Welcome to inTEST Corporation's 2013 First Quarter 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 Investor Relations Consultant. Please go ahead.

Thank you, Douglas, and good afternoon, everyone. Joining us today from inTEST Corporation are Robert Matthiessen, President and Chief Executive Officer; Hugh Regan, Treasurer and Chief Financial Officer; Jim Pelrin, Vice President and General Manager of inTEST's Thermal Products segment; and Dan Graham, Senior Vice President and General Manager of inTEST's Electrical and Mechanical Products segment. Mr. Matthiessen will briefly review highlights from the first quarter, as well as current business trends. Mr. Regan will then review inTEST's detailed financial results and discuss guidance for the second quarter of 2013. We'll then have time for any questions. If you have not yet received a copy of today's release, please email 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 results that are based upon management's current expectations. 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 in 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. I'd like to welcome everyone to our 2013 first quarter conference call. While Hugh will review the financial results in detail, I'll review some of the highlights and then discuss our markets and what we are seeing in our customer base. Through focused execution, we achieved first quarter financial results that were at the top end of our expectations. On a quarter-over-quarter basis, total net revenues increased 9%, and net revenues grew in each of our operating segments. As you know, we specialize in delivering custom thermal test solutions that can be readily adapted to industries outside of semi, including automotive, consumer electronics, defense/aerospace, energy and telecommunications. Our non-semiconductor test revenue for the first quarter increased by approximately $400,000 or 31% to $1.7 million. First quarter gross margin expanded to 46% from 42% in the prior fourth quarter and 43% in the year-ago first quarter, fueled by better absorption of our fixed manufacturing cost from higher revenues, as Hugh will discuss later in the call. inTEST strategically runs lean and has a strong P&L, and we continue to carry no debt. As a result, we are very well-structured in terms of operating profitability. For the current -- first quarter, we continued to deliver profitable results. In fact, this marks our 14th consecutive quarter of profitability, including a breakeven quarter in Q1 of 2012, with net earnings per share improving over fourth quarter 2012 despite continued challenging industry conditions that were driven by a number of capital equipment suppliers and semiconductor companies who delayed certain capital expenditures. Total bookings for the first quarter were $7.7 million compared with $9.3 million reported in 2012 fourth quarter and $12.9 million in the 2012 first quarter. Non-semi-related bookings were $1.2 million or 16% of net revenues compared with $1.9 million in the…

Thanks, Bob. Net revenues for the quarter ended March 31, 2013, of $9 million increased to 9% from fourth quarter revenues of $8.3 million and decreased when compared with first quarter 2012 net revenues of $10.7 million. First quarter 2013 end-user net revenues were $8.1 million or 90% of net revenues compared with fourth quarter end-user net revenues of $7 million. OEM net revenues were $845,000 or 10% of net revenues compared with fourth quarter OEM net revenues of $1.3 million. Net revenues for markets outside of semiconductor tests were $1.7 million or 19% of net revenues compared with $1.3 million or 15% of net revenues in the fourth quarter. The company's overall gross margin for the first quarter was $4.1 million or 46% as compared with $3.5 million or 42% in the fourth quarter of 2012. The improvement in the gross margin was primarily driven by a more favorable absorption of our fixed manufacturing cost in the first quarter of 2013, which decreased from 20% of revenues in the fourth quarter to 16% of revenues in the first quarter. In addition, our fixed manufacturing cost decreased in absolute dollar terms from $1.6 million in Q4 to $1.5 million in Q1. The decrease in our fixed manufacturing cost as a percentage of net revenues in the fourth quarter was partially offset by an increase in our consolidated material cost, which increased from 32.4% in the fourth quarter to 34.2% in the first quarter. All 3 of our products segment experienced increases in their component material costs quarter-over-quarter, with our Electrical Products segment increasing the largest increase, going from 37.3% of revenues in Q4 to 41.5% of revenues in Q1. The increase was driven by changes in both our product and customer mix in our Electrical Products segment, as well as…

[Operator Instructions] Our first question is from the line of Ken Nagy with Zacks Investment Research.

Just wondering for the different end markets in non-semi test, do they have a similar sales cycle and margin contribution from each other or are they all different?

On the margin contribution on the non-semi side, the products are equal to the semi margins. In other words, the Sigma enclosures that are sold on the semi side or the non-semi side have similar contribution margin. And I think the first part of your question, Ken, got to sales cycle. Actually, we've got Jim Pelrin on the telephone, and I'll let him respond to that particular question.

Our semi products tend to have a much shorter lead time than the non-semi products. Typically, we might be 2 to 4 weeks for our mainstream ThermoStream, where our Sigma products tend to be anywhere from 6 to 10 weeks depending upon the product.

[Operator Instructions] And at this time, we do have a question from the line of David Kayman [ph] with Aegis Capital.

Just one simple quick question. On a cash basis, are you guys paying taxes and at what rate?

We are paying taxes. And I don't believe there's -- I'm going to have to look at the rate. I don't believe there's a significant difference between our accruals for tax than what we've actually paid, Dave [ph] , but I'll look into that and have that available for our next conference call.

Okay. I'll add one more question. It looks like over the past few years, CapEx is around $500,000, $600,000 a year. Do you expect that level to continue or go down?

Actually, I expect that to probably decline. In 2011, we relocated our Mechanical and our Thermal operating units. And in early 2012, we relocated -- or excuse me, in 2010, we did that. In 2011, we did our Electrical unit. And then in 2012, we relocated our Thermonics operation from the West Coast to the East Coast. So all 3 of those years have had some activity related to it that would drive CapEx to be a little heavier. As you can see this first quarter, we dropped to about $44,000. While I don't have a firm forecast on that, I would expect that we would see the level trending down from the level we've seen over the last 2 to 3 years.

