Welcome to the inTEST Corporation's 2017 Third 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 will now turn the call over to inTEST Investor Relations consultant, Laura Guerrant, please go ahead.

Thank you, Amy, and thank you for joining us for inTEST 2017 Third Quarter Financial Results Conference Call. With us today are Robert Matthiessen, inTEST's Executive Chairman, President and CEO; Hugh Regan, Treasurer and Chief Financial Officer and Jim Pelrin, Executive Vice President and Chief Operating Officer. Bob will briefly review highlights from the third quarter as well as current business trends. Hugh will then review inTEST's detailed financial results and discuss guidance for the 2017 fourth quarter. We'll then have time for any questions. If you have not yet received a copy of today's release, a copy can 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 and the economy, changes in the demand for semiconductors, changes in the rates of and timing of capital expenditures by our customers, our ability to integrate Ambrell Corporation into our business successfully or operate Ambrell profitably, 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. During today's call, we will make reference to non-GAAP financial measures. We have provided additional information concerning these non-GAAP measures including a reconciliation to the directly comparable GAAP measure in our press release, which is posted on the investor page of our website, www.intest.com. And with that, let me now turn the call over to Bob Matthiessen. Please go ahead, Bob.

Thanks, Laura. I'd like to welcome everyone to our 2017 third quarter conference call. We continue to see strong demand for our solutions, which are increasingly broad-based. Our strategy of growth primarily through acquisition capped off by our most recent acquisition of Ambrell Corporation that we acquired on May 24, broadens our customer diversification and increases of our footprint in several growth markets. Q3 marks our 32nd consecutive quarter of profitability with non-GAAP adjusted net earnings per diluted share of $0.20. Net revenue grew 9% sequentially and 60% year-over-year with 47% derived from non-ATE compared with 26% a year ago, due in large part to the Ambrell acquisition. As most of you know, there is a natural ebb and flow to the test industry with strength in the first half of the year typically balanced by seasonal declines in the second half. And while the semiconductor market continues to be very healthy with fab spending for 2017 and 2018 expected to be at historic levels, it remains a cyclical industry and is a market, which we have strategically lessened our historic dependence on. Q3 bookings increased 21% sequentially and 56% year-over-year. Excluding the impact of the Ambrell acquisition, third quarter revenue declined 11% sequentially but increased 15% year-over-year, while bookings declined 9% sequentially and 1% year-over-year, reflecting the usual seasonal softening. And lastly, we ended the quarter with a backlog of $11.3 million. Our Thermal Test segment is now composed of the combined businesses of inTEST thermal solutions, or ITS, and Ambrell. ITS provides thermal products for test and development applications, while Ambrell provides thermal induction heating products for industrial manufacturing applications. Ambrell's induction heating technology complements our thermal technologies and firmly establishes our position in industrial markets with a diverse customer base in a broader-manufacturing space, including in many…

Thanks, Bob. Third quarter 2017 end-user net revenues were $17 million, or 98% of net revenues, compared to $15.1 million, or 95% of net revenues, in the second quarter. OEM net revenues were $305,000, or 2% of net revenues, down from $762,000, or 5%, for the second quarter. Net revenues from markets outside of the ATE market were $8.2 million, or $0.47% of net revenues, compared with $5.7 million, or 36% of net revenues, in the second quarter. As noted earlier in the call, Ambrell net revenues for the third quarter were $4.9 million and our net revenues for markets outside of the ATE market, excluding Ambrell, were $3.3 million, or 19% of net revenues. So clearly Ambrell has further diversified our served markets. We expect revenues from markets outside of the ATE markets will equal or exceed our ATE market revenues going forward. Our third quarter gross margin was $8.8 million, or 51%, as compared with $8.4 million, or 53%, in the second quarter. The reduction in the gross margin was primarily the result of an increase in our fixed manufacturing costs and a less favorable absorption of these costs, coupled with a slight increase in our component material costs from 32.8% in Q2 to 32.9% in Q3. Our fixed manufacturing costs increased by $537,000, or 28% sequentially, and represented 14% of our net revenues in the third quarter compared to 12% in the second quarter. Ambrell's third quarter fixed manufacturing costs were $913,000, up from $404,000 for the second quarter, which only represented six weeks versus a full quarter in Q3. And excluding the impact of Ambrell our fixed manufacturing costs would have only increased $19,000, or 1% sequentially, and would represent 12% of our net revenues for the third quarter. The increase in our second quarter fixed…

[Operator Instructions] We have a question from Joan Tong with Sidoti & Company.

