Laura Guerrant - IR Consultant Robert Matthiessen - President and CEO Hugh Regan - Treasurer and CFO Jim Pelrin - EVP

Welcome to inTEST Corporation’s 2016 First Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session [Operator Instructions]. As a reminder, this conference call is being recorded today. A replay will be accessible at www.inTEST.com. It is now my pleasure to turn the call over to inTEST’s Investor Relations, Laura Guerrant. Please go ahead.

Thank you, Maria. And thank you for joining us for inTEST’s 2016 first quarter financial results conference call. With us today are Robert Matthiessen, President and CEO; Hugh Regan, Treasurer and Chief Financial Officer; and Jim Pelrin, Executive Vice President. 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. We’ll then have time for any questions. If you’ve not yet received a copy of today’s release, it may be obtained on inTEST’s Web site, 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, our ability to implement and execute the 2015 repurchase plan, 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, the success of our strategy to diversify our business by entering markets outside the semiconductor or ATE markets, 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 Bob Matthiessen. Please go ahead, Bob.

Thank you, Laura. Welcome everyone to our 2016 first quarter conference call. I’ll review some of the highlights, our markets and what we are seeing in our customer base and then Hugh will review the financial results in detail. Our results for the first quarter were better than we had expected. Net revenues, gross margin and net earnings, all exceeded guidance, and orders increased by a very sizeable 34% over Q4. Our newly reorganized EMS products division contributed significantly to the quarter, driven in part by strength in the automotive sector of the semi-conductor market as well as demand created by the next generation smartphone. Now let me review our segments. The thermal product segment is our largest and most profitable division. We strategically diversified this segment, resulting in new opportunities in industrial testing and broadening our end market penetration into electronics test applications in various growth markets, including automotive, consumer electronics, defense aerospace, energy, industrial and telecommunications. In addition, new product offerings have opened industrial markets outside of this for both OEM and end user applications. Thermal segment bookings for the first quarter were $5.1 million compared with $5.2 million for the fourth quarter. First quarter thermal segment revenues were $5.2 million compared with fourth quarter’s revenues of $5.4 million. For the first quarter, thermal business continued to be soft, particularly in North America, however, the Asian market has improved with optical transceiver companies providing an upsurge in our telecom business there as the adaption of 40G technology begins to gain momentum particularly for data centers. We see the trend for Q2 towards a modest increase and expect that that will continue into Q3. Thermal highlights for the quarter included the qualification of an OEM customer MEMS tester handler solution incorporating a custom segment chamber at a major device…

Thanks Bob. First quarter 2016 end user net revenues were $8.2 million or 94% of net revenues compared to $7.7 million or 97% of net revenues in the fourth quarter. OEM net revenues grew $493,000 or 6% of net revenues, up from $219,000 or 3% for the fourth quarter of 2015. Net revenues from markets outside of semiconductor tests were $2.6 million or 30% of net revenues compared with $2.7 million or 34% of net revenues in the fourth quarter. The Company’s first quarter gross margin was $4.1 million or 47% as compared with $3.6 million or 46% in the fourth quarter. The improvement in the gross margin was the result of a more favorable absorption of our fixed manufacturing cost, which were relatively unchanged at $1.4 million, but as a percentage of our revenues decreased from 17% in Q4 to 16% in Q1. Partially offsetting this decrease was a slight increase in our consolidated component material cost, which grew from 32.8% in the fourth quarter to 33.8% in the first quarter. The increase in our consolidated component material cost was the result of an increase in component material costs of our mechanical product segment, which increased from 41% in the fourth quarter of 2015 to 44.3% in the first quarter of 2016. The increase in mechanical product segment Q1 2016 component material costs was driven by increase in manipulator product sales, which increased from 26% of fourth quarter mechanical product segment sales to 43% of first quarter sales. This increase was partially offset by a reduction in the component material cost in our electrical product segment, which declined from 36.2% in the fourth quarter to 33.2% in the first quarter. This reduction was the result of a more favorable product and customer mix in the first quarter compared to…

Thank you, the floor is now open for questions, [Operator Instructions] at this time we don’t have any audio questions, Mr. Regan. I believe you have some questions that were previously submitted.

Yes, I do, thank you very much operator, and a member of my staff is now going to read those, Frank.

Thank you, can you give us an update on M&A activity. I know you can't tip your hand so to speak but is there any update you can give, what sectors, technologies are you pursuing.

Yes, let me handle that. In fact let me correct something I said a few minutes before. I said that we are through acquisition evolving inTEST to a broad based industrial test company, I say test because I've been looking at test my whole life, but we are expanding well beyond test and so I’d like to pull that word out. We are investing considerable time and effort into the M&A area. As you may know we are pursuing opportunities in the industrial thermal area again not necessarily test although if there were something in test that were attractive we would probably look at it. What we are looking for is about half a dozen things hopefully we'll get them all but you never know. We'd like something that would fit with our present thermal business something we thoroughly understand. Potential growth as a result of the acquisition, a strong management team with a good record, we would be very interested in a company that had reasonable intellectual property and for all you money people out there accretion.

Thank you Bob. Frank another question please.

How's the consolidation of the [indiscernible] and mechanical group going?

I'll take that, this is Jim Pelrin. It's still a work in process, we have consolidated administratively, we've consolidated the sales channel with very good results. We have in fact looked at engineering and done some things there that have lowered our cost. We now have to look at the overall operation and see how best to move forward there, so we'll be taking a look at that in the coming months and making some decisions on how to proceed.

Thank you Jim. Frank, another question please.

Sure, the second quarter is seasonally your best quarter of the year. You're guiding to a level of the Q2 revenue that is below where it has been in the last few years. Is this a strategic move where you're exiting low margin business or similar and second was the -- what does this imply for Q3 and 4, which are usually sequentially low below Q2.

Thanks for that question, you know clearly our Q2 business this year is below levels that it has been in prior years, you may recall last year, Q1 was our peak booking quarter and business declined about the balance of the year. This year we don't see the same pattern but our second quarter business was a little weaker in our thermal products or expected business for Q2 is a little weaker in our thermal segment this year due to some weakness in several markets that we serve there, specifically as a broader industrial market as well as the military aero market as well their semi demand has not come back as strongly as semi demand has in our mechanical and electrical product segments which typically see a spike in demand in semi prior to our thermal group. We're optimistic that the second half of the year this year will be much stronger than the second half of 2015 was and we have had instances where we have increases in revenue between Q2 and Q3. So if we do see an increase in bookings in Q2 which we expect we would hope that we would see an increase in business in Q3.

That's it for questions. We thank you for your interest in inTEST.

Thank you, we look forward to updating you on our progress when we report our second results in August. Also we will be participating in the Drexel Hamilton Investor Conference on May 12th in New York City and the CEO summit at Semicon West in San Francisco on July 13th. We look forward to seeing your smiling faces there and have a good evening.

Thank you ladies and gentlemen, this concludes today's conference call, you may now disconnect.