Welcome to the inTEST Corporation 2019 Second Quarter Financial Results Conference Call. [Operator Instructions] As a reminder , this conference is being recorded today. A replay will be made accessible at www.intest.com. I will now turn the call over to inTEST Investor Relations Consultant, Laura Guerrant. Please go ahead, Ma'am.

Thank you, Cody, and thank you for joining us for inTEST's 2019 Second Quarter Financial Results Conference Call. With us today are Jim Pelrin, inTEST's President and COO; and Hugh Regan, Treasurer and Chief Financial Officer. Jim will briefly review the quarter's highlights as well as current business trends. Hugh will then review inTEST's detailed financial results for the quarter and discuss guidance for the 2019 third quarter. We'll then have time for any questions. If you have not yet received a copy of today's release, it can be obtained on inTEST's website, www.intest.com. Before we begin the formal remarks, the company's attorneys decided 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 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, indications of a change in the market cycle from 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; the success of our strategy to diversify our business by entering markets outside the semiconductor or ATE markets; the possibility of future acquisitions or dispositions; and the successful integration of any acquired operations; the ability to borrow funds or raise capital to finance major potential acquisitions; changes in the rates of and timing of capital expenditures by our customers; progress of product development programs; increases in raw material and fabrication…

Thank you, Laura. I need to let everyone know that we have discovered a few minor typographical errors in the press release and supplemental information that we provided today. I'm going to let you know those errors now, and we will be providing updated press release and supplemental information on our website after this call, and we'll be issuing an amended press release for those numbers. These errors appear in the reconciliation tables on the last page of the press release. The first errors are in the reconciliation of net earnings loss, GAAP to EBITDA, non-GAAP and adjusted EBITDA, non-GAAP, the net earnings loss GAAP reported for June 30, 2019, the 3 months ended should be $187,000 loss versus the $228,000 that's shown. In addition, on that same table for the 3 months, the income tax expense benefit shown for the 3 months ended June 30, 2019, should be a benefit of $113,000 versus the $72,000 that is currently shown. In that same table for the six months ended June 30, 2019, the net earnings loss GAAP should be $951,000 instead of the $910,000 shown. And then finally, in that table, the income tax expense benefit for the 6 months ended June 30, 2019, should be $211,000, not the $252,000 shown. Finally, in the supplemental information, reconciliation of third quarter 2019 estimated net earnings per share diluted GAAP to estimated adjusted net earnings per share diluted non-GAAP. The estimated net earnings per share diluted GAAP, high and low, are or incorrect as shown. On the low, the correct number should be $0.02 per share, not the $0.04 shown; and for the high, the number should be $0.06 per share, not the $0.08 shown. When you add the $0.03 and acquired intangible amortization on the low end, you would come to $0.05 and not the $0.07 shown; and on the high end, you would come to $0.09 and not the $0.11 shown. Again, we will file amended press release and supplemental information following the call. On the supplemental information and the reconciliation of net earnings loss GAAP to adjusted EBITDA in the 3 months ended 06/30/19, again the net earnings loss were shown incorrectly. The correct number is $187,000 versus $228,000. And the income tax expense benefit were shown incorrectly at $72,000 and that should be $113,000. With that, I'll turn the call over to Jim Pelrin. Go ahead, Jim.

Thank you, Hugh. We'd like to welcome everyone to our 2019 second quarter conference call. We're pleased with the sequential improvement in our level of orders, which exceeded revenues. This contributes to our confidence as we plan the second half of the year. In the face of a difficult second quarter, we continue to have a healthy balance sheet, despite incurring a slight operating loss. Often, we watch other companies gross margin deteriorate significantly during difficult times. Our gross margin of 47%, which was at the high end of our guidance, remains strong in spite of market weakness, which we believe speaks directly to the discipline with which we can plan and manage procurement and manufacturing for financial flexibility. On our last call, I noted we saw Q1 as our low point for orders. In the going forward, while we expected Q2 revenues to dip, we also expected to see gradual improvement in business, and that's exactly what we saw in Q2. Second quarter total orders were up 34% sequentially, and the adoption of our Thermal products with new customers undoubtedly helped. While weak Q1 bookings drove a 21% sequential decline in Q2 net revenues to $14.4 million, second quarter orders exceeded revenues by 11%, paving the way for our expectation of increasing revenues in the second half. I might add that we had a number of orders from new customers. Overall, I'm pleased with the way the entire inTEST team performed in this challenging environment. I want next to speak briefly to our continued strategic plans for the company, and then I will return to a discussion here on how we tactically measure our operational and financial execution. We have repeatedly described our strategic approach as one of acquiring operations that will continue to build our base of less…

Thanks, Jim. In line with our guidance, second quarter net revenues were $14.4 million, down 21% sequentially and 32% versus the second quarter of 2018. Notable in the second quarter were increasingly significant shipments to customers in Multi Markets, which constituted 47% of net revenues versus 44% in the first quarter. This increasing percentage is one of the ways we monitor our progress in executing our strategy to diversify from our core business to best offset the cyclical volatility that is inherent to the semiconductor capital spending worldwide. Our second quarter gross margin was 47% versus 49% in the first quarter despite the relatively large sequential revenue dip. By closely controlling our fixed production costs, we were able to sustain better margins even in difficult times. Selling expense declined to $2.1 million from $2.4 million in the prior quarter driven primarily by reduced commission expense on lower net revenues. Engineering and product development expense declined slightly to $1.2 million from $1.3 million in the first quarter, a 6% decrease. The reduction was not material to any specific program or product development and is best understood as normal timing fluctuations in spending. General and administrative expense was unchanged at $3.7 million for both the first and second quarters. Both periods included approximately $450,000 of acquisition-related and other expenses. We have now accrued all acquisition-related expenses associated with the transaction we did not close in the second quarter. We currently expect our quarterly G&A expense will range from $3.2 million to $3.3 million per quarter through the balance of the year, excluding the impact of any potential future acquisition activities. We accrue an income tax benefit of $113,000 for the second quarter compared to $324,000 of income tax expense recorded in the first quarter. Our effective tax rate was 38% in Q2…