Good afternoon guys. Very good quarter. Just a couple of questions here, for the fourth quarter guidance, that $17.5 million to $18.5 million revenue, you said that the mix would be a little bit different compared to this quarter, can you give us a little bit more color? And when you say mix, you're talking about mix of Ambrell versus legacy business, or within the legacy business there's a mix shift in the fourth quarter? Thank you.

Hi, Joan, it's Hugh. The mix shift was in our legacy business. It was a less favorable margin profile in both our EMS Product segment, as well as our Thermal Product segment, specifically our ITS operation, and with Ambrell – Jim, correct me if I'm wrong, we expect the margin profile to be consistent for Ambrell in Q4 with Q3?.

We don't expect any major changes.

Correct. Thank you.

Thank you. Questions regarding Ambrell, you mentioned like at the end quarter there was some operating issue limiting [the shipment], but I assume that, that hiccup it's being corrected. Am I correct?

Yes, you are. These are – the kind of things you run into with acquisitions. You finally get in there and see what's happening and they've had a few problems and we have the horsepower to straighten that out and that's exactly what we're doing. Jim, do you want to expand on that?

Yes. I think that's exactly right. Some of them were some material issues, sourcing materials, which were able to help them out. We brought some additional resources to bear and that's why we can say that we expect record or near record shipments in Q4.

Great. So obviously, the bookings for Ambrell is very solid and its $6.49 million and can you talk about the pipeline as well? Just want to get a sense of how that pipeline is? And what are some of those opportunities going forward in terms of growth market that you mentioned in the past?

Jim, you want to take that?

Sure. Well, I can say that Ambrell's total business outlook in terms of backlog pipeline expected revenue is really high – you could say it's at an all-time high. It's never been quite as robust as it is now and that's expected to continue. They have some very, very strong relationships with large OEM firms – customers and those relationships are really beginning to blossom now.

Okay, got it. And then any longer-term sort of like strategy, how to think about Ambrell perhaps – like since you guys have a pretty solid international platform and most of Ambrell's business is more domestic, so any strategy going forward you maybe expand like leveraging your international platform to – on an Ambrell piece? Thank you.

Well, Ambrell – I'll answer this. Ambrell actually is quite strong in both domestically and in Europe. Where they have not had much activity historically is Asia, and we're taking steps to begin a program to grow that business and we expect that Asia would be a major component of 2018 and going forward.

Okay. So the timing actually can be as soon as 2019, right?

Yes. Compared to – you have to remember they are coming from very, very little revenue in Asia right now. We expect important revenue next year and setting the stage for it to continue to grow.

Right. And then finally, like for profitability for Ambrell, do you guys talk about what is the operating income contributed by Ambrell for the quarter?

Ambrell actually had a loss for this quarter Joan of $48,000. So as opposed to last quarter, where we had a contribution it essentially broke-even this quarter, had a slight loss and that was really due to the inability to get the shipments out the door. We expect that to turn around during the fourth quarter and to have it being accretive and contributing to both revenue and earnings and cash flow.

That is good. All right, great. Thank you guys.

Thank you.

Your next question comes from of line of Dick Ryan with Dougherty and Company.

Great, thank you. So just you used a couple of housekeeping numbers, stock-based comp, what was that in the quarter?

Stock-based comp for the quarter, bear with me one second, was $88,000.

Okay. And I may have missed, did you give any guidance for Opex for Q4?

No guidance for Opex. The only guidance we gave was for top-line EPS and the margin.

Okay. And Jim, on the Ambrell, I think the view is then that the existing business has been pretty sticky, the strategy would be to go out and really knock open some of these growth markets. Can you talk about maybe the pipeline or are there are any certification programs underway, if that's increasing? And maybe just what's the general response with one quarter under your belt from the customers of Ambrell?

As you just said, Dick, it's only one quarter, but I can tell you that for an example one of the largest first Tier suppliers to the automotive industry, Ambrell has now entered into discussions to possibly become the preferred supplier worldwide for this contractor and that's a strategic account that they have been working towards for some time, and they've now had very high-level meetings with them and the outlook is very positive. It's too early to make a prediction but the outlook is very positive. So there are several things of that nature going on. There is a major OEM that has been now to the factory twice for their quality and business audits and we expect to hear favorable news from them shortly as well.

Okay, great. Thank you.

[Operator Instructions] There are no further questions at this time. I would like to return the call over to Mr. Matthiessen.

Okay. Thank you for your interest in inTEST. We look forward to seeing many of you at the investor conferences we'll be attending in December. We will be at the LD Micro Conference in Los Angeles, December 5, and the New York City [Cap Summit] December 6, and the Benchmark Conference in Chicago on December 14, and to updating you on our progress when we report our fourth quarter results. Operator, this call is concluded.