Welcome to inTEST Corporation's 2013 Second 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 call over to Laura Guerrant, inTEST Investor Relations Consultant. Please go ahead.

Thank you, George, and thank you for joining us for inTEST second quarter financial results conference call. With us today are Robert Matthiessen, President and Chief Executive Officer; Hugh Regan, Treasurer and Chief Financial Officer; Jim Pelrin, Vice President and General Manager of inTEST 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 second quarter, as well as current business trends. Mr. Regan will then review inTEST's detailed financial results and discuss guidance for the third quarter of 2013. We'll then have time for any questions. If you have not yet received a copy of today's release, a copy may be obtained 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 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 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.

Thank you, Laura. I'd like to welcome everyone to our 2013 second quarter conference call. While Hugh will review the financial results in detail, I'll review some of the highlights, and we'll then discuss our markets and what we are seeing in our customer base. Our financial results for the second quarter were fueled by strong demand from a wide variety of customers in the semiconductor market and are indicative of the strengthening we have experienced in our business. Orders accelerated, resulting in a substantial increase of 42% in bookings. Total bookings for the second quarter were $11 million, compared with $7.7 million reported for the first quarter. Non-semi related bookings were $2.2 million or 20% of net revenues, compared with $1.4 million or 18% of net revenues in the prior quarter. Please note that at the end of the second quarter, we revised the non-semi related historical bookings and revenue figures to include service, which we've previously not included. Net revenues of $11.2 million increased 25% sequentially. Non-semiconductor test revenue, again, increased both in terms of absolute dollars and as a percent of revenue, up 30% sequentially and representing 22% of total second quarter net revenues. As you know, we specialize in delivering semi-custom thermal test solutions that can be readily adapted to industries outside of the semiconductor industry, including automotive, consumer electronics, defense/aerospace, energy and telecommunications. The gross margin improved from 46% last quarter to 49% in the second quarter fueled by an increase in net revenues, which caused a better absorption of our fixed manufacturing costs. We are very well structured in terms of operating profitability, and we continue to deliver profitable results. The second quarter marked our 15th consecutive quarter of profitability, which includes a break-even quarter in Q1 of 2012. Net income increased 243% over…

Thanks, Bob. Second quarter 2013 end user net revenues were $9.9 million or 89% of net revenues, compared with first quarter end user net revenues of $9 million. OEM net revenues were $1.3 million or 11% of net revenues, compared with first quarter OEM net revenues of $845,000. Net revenues from markets outside of semiconductor test were $2.5 million or 22% of net revenues, compared with $1.9 million or 22% of net revenues in the first quarter. The company's gross margin for the second quarter was $5.5 million or 49%, compared with $4.1 million or 46% in the first quarter. Similar to the trend we experienced in the first quarter of 2013, the improvement in the gross margin was primarily driven by a more favorable absorption of our fixed manufacturing cost in the second quarter, which decreased from 16% of revenues in the first quarter to 13% of revenues in the second quarter. In addition, our fixed manufacturing cost decreased in absolute dollar terms from $1.5 million in Q1 to $1.4 million in Q2. The decrease in our fixed manufacturing cost as a percentage of net revenues in the second quarter was partially offset by an increase in our consolidated material cost, which increased from 34.2% in the first quarter to 35.5% in the second quarter. Our Mechanical Products segment experienced an increase in its component material cost quarter-over-quarter, increasing from 39.7% in Q1 to 44% in Q2, while our Thermal and Electrical Products segments saw declines in their component material costs. The increase in our Mechanical Products segment was driven by changes in both product mix and customer mix. Our Thermal Products segment component material costs decreased from 30.8% in Q1 to 29.5% in Q2 due to product mix, while our Electrical Products segment decreased from 39.7% in Q1…

[Operator Instructions] Our first question is from Les Sulewski with Sidoti & Company. Les Sulewski - Sidoti & Company, LLC: Regarding the penetration of the non-semiconductor markets, where are you seeing more activity, domestically, abroad? And then specifically, which industries?

It's rather broad-based. I'll let Jim Pelrin address that directly since that's his business. Go ahead, Jim.

We're actually seeing a growth in really worldwide. The biggest growth has come, I would say, in Asia, the strongest growth. And in terms of a market, the optical transceiver market, fiber optic component market is very strong for us, and we see that as a growing market. Les Sulewski - Sidoti & Company, LLC: Okay. And then regarding inventory levels overall, how are you looking at that ahead of the fourth quarter? Are you anticipating a little bit of increasing to -- of a higher expected inventory levels?

Les, this is Hugh. While inventory was down overall on a consolidated basis, that was driven by a reduction in our thermal group, whose revenues were slightly off in Q2 compared to Q1. But inventories are actually up in both our Mechanical and our Electrical segments, as those segments are really booming right now with semi demand, although mechanical is a little off from where it had been in Q2 and the beginning of Q3. We currently expect that inventories are probably going to hold it at the current levels. There may be a slight increase as we go into the fourth quarter as we do expect an increase in business in the fourth quarter. And at the current time and as a result, we may be procuring material in response to fulfilling orders in the fourth quarter, so you may see a slight trend up. Les Sulewski - Sidoti & Company, LLC: Okay. And then one more. You mentioned -- I believe I heard something about increased material cost. Is that kind of a trend now moving forward? Or what was it, like a one-time event?

