60 million north of total revenue be a realistic viewpoint or...

I think it's possible. It all depends, clearly, on further penetration of markets outside of semiconductor test. Those revenues grew nicely this year, I mean, our bookings increased from -- or our revenues increased from $8 million in 2010 to $12.6 million in 2011, which was a 58% increase. I'm not sure what our level of increase will be for next year. As we have said to a number of investors as we've been out on non-deal road shows, these are new markets to us, and we're not really sure of the growth characteristics of all of these markets at this point. But we would expect them to grow at a greater rate than the Semiconductor business overall. So is $60 million possible? It's possible. And it also depends, clearly, on additional acquisitions. The company is clearly focused on growth through acquisition. The Thermonics transaction that we just closed was really more of a defensive acquisition done because a competitor had become available. The company is focused on increasing its footprint in the semi space -- or the non-semi space with another acquisition in that area. And hopefully, we can have something done by the end of the year that might be able to contribute some revenue in 2012.

On your Semi business, is it driven mostly by capacity expansions or is it just is as sensitive to moving down the nodes -- smaller nodes in 3D markets?

It's any change drives it. It's driven by capacity, and capacity will typically drive the Manipulator business because capacity mean -- normally means new testers, which means new manipulators. However, in addition to that, any changes in devices that require different methods of probing them, for instance, or different handling systems to move them around, requires new docking hardware and new electrical interfaces from us. So we benefit from both capacity increases and from technology advances.

The docking hardware business, that has turned up, I presume? Of late?

Yes, that's been strong all along actually. The Docking Hardware business is a little bit different than the Manipulator business in that when things are down, docking is normally fairly strong, because customers will take existing equipment and try to mix and match to get more throughput between testers and various probers and handlers. And so, our Docking Hardware typically tends to go on even in 4x. Now when you're selling a bunch of manipulators like we did this past quarter, you also get docking hardware along with that. You literally sell a set with each manipulator and so you get hits on both ends with the Docking Hardware business.

Yes, I know the Docking Hardware business typically leads you out of down cycles so I'm just checking if that -- all the pointers are pointing that way.

They are.

Our next question comes from the line of Bob DeLean [ph] with Red Rock Partners.

I was hoping you could talk a little bit more about Thermonics. Hugh, I know you said it was more a defensive acquisition than strategic. And I believe I read that they did about $5.4 million run rate. You talked about the integration process a bit. Where are you in that? Obviously, some facilities are won, and California's been closed. Is there a lot more to do? And what's your time line for really fully integrating that?

We'll be in full production on Friday. It is integrated and we are beginning to ship -- well, we begin to build product and ship product a few weeks after that. And so it's been a very rapid turnaround, mainly because it's essentially the same business we're in, in Temptronic and we're fully familiar with it. The equipment is slightly different. It offers some slightly different benefits to our existing equipment and so it broadens our customer base somewhat. And we have had a very smooth transition, thanks in large part to the people that run that group. And so we expect to be in full business there during Q2.

With respect to that, I looked on their website, it looked like they utilized mostly an outsourced sales force. Is there a margin opportunity there to bring that in-house?

Well, we both do that. We have what you call rep mothers and then use reps and distributors on the outside. However, there will be a benefit, of course, in pricing now that we have one less competitor out there.

Okay. And then with respect to these onetime expenses of about $0.5 million, will that all be in G&A in Q1 or is that going to be a separate line item?

The costs associated with the termination of the lease will have hit a separate line item for restructuring costs, as those costs typically do. The costs associated with those moves and integration of that facility. There's always been a lot of travel, clearly, as staff from our Massachusetts operation have had to go back and forth several times to California in connection with that integration effort. And the cost of the move of that equipment and other integration costs will flow through G&A.

And so with that really mostly now integrated, again, your appetite for another acquisition -- and again, I know you've been thinking about something bigger, this is not the big one. And the balance sheet seems like it certainly could support something else out there. So, Hugh, you kind of alluded to maybe by the end of 2012, is there -- can you get a little more specific on that?

At this time, we don't have any particular target in our sights. We have discussed previously that we have engaged a boutique bank that assisted us in prior acquisitions last year. We had identified a number of potential opportunities with them and had stopped because of a lack of currency at the time. Cash did build over the balance of the year. The stock price has moved up a little bit, although the stock price is still below where we would consider it to be appropriate to use as a currency in an acquisition. We're again ready to focus on looking at opportunities. We have had some discussions with several banks about helping us finance our growth and we're about to put a working capital line of credit in place with one of those institutions in the next several weeks that would be able to assist us in at least putting a down payment on something. And these banks have also indicated a willingness to finance based upon our current balance sheet as well, so at very attractive rates. So we're lining up the financing side and -- as our operations people look at other opportunities. But at this point, we've got nothing in the pipeline that has any probability of closing.