Our next question is from the line of Bob DeLean with Red Rock Partners.

Hugh, do you have a timing for the 10-Q to be filed?

Yes, we expect to file it -- the due date is the 45-day mark. We'll probably be filing a day or 2 before that, but we're on target to file on time.

Okay. And on the -- I think it was March 6, the year-end conference call, there were some discussion about some acquisition opportunities that have been identified. And I was wondering if maybe, Bob could give us an update on where you are in that process.

I must say, unfortunately, since that call, we've had our counsel remind us and sort of slap our hand about how we're able to discuss the status of acquisition opportunities and what we've been reminded to say is we're not allowed to discuss the status of M&A opportunities other than to say we continue to look for them. But that's all we can really say at this point.

So there's my answer, Bob. You'll have something to report when you have something to report, huh?

What we can report is we continue to look for them. That's all we can really say.

[Operator Instructions] We have a follow-up from the line of Ken Nagy with Zacks Investment Research.

Hugh, could you just go over what you said with -- do you expect the tax rates to return to where they've been in the past, let's say, 3 or 4 quarters?

Actually, that's a great question. I'm just going to pull out my most recent quarterly data. Well, the fourth quarter of last year clearly was an aberration. I mean, that -- bookings -- the benefit in the fourth quarter was -- on earnings is rather unusual. As I said in the call, I'm expecting low to mid-30s is what my controller and my tax advisors are telling us. Clearly though, Ken, to the extent that domestic results do not -- are not as strong and foreign results are stronger we would see the ETR going to the low end. And what drove it in the first quarter was we're required to -- with the R&D tax credit, as you know, the government has to re-up them manually, and we're not allowed to book the impact of that until they actually enact that legislation. And that was not done until the first quarter. And that drove our ETRs down by about 10 basis points this quarter.

Next question is from the line of David Kayman [ph] with Aegis Capital.

The follow-up is, can you tell me, geographically, how your cash is positive?

Sure. We've got -- of the $15 million, approximately just over $2 million is sitting offshore, a little more than half of it sits in Germany, a little less than half of it sits in Singapore. The funds in Singapore have had full tax accrued on them to be repatriated. The funds in Germany have not.

So you have $13 million in the U.S.?

Correct.

$2 million overseas. Okay. And then of your Thermal Products segment, what do you estimate your total addressable market is relative to the test, your core test business?

So you want to know total available market for Thermal as opposed to semi or...

Correct, yes.

Well, Thermal includes semi, just so you're aware of that. Jim Pelrin will jump on, but he can tell you that thermal markets, which includes semi and non-semi. But keep in mind that Thermal does bridge both semi and non-semi businesses.

I guess the new business, like, more focused on the industrial side that you feel is less seasonal and cyclical?

Okay. Well, maybe what Jim can speak to is where he sees this and maybe the best thing to do...

I think I can answer the question, Hugh. If we exclude semi from the total available market, which we consider the environmental test market, that total market size is about $140 million, excluding semi. That would be for electronics and communications, automotive, pharma and bio and other markets, as well as aerospace. So we don't play in all those markets right now. We don't serve them all, but they are available.

Okay. How does that compare with your core business or your legacy business, if I can call it that?

Well, the markets in which we operate, for instance, for semiconductor clearly expand and contract rather rapidly. So putting a total available market on that; it changes depending on where we are in a given year. For instance, semi spending is clearly down in 2013 from 2012, flat to down.

Let's just average the cycle, let's say, over like a 5-year period?

We would estimate the semi total available market to be in the same range, about $150 million.

Next question is from the line of Bob DeLean with Red Rocks Partners.

I just want to follow up on some of this non-semi business. I know this came up several calls ago. I've never really heard a detail as far the different verticals that are non-semi. Is that something you try to put out there? This is what we think we can do in nuclear. This is what we can do in -- I don't even know some of the other verticals are, telecom or whatever the different non-semis are -- I guess telecom wouldn't be non. But has that been broken out?

Yes, it has, and Jim's got that data. That slide you showed us the other day, Jim, why don't you repeat that for us.

Okay. You want the market size for each of the vertical?

Yes.

Well, the electronics and communications market is about $43 million. The automotive market is about $37 million. The aerospace market is about $18 million. The biopharmaceutical life sciences is about $22 million, and then there's about another $20 million leftover in Other.

But I guess one thing I'd like to just put as a caveat on those numbers Jim just mentioned is we're developing those statistics internally based upon our understanding of these markets, and we're basically a start-up as we get into these businesses. So I think as we further -- and we've just recently hired some business development staff that are helping us evaluate these markets and where our growth potential is. So I would not be surprised that as we dig further in here, the TAM numbers will adjust and go upward.

I think that's helpful. And one of the things -- at least from my perspective on past calls, it seems like there's sort of a shotgun approach to these other markets. I'm sure internally, it is more directive. Well, I guess, it seems to come across more just a shotgun approach, and I'm just wondering again with respect to your strategy and going after each one of these markets.

Yes, I would tell you, while it may have sounded more like a shotgun approach, it is being done more methodically, and that's, again, one of the reasons, we've just recently picked up some additional staff to help us in delving into these markets in more detail and looking at growth opportunities for us.

And at this time, there are no further questions in queue. I'd like to turn the call back over for closing remarks.

Okay. Thank you for your interest in inTEST. In closing, our confidence in our business prospects remains high. inTEST occupies a profitable niche space, and 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 will 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 our second quarter results.

Ladies and gentlemen, that does conclude our conference for today. We'd like to thank you for your participation, and you may now disconnect.