Well, our material costs in any given period is a function of a number of factors: the type of customers that we're selling to and the products that we're selling to them. As we've mentioned many times before in our calls, we've got a wide range of incremental margins on our products ranging from as low as 25% to 30% of manipulator products to as high as 65% to 75% on docking hardware and certain thermal products. So the mix of any of those and, for instance, we have some customers such as TI, who are significant customers who might get a larger discount than possibly some other customers. So it's the mix of business with the customer and the products we sell that drive it in any given quarter. We do see the margin profile trading down a little bit. We were at 49% this quarter, and we see it in the range of 46% to 48% next quarter. But that's not really materially off, so I would say we see it somewhat consistent, just a little down. Les Sulewski - Sidoti & Company, LLC: Okay, actually one more, Bob, if you could. If you could shed a little bit more color on the energy project?

Yes, I'll let Jim do that again, since we're back in the thermal area. Jim?

This is a project to -- for an OEM customer, actually a couple of OEM customers in Europe, and it was to develop a highly specialized process chiller to be used in the energy industry. I can't really go into the details of where and how and what. It's a 4-phase project. We're through with the first 3 phases. We have first article qualification completed, and we're now entering phase 4, which is a long-term 180-day test. Passing that test satisfactorily will then open the door for orders for us.

Our next question is from George Marema, [ph] a private investor.

Just a follow-up on that last question, if you can speak about it. What's the opportunity size of these specialized chillers?

It could be as much as $6 million to $10 million -- this is Jim Pelrin, by the way. It could be as much as $6 million to $10 million over the next 3 to 5 years.

Are these one-time shots or is this going to be ongoing business for awhile?

No, this would be ongoing business going forward.

Okay, and couple other questions I had. What are your expectation for the intermediate term for operating margins, especially if, hopefully, revenues ramp up? I want to get an idea on the leverage and the model. If you ramp-up towards, say, $15 million of revenue, what that would look like. I noticed like a year ago -- like today you had about $13.3 million operating margin. When you were at $13.5 million sales a year ago, it was around $14.7 million. So I just want to get a feel for that directionally, how that would look going out over time.

This is Hugh. It depends on what product mix, George, would be in that given period because clearly the margin line has a big impact on what our operating margin would be. But if we would have a favorable product mix, which would be where we are this quarter, the 49% to 50% range, you could see your operating margin as our leverage up into the $14 million to $15 million range going 15%, 18%, 20% ultimately depending on -- there's a number of factors there that could impact that. One is who you're selling to and whether those sales are burdened by sales commission or not. But there are some customers that we have and the mix of those in any given period can drive sales commission cost either up or down. So there's a bit of a range, but there's some upside here. And like I said, I would think in the 16% to 18% range would be reasonable as revenues ramp.

Yes, that's kind of what I was getting at. I was assuming that the G&A and the engineering cost would remain relatively fixed, and the selling expense would be the most variable in all this.

It is. It is. There is some operational expense, but it's buried in our cost of revenues that may increase as well. Because the people physically handling inventory and moving it around, once you get over certain revenue levels, may need to be tweaked a little bit.

If you guys don't mind employing your crystal ball a little bit here. As you look out to 2014, at least anecdotally, did you get any kind of feel directionally what 2014 may look like versus 2013?

Well, we always remind people that we can only see one quarter clearly in this business, so that's one of the reasons that we don't provide guidance out beyond the current quarter. It's very unusual for this quarter in fact to be discussing Q4. That said, I think what we can say about 2014 at this time is like many others in the industry, we are expecting 2014 to be an up year with an increase in demand. And we believe that the increase in demand that we're seeing as we go into the end of the year is an indication of the strength of what we think 2014 will be. But clearly, it's a little early at this point to call the year.

Sure. And also over the last couple of years, you've getting more on the non-semi side in various different verticals. Can you -- I know it's been a little bit of a learning curve and it's specialized, but can you speak just broadly generally about how the pipeline and lead generation is for non-semi and how that's developing your education process to exploit these markets?

Jim?

Yes. We have identified certain industries and markets, if you will, that we seem to have a niche in, and we're really trying to expand our efforts in marketing our capabilities into those areas. We are also -- have several projects underway right now to increase our visibility through various marketing activities, most notably we're going to be introducing entirely new web presence. We're doing some -- a lot of content-related work right now on the web, and we're also going to be doing some direct marketing to customers. So we do have some target markets that we've identified, and those are the ones that we're pursuing.

And do you -- how do you -- do you guys have like a pipeline? Or how do you -- if interest comes in, how do you grade it and evaluate it? How do you look at this?

Oh, we actually have quite a comprehensive method of evaluation. If interest comes in, the potential customer is contacted. In our business for the non-semi market, we view it as a customer must need our products. It's not something that he can do without. If he can do without, chances are we're not the right solution for them. There are cheaper solutions available. So we have a comprehensive vetting process, which involves the technical aspect of the use. And in fact, when we quote, we have a specification attached to that quote that is designed entirely around that customer's particular application. So by the time we get to the quoting stage, we have a very high probability of getting the order.

And how is the pipeline looking versus a year ago today?

I would say it's stronger today. It is stronger today than a year ago. The problem that we have is that it's not as full as we'd like it to be, and we see lots of opportunity. And what we need to do is expand our identity within the various markets.

[Operator Instructions] I'm showing no further questions. I'll turn the call back to Bob Matthiessen for closing remarks.

Thanks, George, and thank you for your interest in inTEST. We look forward to updating you on our progress when we report our third quarter results. Good evening.

Ladies and gentlemen, this concludes our conference for today. We thank you for your participation. You may now disconnect.