Our next question comes from the line of the Jay Srivatsa with Chardan Capital Markets.

I guess sort of at a high-level in the Semi business, we have several large companies talking about bottom in Q1 and starting to see some upside going forward. What's your sense in terms of the order activity itself? What are you seeing out there? And how comfortable are you in terms of some of those comments that have been made so far?

We're surprisingly optimistic with what's going on here. We're getting a lot of quote activity. We've gotten quite a few recent orders that were, not necessarily surprising, but came over earlier than we thought. And so, things seem to be opening up pretty quickly as far as I'm concerned.

All right. Competitively, you mentioned the acquisitions a bit. But how has the landscape changed in the last 6 to 12 months through these downturns? Have you seen competitors move to sidelines? Are you seeing more consolidation? Can you kind of give us a landscape of what's happening there?

Yes, the competitive landscape seems to have changed somewhat and because most of our competitors in the, at least in the semi space, are private, it's difficult to understand precisely what's going on. But certainly, we're getting business that at one time went elsewhere, and so we have seen during the town -- downturn, at least in 1 or 2 instances, some significant weakening in the competitive landscape. That's not to say they won't recover but at the moment, it seems to be static out there in that area. Of course, in the thermal group, our competition just became us. So at least in the semi space we're the largest one there, although there are some other smaller guys who are still out there to compete with.

As you look at acquisitions, are -- is the semi space an area you're focused on? Or are you looking to broaden it in other product areas?

We're looking to broaden outside. As Hugh alluded to before, the Thermonics acquisition was an acquisition of convenience for us because it was available and at an attractive price. But our focus is outside semi in test areas that are niche businesses that would be accretive to us quickly, businesses that we understand, businesses that have intellectual property. And for us to understand it, stand the business, it would probably have to be something that is leveraged out of the thermal group. There's a lot of business that use thermal conditioning for instance, accelerated life test, that sort of thing, that we're not involved in at this point. So there's ripe areas to look at our there, and that's where our focus will be.

[Operator Instructions] Our next question comes from the line of Ryan Warner [ph], private investor.

I have a few questions for you. First off, can you talk in your thermal areas, sort of which industries you're experiencing maybe the best traction versus some of the areas which are kind of slower? You sort of outlined sort of broadly some of the areas you're going after. I'm just wondering where most of your orders are coming from? And maybe along the lines of that same question, can you -- do you you think you can add a little bit of color on the nuclear order you mentioned in that area? Could you just give us a sense of sort of what -- what industry that comes out of with a little more specificity? And you mentioned -- what was sort of your competitive strength that affect -- that sort of gave you a win in that new area?

Okay. Let me answer from last to first because I can remember the last one much easier.

I have got 2 more behind me, please.

Okay. Okay. Our strength in these businesses so far outside of semi is the fact that we're very adroit at semi-custom systems. We get that from our experience in the semiconductor world, which is entirely that way. Many of the thermal businesses -- the thermal companies that we are competing with on the outside are old line, rather large companies that have standard products. And to date, the model out there has been, in industrial thermal tests, for a customer to go to one of these big companies that make ovens or whatever, and say, "Here's what I have to do." And that big company says, "Well, we have this product. And if you modify your tests such and such a way, you can do this." We take the opposite tact. We say, "Hey. What do you have to do to test? We'll build the equipment to fit your product." This is a model that's not generally been used out there, because most of these companies we compete with are rather large. And so being small and able to move quickly, we can do that fairly well. And so we get these custom jobs to do. You were talking about the one with the nuclear industry. In fact, I cannot expand on that right now because of some rules we're under. We'll try to get some more information for you as time goes on here. But in terms of all these industries I'm talking about, no one or the other is bigger than others -- with the exception of medical pharmaceutical, and we have not done much there yet. We've had a few nibbles there, but that has not fed us very well. But certainly, telecommunications, anything to do with mobility, everything, every semiconductor -- a lot of the semiconductors that are built nowadays, are going into -- not just semiconductors but electrical products -- are going into hostile environments. That hostile environment can be your kid's pocketbook, for an iPad. As opposed to, most parts used to be going into desktop computers, which are a controlled environment and televisions, controlled environment. It's the portability that's driving a lot of the necessity for extreme thermal testing. And so, of course telecommunications is big in that.

One thing I might suggest to you is the investor presentation that we have on our website has an appendix in it that has 8 different case studies that we've put into the presentation to show investors the various industries that we've entered with our Thermal Products outside of semiconductor test and the various issue that our customer is facing, and the solution that we created for them. So I think you might find that of interest and take a look at it. It's an example of a broad range of industries that we've responded to customer needs for and created solutions.