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

I just want to start with the orders. It sounds like it picked up in Q2. Can you just talk about the linearity of order patterns you saw in Q2?

Jaeson, this is Jim. Yes, Q2, we showed a pickup in our semiconductor business; and in our ITS business, it was fairly linear across the quarter; in our EMS business, that tends to be more lumpy with some larger orders followed by smaller orders. So that was sort of sporadic, but if you average them out, it was -- it just showed a continual slope, which was a good thing. Our non-semiconductor or our Multi Market business, that continues to be healthy, and that surely showed a slight uptick as well.

Okay, that's helpful. And just following up on that with your comments expecting a sequential increase in Q4, what's really driving that confidence? Is it just the momentum of the order patterns you have seen? Or do you actually have visibility extending into Q4 at this point?

No, we -- I hesitate to say we have visibility. We see the semiconductor market in our world beginning to respond positively, and we think that's going to continue in our Multi Market world, we see that continuing healthy. And -- but we don't really see -- we don't really have visibility, but we're confident that the fourth quarter will be slightly up from the third quarter.

Okay, that makes sense. And the last one for me, and I'll jump back into queue. Could you just comment on any particular markets that you're seeing strength?

Well, we're certainly seeing strength in the mil/aerospace market. We have developed new customers. We've developed new applications in that market. And that's across a wide breadth of segments. The satellite industry continues to be strong. We've actually gotten some significant orders from armaments manufacturers and that type of thing. And our chiller business has certainly begun to grow in a way that pleases us. As we said, we had the best quarter ever, and that's spread across both the defense industry as well as in the extraction world, chemical extraction.

And we'll take our next question from Theodore O'Neill with Litchfield Hills Research.

Jim, before you even said anything about the margins, I was going to congratulate you for having such good margins for almost $4 million downturn in business sequentially.

Well, thank you for that.

I was seriously shaking my head over that. So a couple -- one question here. You said you've got a new customer for critical processing in silicon carbide semiconductor materials. Now you already -- if I remember correctly, you already had a customer in that space, and that it was making equipment for LEDs, if I remember correctly.

That is correct, yes. Yes, that is correct. We had a customer, we have a -- and we have now won another OEM customer in that space.

We'll hear now from Dick Ryan with Dougherty.

Guys, I was just trying to kind of reconcile your new buckets that you've put in the supplemental. So the semi test will include the semi portion of Ambrell and EMS, correct?

Correct.

That is correct.

Okay. So with the strong order pattern in semi that you talked about, are you seeing that in both kind of the front-end for Ambrell and the back end for EMS? Or is it more heavily weighted one side or the other? It sounds like Ambrell...

Well, we're seeing -- no, we're seeing some positive results in EMS in that regard. Ambrell, we are seeing front-end orders. The problem with the front-end orders seem -- to be perfectly honest, is that they're very lumpy, and we got some significant orders in Q2 that were very, very good. But it was from -- OEMs that order in a variety of ways and usually multiple units. And we're -- we don't have clear visibility where that's going throughout the rest of the year.

Is that kind of memory related, foundry logic, Or don't you have that visibility?

I don't have that visibility. They actually take our product into stock, and then they implement it in their equipment, and it's shipped out for a variety of reasons and to a variety of customers.

Okay. And you got a nice uptick in guidance for gross margin. I think you said $46 million to $49 million, with, let's say, modestly higher revenue. Is there any pricing in there or is it just volume related?

It's really volume related, Dick. We actually see the next quarter slightly less favorable than the current quarter. So it really is volume related.

Okay. And how did the customer concentration look, Hugh?

Actually, customer concentration – good question, came down, Dick. Top 10 customers in the quarter were down to 38% from 45% in the prior quarter and only one 10 percenter, the TI, which is typically in our 10% or overlay.

And Jim, it sounds like you talked about, on the industrial side, the Thermal business is holding pretty well. Can you just discuss kind of what you're seeing for a pipeline of opportunities, how does that currently look?

The pipeline is -- I would say, is steadily increasing. It's in various pockets. Some of the industrial or what we would have called the industrial customers, some of the Multi Market customers, some of the OEMs are significantly off this year, but that's been made up by other customers. In many cases, that's been made up by many customers as opposed to one. So it's a mixed bag, is my answer, but it's moving in a positive direction.

Okay great.

Pleasure.

And that does conclude today's question-and-answer session. I'd like to turn the conference back over to Mr. Pelrin for any additional or closing remarks.

Thank you, operator. And I'd like to thank everyone for their interest in inTEST. We look forward to seeing you at the conference Laura mentioned as well as updating you on our progress when we report our third quarter results. Operator, the call is concluded.

Thank you. That does conclude today's conference. Thank you all for your participation. You may now disconnect.