inTEST Corporation (INTT) Q1 2022 Earnings Report, Transcript and Summary

Greetings, and welcome to inTEST Corporation’s First Quarter 2022 Financial Results Conference Call. 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. It is now my pleasure to introduce your host, Ms. Deborah Pawlowski, Investor Relations for inTEST. Thank you. Please go ahead.

Thanks, 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 first quarter 2022 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 2 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. These documents can be found 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. With that, if you will turn to Slide 3, I will turn it over to Nick to begin. Nick?

Thank you, Deb, and good morning, everyone. Thanks for joining us this morning for our first quarter 2022 earnings report. I would like to start by thanking the entire inTEST organization for the resiliency and never ending desire to exceed customer expectations and deliver a solid start to the year. The first quarter played out as expected with both top and bottom line results in line with our guidance, despite Omicron, supply chain constraints, transportation shortages, and continued inflationary pressures. We are advancing our 5-Point Strategy and executing well. Revenue grew 23% year-over-year and 8% sequentially to $24.1 million and was the result of continued demand of our innovative and differentiated solutions. The quarter was not without its challenges. There was an estimated $1 million of product that was not able to ship due to supply chain constraints or logistic issues. As an example, we had a product on a ship that could not get into port in Baltimore in time. However, as we advanced through the quarter, we were able to improve our ability to deliver with bringing on more qualified suppliers, increasing inventory of raw materials and driving greater efficiencies in our production processes. We are becoming experts at whack-a-mole to get product out the door to our customers. Acquisitions contributed $4 million in the quarter, primarily from demand in industrial, security and other markets. Organic growth of 3% reflected our growing presence in automotive electric vehicles and select industrial segments. We believe that our diversification efforts around targeted growth markets are working well. This is demonstrated by the strong sales of our leading test and process solutions to the automotive industry including electric vehicles. In fact, in Q1, we saw our bookings and sales are automotive EV applications more than double from the prior year period. As we have been communicating our diversification within semi is also providing benefits. We had sales of our innovative solutions for the front end space, specifically in silicon carbide crystal growth applications, as well as sales of our thermal backend solutions both increased sequentially in the quarter, more than offsetting lower volume in our backend electronic test solutions. For semi sales to hold up that well is quite remarkable, given the atypical strength we saw during the first half of 2021 for our backend electronic test solutions. There were a few factors that impacted margins, both sequentially and from a year ago period. When comparing the year-over-year, the change in product mix was the primary reason for margin contraction. This was mostly due to the significant volume from our backend semi electronic test solutions during the first half of 2021. Our custom engineered solutions in this backend test space generally tend to command our highest margins. From a sequential comparison, the initial contributions from the acquisitions had a drag on margins as they were not where we expect they will be at the end of the year. Margins should improve as we drive productivity gains and as the investments we have made to grow revenue and realize operating leverage begin to pay off as we advance through the year. Integration of the three acquisitions that closed during the fourth quarter of 2021 is going as planned. We are improving their systems and processes with more discipline and sophistication to enable greater scalability while investing in the sales organization across our enterprise to support our growth plans. We are building out our sales teams both domestically and in Europe, and recently we opened our newest induction heating demonstration lab in conjunction with our channel partner in Mexico. History has shown we have a high success rate of converting prospects to customers when we demonstrate our technology, solving their production challenges in our labs. Our strategy is to invest in more labs around the world to drive greater market penetration through customer conversion. In parallel, with these sales and marketing efforts, we continue to advance our new product innovation efforts that will further enhance our solutions, offerings and help drive additional sales growth. As we tackle supply chain constraints, we are having to redirect our development engineers to qualify new suppliers and validate product specifications, which is somewhat slowing our new product development efforts. Last year, we defined our vision and mission and initiated our 5-Point Strategy. As we announced that our recent Investor Day, we felt that was necessary to reorganize our structure after completing the three acquisitions we made at the end of last year to better execute our forward plans. We now have three reportable segments that align with our technology platforms of electronic test, environmental technologies and process technologies. We believe this division structure enables us to increase efficiencies, broaden opportunities, better utilize our manager’s talents and leverage our strong customer relationships to accelerate growth and capture cost synergies. We also expect to be able to increase collaboration across the businesses, which will help to create broader customer solutions. Finally, with our new technology division structures, we believe we are well-positioned to build our forward vision of innovative test and process technology solutions and the platform to support our growth ambitions. You can find the results by segment in our news release, as well as in the supplemental tables of our slide deck. We had orders of $25 million in the first quarter of 2022, a record backlog at quarter end and demand has elevated as we advanced into the second quarter. This provides us with the confidence to reaffirm our guidance for 2022 and establish second quarter revenue guidance of approximately $27 million to $29 million. With that, let me now turn it over to Duncan to review the financials in more detail. Duncan, over to you.

