Greetings, and welcome to inTEST Corporation’s Third Quarter 2021 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded today. I'll now turn the call over to your host Deb Pawlowski, Investor Relations for inTEST Corporation. Thank you. You may begin.

Thanks, Melissa, and good morning everyone. We certainly appreciate your time today and your interest in inTEST Corporation. Here with me are Nick Grant, our President and CEO; and Duncan Gilmour, our Chief Financial Officer and Treasurer. You should have a copy of the third quarter 2021 financial results, which we released this morning before markets opened. If not, you can access the release, as well as the slides that will accompany our conversation today at our website www.intest.com. After our formal presentation, we will be opening the line for Q&A. If you'll turn to slide two in the deck, I will first review the safe harbor statement. You should be aware that we may make some forward-looking statements during the formal discussions, as well as during the Q&A session. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release, as well as with other documents filed with the Securities and Exchange Commission. You can find these documents on our website or at sec.gov. During today's call, we will also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliation of non-GAAP measures with comparable GAAP measures in the tables that accompanied in today's release and in the slides. So with that, if you would please turn to slide three. I will turn it over to Nick to begin. Nick?

Thank you, Deb and good morning everyone. We delivered solid third quarter results that we believe demonstrate the successful execution on our five-point strategy, which is focused on driving growth, diversifying our markets and customer base, while ensuring we have the right talent to execute. In the quarter, we achieved year-over-year net revenue growth of 46% to $21.1 million. As global demand for our semiconductors continued to show relative strength and industrial sectors benefited from ongoing broad based recovery. Of note, our Multimarket revenue grew 22% sequentially. Like many others, we continue to face supply chain constraints and inflationary pressures. We had an estimated $500,000 of finished goods that we're unable to ship in the quarter due to logistic challenges. Our teams have done an excellent job, managing supplier and logistic challenges to fulfill orders. We continue to implement enhanced pricing to help overcome inflationary and expediting costs. The results of these efforts was reflected in our margins and profitability in the quarter, which were in our expected range. During the quarter, we generated $4.3 million of cash from operations, increasing our year-to-date total cash generated to $8.1 million. Cash on hand at the end of the quarter was nearly $19 million. And in support of our organic and inorganic growth initiative, we announced a couple of weeks ago that we executed a new extended and expanded credit agreement. Overall, this added liquidity allows us to capitalize on the attractive debt markets and provide additional financial flexibility to continue to pursue a robust pipeline of acquisition opportunities. Following that announcement, we successfully executed two acquisitions post third quarter close in October, Z-Sciences and Videology Imaging Solutions. Both acquisitions arose out of our M&A funnel generation program that has been developed and refined over the last year. Slides four and five…

Thank you, Nick. Starting on slide 6, we provide some detail regarding our top-line. Revenue for the third quarter was $21.1 million, a 46% increase over the same period last year and just above the midpoint of our guidance. Multi-market revenue grew 22% from the second quarter fueled by strength in the industrial market, while our semi business remains at historically high levels despite the sequential dip. We continue to see the benefit of our ongoing innovation and development efforts as our new product designs are being well-received in our markets. We are gaining new customers and winning business from competitors. Moving to slide 7. Our third quarter gross margin of 49.2% was in line with guidance and compares with 50.2% in the second quarter of 2021 and 44.7% a year ago. When compared with the second quarter the change in gross margin reflected higher component material costs not yet fully covered by price improvements as well as changes in product mix and less favorable absorption of fixed manufacturing costs. We continue to actively manage ongoing challenges of supply chain constraints and expect to start seeing some positive impact from the price increases we have rolled out in the second and third quarters although we do not expect the full benefit of these initiatives will be felt until next year. Slide 8. Details our operating expenses and expectations for the fourth quarter. Selling expense grew 9% sequentially to $2.8 million in the third quarter driven by increased headcount, a return to more normal levels of travel as restrictions are lifted and an increase in spending on new advertising initiatives. Engineering and product development expense remained relatively unchanged compared with the trailing period. General and administrative expense decreased 4% sequentially to $3.6 million for the third quarter. Restructuring and other charges…