That would be great. And one little follow-on, on that part. How do you expect the margins to shake out versus your semi area in that business?

Our margins for our non-semi...

Your thermal non-semi, let's say, versus your thermal semi.

Okay. There is not a significant -- for instance, on thermal enclosures, which are the products when combined with our ThermoStreams, or forced tight air systems, that we sell into markets outside of semiconductor test -- the margins on those products are not really materially different outside of semi test than they are in semi test.

I see.

So again, when you're mixing those 2 products together, our thermal enclosures actually are one of our higher margin products in the company and -- but when you compare semi versus non-semi with those specific types of products, there really is no difference in the margin.

Okay, one last quick question. I know you've done well historically with Texas Instruments and I assume they -- I don't know where they are with consolidating their national semi acquisition, any -- has that led to any incremental business? And to the extent you can comment on it, how much incremental business might that be over time?

Yes, it has resulted in business for us. I'm reluctant to give a number because we're not allowed to. But it's substantial business for us; TI has always been a very good customer. In the past, we had not done a lot of business with National. Now that National is part of TI, we expect that we will have the opportunity to get more business there, and we expect it to be substantial.

Just a last one, and I'll get in the queue again. You mentioned -- obviously, sort of the current -- the tone of business over the last summer through the end of the year was very sloppy. And you mentioned that some of the orders seem to be taking a little bit longer in terms of parts of the cycle of approval. I'm just wondering, if you feel like competitively from a market share perspective, you lost any ground or it was really virtually 100% an industry phenomenon?

No, I don't think we lost any ground. I think we've gained some market share along the way. But always, when things slow down, the improvement -- the approval cycle moves upstream, which is what I was talking about. And then, as things loosen up, they allow the lower-level people to go out and buy. And I think that's what we're seeing now.

Our next question comes from the line of George Mirama [ph] with GamCo [ph] capital.

Another follow up. And since you guys are clearly heading down the path of trying to grow aggressively in the thermal non-semi areas, I was sort of curious as to -- you have a whole host of vertical markets that this could go to. And I was wondering what is your -- from a sales and marketing standpoint, what is your go-to-market technique and strategy? And for 2012, what kind of further initiatives are you going to do to have customer facing sales marketing approaches to this?

So far, what we have done is target obvious industries that would benefit, or do benefit, from thermal testing. And literally, go to their trade shows, and see what they're doing, and approach them, and get business that way. It's been a grassroots effort. Now as we do this, we learn things about the distribution channels involved with those businesses. They may differ from what we've traditional had in semi. And we've not made any significant changes there yet, but we probably will once we get a handle on all of this. And a lot will depend on our acquisition success during the year, because that may tend to steer this in a specific direction. And you're right, we're approaching a lot of different industries at the moment. And it may be that one of these industries is the real feeder that we will go to in the end. So...

Yes, that's kind of what I was getting that. Because I was wondering if you're doing a direct sales and you need to hire certain sales people for those different verticals? Or -- as a costumer, say in automotive or telecom or et cetera, do they typically use consultants that you can tap in to make these decisions? Or how are these -- how does this market work? I just want to kind of...

It's all of the above, George.

Yes, yes.

And it's a learning curve for us, at the moment. But I expect that you'll see modifications in our sales strategy as the year progresses and we become more knowledgeable of these markets.

Yes, because with the success you've had to date, you've been pretty stunning actually, and that's with the arm tied behind your back it almost seems, so I'm just...

Yes, it is. But the commonality, of course, is the equipment we're selling. And so, even though you're in a different industry, it's not a whole lot different. I mean, we're accustomed to using direct people, we have direct people. We're accustomed to using reps, we've been using reps for years and years. And in the Thermal business, we're accustomed to using distributors. We've been using them for years and years. So we have all 3 of those bases covered in terms of how we interact with customers.

Thank you. And there are no further questions at this time. I would like to turn the conference back to Mr. Matthiessen for any closing remarks.

Well, thank you for your interest in inTEST. In closing, we remain confident in our business prospects. inTEST occupies a profitable niche space. We have a proven long-term history with customers across the globe and provide high-quality, mission-critical products that perform in high stress environments. We'll continue to work with our customers and drive innovations that allow us to continue being a leader in our target markets. Thanks again, and we look forward to updating you on our progress when we report on our first quarter results. Good evening.

Good night.

Thank you. Ladies and gentlemen, that concludes the inTEST Corporation 2011 Fourth Quarter and Year-end Financial Result Conference Call. We thank you for your participation. You may now disconnect.