Thanks you, Nick. Starting on Slide 4, we provide some detail regarding our top line. As Nick indicated, revenue for the first quarter 2022 was $24.1 million, a 23% increase over the same period last year and at the midpoint of guidance. Compared with the prior year period, revenue growth of $4.5 million included $4 million from our Q4 acquisitions. This contributed to growth in life sciences, security and other markets, and is indicative of the company strategy to diversify and expand with new customers and into new markets. Organic growth amounted to $05 million or 3% reflecting demand from the automotive market in particular electric vehicles, as well as industrial markets. Sales to the semi industry were relatively unchanged on a year-over-year comparison as growth and shipments to frontend semi customers, offset the decline in sales to the traditional backend semi market, which were exceptionally strong in the prior year quarter. It is also important to note that the level of supply and logistic challenges in the first quarter was similar to our experience throughout the last couple of quarters and we estimate supply chain and logistic constraints impacted Q1 2022 revenue by approximately $1 million. Even as our teams continue to do an outstanding job, working through the issues, finding alternative solutions and aligning operations to best meet customer expectations. Compared with the trailing fourth quarter of 2021, sales to the semi industry grew 9% driven primarily by demand from backend semi thermal applications. Life sciences, industrial and defense/aero markets also improved sequentially. The company’s top five customers in the first quarter represented approximately 20% of revenue and no single customer during the quarter accounted for 10% or more in revenue. Moving to Slide 5, our first quarter gross margin of 45.7% compares with 46.3% in the fourth quarter of 2021 and 48.7% a year ago. The contraction from both prior periods reflected less favorable product mix, the impact of acquisitions, production inefficiencies driven by supply chain constraints and delayed recovery of cost increases as pricing improvements tend to lag inflationary increases in component material and labor costs for preexisting order commitments. As it specifically relates to mix in the prior year quarter backend semi test was at an exceptionally strong level to the market resurging and we believe we were capturing more market share. As we have noted in the past, our backend semi test business is the most lucrative in our product portfolio from a margin perspective. What is encouraging going forward for this segment is that the new leadership and focus has reignited our customer relationships. Sales to backend semi were $11.1 million in the 2022 first quarter, compared with $12 million last year. Front end semi sales stepped up from $1.3 million in last year’s first quarter to $2.3 million this year. The impact of our acquisitions is tied to them closing toward the tail end of 2021. Inefficiencies from the early stages of integration are to be expected and we anticipate improvement with more consistent go forward quarterly performance. On an overall basis, we expect modest margin improvement through the rest of 2022 driven by improving contributions from acquisitions and increasing volumes. Slide 6 details our operating expenses and expectations going forward. Operating expenses were $10.2 million in the first quarter, representing 42.4% of revenue compared to $10.1 million or 45% of revenue in the fourth quarter. First quarter 2022 operating expenses reflect the impact of a full quarter of costs associated with the company’s fourth quarter acquisitions, and also include approximately $780,000 pre-tax intangible asset amortization expense. Intangible asset amortization expense was $522,000 in fourth quarter with a step up directly related to the acquisitions. We expect quarterly operating expenses for the balance of 2022 to be in the $10.9 million to $11.2 million range. We have annual merit pay increases that come in during the second quarter and we expect growth related investments to step up through the year and are reflected in this range. As we continue with our growth investment plans to support our 5-Point Strategy, we are confident that we will continue to demonstrate improving operating leverage with volume and scale. On Slide 7, you can see our bottom line and adjusted EBITDA results. Both GAAP and adjusted EPS were within our guided ranges. We had GAAP net earnings of $577,000 or $0.05 per diluted share for the first quarter, which compares with net earnings of $287,000 or $0.03 per diluted share for the fourth quarter of 2021. On an adjusted basis, EPS was $0.12 per share compared with $0.07 per share in the fourth quarter. Adjusted EPS reflects tax affected acquired intangible amortization, on an after tax basis, acquired intangible amortization amount to $689,000 in the first quarter. We expect a similar amount of intangible amortization in the second quarter of 2022 with declining levels during the second half. The effective tax rate for the quarter was 12% as we continue to benefit from tax credits related to high export sales and released a small valuation reserve on tax assets associated with some old foreign net operating losses. Adjusted EBITDA was $2.1 million for the first quarter up 56% from the fourth quarter of 2021, reflecting higher bottom line profitability and the impact of acquisitions on Q1 2022 amortization and interest expense. In our adjusted EBITDA calculation, we remove the impact of stock-based compensation. Stock-based compensation is a non-cash expense and as such does not impact our liquidity. Accordingly, we believe our adjusted EBITDA is a better performance measure to assess the strength of our cash generation ability than EBITDA alone. More detail on the calculation of adjusted EBITDA can be found under non-GAAP financial measures in our earning release. Slide 8 shows our capital structure and cash flow. Cash and cash equivalence was $17.2 million compared with $21.2 million at the end of 2021. We used approximately $900,000 in cash to pay down debt in the quarter, reducing our balance to $19.2 million. As a reminder, we had debt of $20.1 million at the end of 2021 as we established a term loan facility to finance two of our three acquisitions during the fourth quarter. We believe we are better leveraging our balance sheet than we had historically, and have plenty of financial flexibility to continue executing on our 5-Point Strategy for growth. Our liquidity stands at $32.2 million, which includes cash and approximately $50 million available on a revolver and term loan facilities. We used $2.7 million in cash during the first quarter. The first quarter typically consumes cash due to the timing of year-end bonus payments and cash taxes. Capital expenditures during the first quarter are $335,000 compared with $417,000 in the fourth and $388,000 in the year ago quarter. For 2022, we expect capital expenditures to be around 1% to 2% of annual revenue. However, depending upon changes in market demand or manufacturing sales strategies, we may make purchases or investments as we deem necessary and appropriate. With that, I will now turn the call back over to Nick.