Thanks, Duncan. Slide 11 highlights our orders and backlog. Overall, demand for our products and solutions remains strong and we continue to secure new orders in our targeted growth markets and are making inroads and working with OEMs to embed our solutions for broader market exposure. Orders for the third quarter were $21.1 million, a 47% increase over the same period last year and was supported by growth in both Multimarket and Semi Market. The year-over-year increase in Multimarket orders was primarily from the automotive industry, which includes the EV market. During the recent third quarter, we received a significant follow-on order for approximately $1 million from one of our EV customers, which we expect to ship over the next several quarters. As a reminder, in the second quarter of 2021, we received a record order for chillers from a key automotive OEM manufacturer for approximately $1.5 million. This order is also shipping over multiple quarters beginning in Q4. Note, this trend of placing larger orders that will ship over several quarters is one we are seeing with more frequency. We expect this may at times result in period-over-period fluctuations in order levels that are not necessarily indicative of changing demand but rather reflect the timing of when these large orders were placed. Our backlog at quarter-end was $20.4 million, approximately 75% of which is expected to convert to sales in the fourth quarter. Please turn to Slide 12 and I will provide an update on our near-term expectations. We will continue to execute on our five-point strategy with a focus on driving growth and diversifying our markets and customer base. Our recent acquisitions have added to our product platform offerings and technical expertise and expanded our customer base to adjacent high-growth markets. Integration efforts are well underway on both…

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Jaeson Schmidt with Lake Street Capital Markets. Please proceed with your question.

Hey guys. Thanks for taking my questions. I just want to start with that Q4 guidance. Nick, I know you mentioned about $500000 in orders that we're unable to ship in Q3, but does guidance for Q4 assume you can ship to all of the demand or is that still baking in some potential supply chain constraints?

Yeah. Hey, good morning, Jaeson, and great question. As we commented, supply chain constraints are abundant out there. And so we -- what we've provided, we believe bakes in the potential risk from the supply chain in here -- in Q4. Duncan, any comment on that?

No, I totally agree. We certainly have assumed in that number, the challenges that we see from a supply chain perspective and have factored that into the numbers.

Okay. That’s very helpful. I apologize if I missed it, but what sort of contribution do you expect from the acquisitions? I know you said, Z-Sciences, is relatively de minimis revenue but what revenue contribution from the combined two purchases in Q4?

Yeah. We're looking at around $1.5 million in that order of magnitude all from Videology Z-Sciences, there is some incremental costs associated with getting the Z-Sciences product line up and running in Q4 order of magnitude $0.01 $0.015, I'd say associated with that Videology, as I said, about $1.5 million is baked into our assumption there, with no real bottom-line contribution in the initial quarter. And we also have the M&A-associated costs of the $0.03 that we have talked about and called out.

Okay. And just the last one for me and I'll jump back into queue. Congrats on that $1 million EV order. Just curious if you could provide some color around why you're thinking why you think you're starting to see some of these larger orders get pulled over the finish line?

It's a trend out there, as customers are really working to ensure, they've got a slot in the delivery pattern, if you will given the supply chain constraints and that. So in this case that, EV customer really is building out their production lines and they wanted to go ahead, and get all the units on order for that line, which we'll deliver over the next few quarters. So – but I just think, it's more risk management from the customer perspective.

Okay. That makes sense. Thanks a lot, guys.

Thanks, Jaeson.

Thank you. Our next question comes from the line of Dick Ryan with Collier Securities. Please proceed with your question.

Thank you. So Nick, you initiated a pretty aggressive marketing campaign in Multimarket I guess specifically at Ambrell going after induction heating. Can you provide an update, how that's going? I know we just kicked off, I think last quarter, but what are you seeing as far as potential customers or existing customers' response to that campaign?

Yeah. Hey, good morning, Dick. Dick, great question there. And you're exactly right. We launched a couple of aggressive campaigns one at Ambrell focused on the EV build out and capturing as much opportunity as we can there. And the second one was in the cannabis space with our iTS business. And specific to Ambrell, they – the program itself has generated attractive level of qualified leads. They've actually got programs underway, with multiple new potential customers. As you saw during your visit up there, we get these applications from these customers. We have to prove them out in our lab. And then from that point, it leads to implementation and production, if they're satisfied with that. And that's exactly where we're at is doing the application best betting, if you will and proving out this. So I'm very confident, these are going to pay off here in the quarters ahead.

Okay. Specifically on the Semi side, I think last call you talked about the digestion and we saw that in the September quarter. What's your view of your Semi in Q4, and maybe going into Q1 both the back-end legacy EMS, but also Ambrell's front-end opportunities?

Yeah. Semi got a number of positive secular trends and announced investment plans and everything else. So we're very bullish on Semi going into 2022. We continue to see solid activity on the front-end side on rest silicon carbide even in our test piece on the back-end side, the temperature test chambers are instruments that we provide high levels of activities there, and customers are more of our traditional test on the EMS side, are ramping up their plans, or laying out their plans for 2022, which we're closely engaged with them on. So we feel good heading into 2022 on Semi.

