Welcome to the inTEST Corporation's 2018 Fourth Quarter Financial Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded and 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, Dorey, and thank you for joining us for inTEST 2018 Fourth Quarter and Year-end Financial Results Conference Call. With us today are James Pelrin, inTEST's President and CEO; and Hugh Regan, Treasurer and Chief Financial Officer. Jim will briefly review the year's highlights as well as current business trends. Hugh will then review inTEST's detailed financial results for the quarter and the year and discuss guidance for the 2019 first 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. In addition to the factors mentioned in our press release. Such risks and uncertainties include, but are not limited to, the possibility of future acquisitions or dispositions and the successful integration of any acquired operation, the ability to borrow funds or raise capital to finance major potential acquisitions, the success of our strategy to diversify our business by entering markets outside the semiconductor or ATE markets, indications of a change in the market cycles in the semiconductor and ATE markets or other markets we serve, changes in business conditions and general economic conditions, both domestically and globally, changes in the demand for semiconductors generally, changes in the rates of and timing of capital expenditures by our customers, 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 our SEC filings including, but not limited to, our periodic reports on Form 10-K and Form 10-Q. Any forward-looking statements made by inTEST during this conference call is based only on information currently available to inTEST and speaks to circumstances only as of this date on which it is made. InTEST undertakes no obligation to update the information 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. And with that, let me now turn the call over to James Pelrin. Please go ahead, Jim.

Thank you, Laura. I'd like to welcome everyone to our 2018 fourth quarter and year-end conference call. Let me start by spending a few moments outlining the significant progress we've made this past year in broadening our presence within the markets we serve as we diversify the company into a global world-class provider of thermal solutions for industrial manufacturing and electronic test. On the heels of a very strong first half of 2018, we delivered solid full year results driven by our diversified customer base of end users and OEMs, further demonstrating our strong execution and operating leverage. The semiconductor industry continues to drive our revenue with end markets in the automotive sensors, Internet of Things and consumer electronics markets. Our non-semi business continues to be driven by demand in the industrial and defense aerospace markets. On a year-over-year basis, 2018 bookings of $78.2 million and net revenue of $78.6 million increased 13% and 18%, respectively, which included the impact of the acquisition of Ambrell Corporation. Excluding Ambrell, bookings were down 4% and revenue were down 2% as compared to 2017. 2018 gross margin grew 14% over 2017 in absolute dollars and decreased as a percentage of revenue from 52% in 2017 to 50% in 2018. Excluding the impact of Ambrell, our 2018 gross margin would have declined 4% year-over-year to $27 million, which was 52% of revenues. And we marked our ninth consecutive year of profitability, a metric that we're all very proud of as it speaks of the discipline and dedication exhibited by every inTEST employee. Turning to the Thermal business, as a reminder, our Thermal segment is the combined business of inTEST Thermal Solutions, or iTS, which serves the test markets and Ambrell, which serves the industrial process markets. We have strategically diversified this segment, resulting in…

Thanks, Jim. Fourth quarter 2018 consolidated bookings of $18.4 million decreased 8% sequentially and 16% year-over-year. Consolidated net revenues of $18.4 million for the quarter ended December 31, 2018, came in at the high end of our guidance range, representing a decrease of 9% sequentially and 5% year-over-year. Thermal segment fourth quarter 2018 bookings of $12.4 million were down 17% sequentially and 21% year-over-year. Thermal segment Q4 net revenues of $14.1 million decreased 3% sequentially, but were up 3% year-over-year due to entering the new year with a very strong backlog. Ambrell's Q4 2018 bookings of $6.8 million were flat sequentially and up 11% compared to the same period in 2017. A mix of end-user and OEMs for a variety of applications drove orders - major orders in North America and Europe for Q4. And record revenue of $7 million for the fourth quarter increased 2% sequentially and 5% as compared to the same period in 2017. For the fourth quarter, iTS bookings of $5.6 million and net revenues of $7.2 million were down 31% and 8%, respectively, compared to Q3. Compared to the same period in 2017, bookings declined 42% and net revenues were flat. The reductions in bookings and net revenues were driven by reduced demand in both Europe and China. EMS Q4 2018 bookings of $6 million were up 17% sequentially and were flat as compared to the same period in 2017. As expected, EMS product demand continues to be driven by automotive, IoT, industrial and consumer electronics. Q4 EMS revenues of $4.3 million declined 23%, both sequentially and on a year-over-year basis, as expected after a very strong 2017. Fourth quarter 2018 end-user net revenues were $16.4 million or 89% of net revenues compared to $17.2 million or 85% of net revenues in the third quarter.…

[Operator Instructions]. At this time, we'll take our first question from Theodore O'Neill at Litchfield Hills Research.

So, Texas Instruments, one of your customers and who like you has been diversifying into industrial and automotive, said on its fourth quarter call, we're seeing weakness in the semiconductor channel third quarter, fourth quarter into the first quarter. It says, there's a lot of inventory in the channel and it lowered its wafer starts. It also said that industrial and automotive applications were lower sequentially in Q4, but up for the year. And they're getting close to a split like you have between industrial and semi. So the question is, are you seeing similar trends?

Yes, I think that we certainly are experiencing the same kind of softness that TI sees in the marketplace. I'm not sure how long it's going to persist in our case. As we say, we think it's going to persist for the first half of the year, but the second half, many of our customers are much more positive than what TI has said, but we don't claim to have a crystal ball. So we really can't lookout that far.

And what about what's going on in China? I know TI couldn't explain whether or not this tariff - the tariff or the trade dispute was having an impact - you stir that out from the rest of it, but I was wondering what you're seeing.