Okay. And on the acquisitions, I think you talked about in both opportunities scaling what these companies have developed and grown to this point. Some of these are new market touch points for you. How do you have the visibility that you can scale into some of these new market opportunities?

Yeah. A great question. Absolutely, both of these acquisitions we completed really opens up some new markets for us and attractive markets. And the Life Sciences space is one that we targeted as an area, we wanted to go after as part of a corporate growth program and identifying these sciences, really a company with great technology able to bring in an industry expert to help us penetrate this space, with that acquisition, and providing some low-cost manufacturing through an outsourced agreement there. Really, positions us in a different place for our iTS business, but we believe our – our ultra low-temperature capabilities and know-how, and our sales and marketing prowess, if you will, will drive this business to the levels that, we can get to on there. And same for Videology, this is a bigger play around data capture, building out our automation capabilities and further strengthening our footprint in Life Sciences. And so, it's not a market that I'm unfamiliar with. While, I'm my days at AMETEK I oversaw a camera company, a video capture company. And so I know this space, I think we'll do quite well in it.

Okay. Great. Good luck and congratulations.

Thanks Dick.

Thank you. [Operator Instructions] Our next question comes from the line of Peter Wright with Intro-act Inc. Please proceed with your question.

Thank you, guys for taking my questions, and congratulations on what looks like $100 million year. Nick for your first. So that's quite an accomplishment. My first question for you a two-parter is, you did signal no customer overlap and building on Dick's question, what is the go-to-market or sales strategy in Life Sciences? Is it direct? Are you working with distributors there? And if you could comment on, what your belief of the cross-sell of your existing product into that new market could be. How are you thinking about that from a size perspective? And then the second part of that question for you Nick is on the Z-Sciences side. Is that, simply a technology acquisition or do you have line-of-sight to first sales for that business? And then, I have one follow-up for Duncan on the other side.

Yes. Great question Peter and good morning. So the go-to-market for these businesses as we commented really is these markets are not ones that we currently have a strong presence in today. So it's about leveraging their existing distributor base that they have built-up relative to Z-Sciences and adding direct sales channels investments to better get our message out there and build up a more robust supply of product in the regions out there. So we'll be making investments to really improve that and then provide our go-to market expertise if you will around those businesses. Videology, similar story but they go to oprimarily through OEMs. And this is a huge market -- a ridiculously huge market. And we believe just focusing on certain niches in this space. We can really make inroads there, but it's about getting our product embedded with OEMs in that area. So this is something we've launched initiatives on across our other businesses and we believe we can execute in that space as well. But …

And do you think ….

Oh go ahead.

…how much -- in 2022 -- or I don't want to give the time frame maybe you give the time frame but how much incremental sales do you think from your existing product portfolio pre acquisition? Do you think that these two acquisitions are going to help sell into this channel?

To be honest with you there's not a lot of pull from our existing products into these channels. We're going to actually try to capture if there are any. But in reality these vaccine freezers, and refrigerators, and that are really not using EMS type products or induction heating is also typically not in these universities and medical centers pharmaceutical facilities et cetera on that. So -- but if something comes up we're going to capture it. For us it's more about growing the opportunities, identifying the leads and expanding the footprint for these two companies.

Phenomenal, and then my two-parter if I can for Duncan, OpEx of $9 million to $9.2 million is that a full quarter of expenses for the two acquired businesses? I know you've got $300,000. Thanks for the breakdown on that, by the way of deal offset. So is that a good number to be thinking of going forward? And then the second part, if you could just check my math on the cash. You've got a $35 million line of credit 12 drawn which leaves about $23 million available and about $20-ish million at the end of the year. Does that suggest about $40 million of liquidity exiting the year? And my question there is if the math is right and then what is the minimum number of liquidity that you really need to be comfortable with inTEST?

Sure. I mean, let me take the first part. So in terms of expenses, it's almost fully loaded. We only really have two months of Videology in there versus the three. So there's another $100,000 I would estimate $100,000 to $150,000 or so to also add into that relatively broad range, quite honestly, of the 9% to 9.2%. I think, I'd look at it in that $8.5 million range, when I back out the deal cost we talk about, which just to be clear, we have an aggregate of $600,000 of M&A-associated deal costs that are baked into the Q4 number -- a combination of the number we call out associated specifically with Videology, as well as obviously, there's other activities that have been going on tied to Z-Sciences, etcetera, etcetera. So hopefully that helps a little bit with providing some color there. On the liquidity side, yes, obviously, the cash position around the $19 million exiting the quarter. We entered into the funding facility for the $25 million delayed draw piece, the $10 million -- I mean, the $10 million credit facility was really just extending the time frame of our existing credit facility. We have drawn $12 million from the $25 million. I mean the simple answer to the question Peter is that, we're always looking for more liquidity. So to the extent we have opportunities to further extend credit lines, etcetera, then obviously we will be looking to do that. But I think we are off to a good start there in terms of the funding and the facilities that we've set up here in the -- during the third quarter. Or I guess in the -- beginning of the fourth quarter, sorry.

Great quarter. Thank you, guys.

Thanks, Peter.

Thank you. Our next question comes from the line of Robert Marcin with Penn Capital. Please proceed with your question.

Congratulations, guys on another strong quarter of execution, particularly the cash flow numbers which were exceptional.

Hey, thanks Robert.

You got it. Assuming the semi-conductor business plateaus at a fairly high level for the next year or so, before resuming an uptrend in the following year as it digests this year's round of heavy capital -- ramp-up capital investment, do you think the efforts on your part to drive growth in the EMS business and the thermal business will generate any revenue growth this year. Is there -- it's been about a year now since you've been onboard and trying to change this corporate culture to more growth-driven. Can you quantify if there's any revenue above replacement management from your efforts? Kind of like goals to save the above expectations in hockey?

Yes. Good question. And we laid out our five-point strategy and we're driving that across all businesses, but EMS is really making some great inroads. Customer penetration, expansion into new customers, going into new markets with their high-voltage high-current product out there; this power management integrated circuit space is an area that hadn't played in the past and we're really making some good inroads there. So I truly believe what we're driving across the business also some investments that are planned in further geographic expansion for that business. And so, I believe we've got plenty of room to grow in that business, whether or not the overall market trends are moving up or down, if you will.

All right. Thank you. Congratulations again on -- in a different manner, two very reasonable deals that seem to -- price deals that seem to have very significant longer-term opportunities. Would you be willing to give us a three-year outlook for sales for both of those businesses if you succeed?

At this stage, we're -- it's a little too early to give you that forecast. I mean, we absolutely expect to grow these. Hopefully, you guys get the sense that I'm a growth guy and identifying these markets -- are these companies, as you said, very reasonable purchase prices that align with creating shareholder value. And I'm confident that the markets, the opportunities, the investments we've got identified will drive that top line for both of businesses. But I think our Investor Day, which we're planning for Q1 -- the end of Q1 here now; we had to delay it out, given the New York situation, etcetera. But we'll try to go into more details on that. The full year -- I mean, the five-year strategic plan expectation models, etcetera, during that time frame…

Thank you. You gave us a TAM for the healthcare -- for Videology. Could you give us a TAM for that? You gave us one for Z, I guess.

Yes. Z-Sciences the total market is about $500 million but our TAM our served market is really around a $200 million there. And then this image capture -- image product space is huge. It's over $20 billion. The space that we play in with Videology is roughly $5 billion. But we believe, just focusing on 10% of that market we can make some great inroads. So it's moving our numbers substantially and a lot of growth opportunity.

Thank you. And my last question, at times when investors are concerned or foolish about the semiconductor cycle that stock seems to sell off to stupidly low valuations. Have you guys considered having in your quiver a share repurchase program that could exploit these sudden declines in the stock and the least copper stock option issuance, or something modest from a repurchase program? Thank you.

We've certainly done that in the past, and we're always looking at where would it make sense to perhaps do that. We do need also to be cognizant of cash requirements and looking at our pipelines and what we want to do with that. But absolutely, it's certainly something that's on our mind.

There's enough organic and inorganic growth opportunities, we don't want you to use cash with a programmatic share repurchase program. I would assume most shareholders, I speak for them to that. But at times, if the stock just gets pretty cheap it wouldn't hurt to have an availability to scrap some stock back at very low valuations when you will have obviously, annual dilution from your stock comp packages?

Yes. Agreed, Robert. And we actually do have an open shareholder -- our share repurchase plan out there. It's just that we haven't engaged -- haven't made -- activated it, if you will.

All right. Thank you very much.

Great, Robert. Thanks.

Ladies and gentlemen this concludes today's question-and-answer session. I'll turn the floor back to Mr. Grant, for any final comments.

All right. Thank you and thanks everyone for joining us on the call today and for your interest in inTEST. For those of you interested, we will be participating in a few upcoming conferences. On November 18, we will be at the Virtual Ladenburg Dalman Technology Expo. On December 8, we'll be at the CEO Summit at the St. Regis, in San Francisco, which is coincident with the Semicon West Exhibition that's going on. And then on December 15, at the Virtual D.A. Davidson Conference. As always please feel free to reach out to us at any time and we look forward to talking with all of you again in early March, to report on our fourth quarter 2021 results. Thank you for your participation. Stay safe and have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.