Well, the tariff situation has a very little impact on us. We - all of our equipment is not subject to tariffs with the exception of Ambrell's induction heating system, but Ambrell had a very, very limited exposure in China, first place under $1 million. So that certainly has been affected, but we don't see any great effect from tariffs.

[Operator Instructions]. We'll take our next question from Jaeson Schmidt at Lake Street.

Just following up on that previous question. Can you just talk a little bit about how far your visibility actually extends to? I know you expect a second half snapback here, but is that based on order patterns or is that mainly just coming from such a depressed first half based?

Well, it's very much based on interviewing our customer base and what they see. The semiconductor industry, as we all know, is known for its ups and downs and sometimes it can be abrupt. I don't personally think that the softness is going to decline any significant amount more than what we've seen to date, and our customers are telling us that they expect a healthy pickup in Qs 3 and 4 and that's what all I can say.

Okay. That's helpful.

Yes. And, Jason, to respond to your question on visibility, as we've said to you in the past, we see three months with clarity, another three months that's somewhat opaque and beyond six months, we really can't see anything other than - we have backlog sometimes that may extend beyond that in our Ambrell business, but typically, it's about a six month visibility at most.

Okay. And looking at the Ambrell business, now that it's been under the inTEST umbrella for quite some time now, has there been any changes from your standpoint? And how fast do you think you can grow that business on an annual basis?

Well, our goal has always been to grow Ambrell in somewhere - certainly, far greater than the rest of the induction heating market, which grows at about GDP. We think that Ambrell can be in the high single digits, possibly the low double digits in a year-over-year basis and we've said that from the beginning and I think we continue to stand by that.

Okay. And the last one from me and I'll jump back into queue. How should we think about OpEx trending throughout this year?

On that one, Jason, ex an acquisition, we would expect OpEx to be fairly close in line with where we thought - seen the trend in Q3 and Q4 ex the contingent consideration adjustment, which as we've noted before, this was the last quarter that we expected that. Inflation does not seem to be pushing us significantly, although that - we may see signs of that changing as we get into - further into 2019, but I would think that you can look to our current trend of between ex the contingent consideration adjustment, continuing for the next several quarters, again prior to any related acquisition activities.

And we will take our next question at this time, from Dick Ryan at Dougherty.

So, Jim, you guys had a pretty strong quarter last quarter, Q3, in bookings from optical transceivers. How is that market looking at this point?

Well, as we've discussed in the past, Dick, that market is full of fits and starts. And it was strong in Q3, wasn't as strong in Q4. We don't expect it to be - we expect Q1 to be more like Q4 than Q3. We don't see any major build-outs happening at the present time. That could be partly affected by the whole geopolitical situation in China. It could be affected by the softness in the industry in general. I'm not quite sure, but that's what we see right now.

Okay. And, Hugh, what was the revenue breakout geographically? I'm not sure if you gave it or not?

When you say geographically, you mean by group or what are you asking?

U.S., Europe, China, if you have any kind of geo?

Okay. Yes, we do as a matter of fact. Bear with me. I'm actually looking for my draft K. I actually don't have the statistics with me in the room right now, Dick, I apologize.

Okay. No problem. How was the cash flow for the quarter or the cash flow from ops for the year, either one?

Cash flow for the quarter, well, for the year, I have that number in front of me was $11 million and for the most recent quarter, my recollection was about $3 million.

Okay. Jim, how is the - just on Ambrell, how does the pipeline of business look there? I mean, it's tended to be a pretty sticky business. I think in your highlights, you indicated some new opportunities, but how does the overall pipeline look going forward?

It looks good, it looks healthy. Our major OEMs are telling us that they are going to be placing some very significant business with us in 2019, which is a great sign of the industry, just general industry. I think we are looking for a strong year from Ambrell based on what we see.

Have the grants, have they all come in now for the new facility? Or are you waiting on any other grants or tax benefits from that build-out?

We are waiting for the one final grant from the State of New York. We've not yet received that.

And how much is that, Hugh?

I believe, it's $350,000. You'll see on our balance at 12/31, we've got the $200,000 from the city of Rochester reflected.

Okay. And just one last one. How does the customer concentration look for the quarter?

Actually, I just reported to our Board of Directors the other day for the first time, we've seen our Top 10 on a consolidated basis far below 40%. It was 39.8%. So clearly, the broader diversification that we're seeing from the Ambrell transaction has been a benefit with only one customer over 10% and that was TI at 11%.

In the quarter or for the year?

That's for the year. Yes, clearly, their fourth quarter spending was down significantly.

And it appears there are no further phone questions at this time. [Operator Instructions]. While we will wait for everyone to queue for their questions over the phone lines, I would like to turn things back to Hugh to go over any questions that have been submitted from the prior calls.

Thank you very much, operator. We did get a question in advance. The question that was provided was, in previous investor conferences, management has mentioned $200 million in revenue by the end of 2020. Is this still your target? And then what is your road map for achieving that goal? Jim, do you want to respond to that?

Certainly. Yes, this remains our target. We are very active in pursuing acquisitions to help achieve that goal. Our pipeline is - has been very active, particularly as of late. And we know that it's a stretch to get there, but we continue holding that as our target and will do everything we can to get there.

Thank you. We've got no further questions that have been submitted in advance, operator. So if there are no further questions, we can go to closing remarks.

There are no further questions in the phone queue at this time.

Well, thank you, everyone, for your interest in inTEST. We look forward to updating you on our progress when we report our first quarter results. Operator, the call is concluded.

And this concludes today's call. Thank you for your participation. You may now disconnect.