Thanks, Duncan. Slide 9, highlights our orders and backlog performance. Overall, demand for our products and solutions remained solid with the first quarter book to bill of 1.04. While we will always welcome market tailwinds, our objective is to execute our 5-Point Strategy to grow faster than our served markets. We continue to extend our reach in targeted growth markets while deepening customer relationships across these industries. In the first quarter, our businesses continued to add new customers with a focus on both end users and OEMs. Orders for the first quarter of $25.1 million were essentially flat with a year ago period and were down from a record $30.5 million in the fourth quarter. As we mentioned in our last call, the fourth quarter included a large approximately $10 million order for our front-end semi solutions. We are delivering against this order throughout 2022, primarily in the second, third and fourth quarters and the pipeline remains very active for more front end semi orders for our induction heating solutions used in silicon carbide crystal growth applications. Our semi back-end orders were lower year-over-year as they compare with an atypically strong period of demand that occurred during the first half of 2021, but still remain at an elevated level from historical rates. Outside of semi, orders for the first quarter of 2022 reflected strong demand from the automotive industry, in particular for EV applications requiring inTEST’s induction heating technology and our newly acquired battery test solutions. Orders were up in life sciences as well, driven by demand for a variety of inTEST’s technology solutions, including digital imaging and induction heating. Demand increased from the defense/aero industry for environmental technology solutions in the quarter. Our backlog at quarter end reached another record level at $35 million, approximately 63% of which is expected to convert to sales in the second quarter. Our level of longer term backlog is higher than historical trends as customers seek to secure production capacity and to cope with longer lead times. Slide 10 reaffirms our guidance for 2022 and provide second quarter expectations. Although, we just have one quarter in the books, I’m pleased with how the year is shaping up. As a result of our solid start, we continue to expect revenue for 2022 to be in the range of $110 million to $115 million with quarterly gross margins ranging between 46% and 49%. We also expect interest expense to run approximately $150,000 per quarter and our effective tax rate to be between 15% to 17% for the year. As I mentioned earlier, for the second quarter of 2022, we expect revenue to be in the range of $27 million to $29 million. Q2 GAAP EPS should be in the range of $0.11 to $0.16 per diluted share while adjusted non-GAAP EPS is anticipated to be approximately $0.18 to $0.23 per diluted share. The difference between GAAP and non-GAAP is tax effective acquisition amortization expense. Our guidance is based on our current views with respect to operating and market conditions and customer forecasts, which are subject to change. As well as our expectations for the balance of the quarter and our subject to any strategic investments we may choose to make. It also assumes supply chain challenges remain relatively consistent with what we’ve been seeing with gradual improvement as we move through the second half of the year. Actual results may differ materially as a result of among other things, the factors described under forward-looking statements found in the materials that accompany this conference call, including the press release and the slides. Slide 11 highlights our longer term aspirational goals that we delineated at our Investor Day in early March. With the talent we have in place and strong adherence to our 5-Point Strategy for growth, we can see a path to essentially doubling the size of the company from what we expect to report in 2022. This path includes both organic and acquisitive growth expectations and would represent a very strong top line CAGR. Slide 12 shows the operating leverage we expect our business model to ultimately deliver that should drive cash generation and improved earnings power. Let me now summarize the key takeaways for inTEST on Slide 13. A focused and energized workforce is in place to continue to drive growth as we diversify and expand our markets and our customer base. Executing our 5-Point Strategy for growth is delivering results. And we’ll see more secular growth trends across our addressable markets. Our M&A funnel development is ongoing, our team continues to identify acquisition targets that we believe will bring differentiated and innovative technologies, provide complimentary capabilities or enable deeper and broader reach within our targeted markets and geographies. To capitalize on future opportunities, we have in place a strong balance sheet and the financial flexibility to execute our growth plans. We are encouraged by the strong demand across our markets. Our solid first quarter results along with the pace of second quarter orders thus far gives us confidence in our 2022 outlook, even in the face of continuing supply chain challenges. We are optimistic about our healthy pipeline of projects as we skillfully manage our operations to meet customer needs. With that, operator, let’s open the lines for questions.

Thank you. The floor is now open for questions. [Operator Instructions] The first question is coming from Jaeson Schmidt of Lake Street Capital Markets. Please go ahead.

Hey guys. Thanks for taking my questions. Just want to start with the supply chain. Nick, I know you mentioned in your prepared remarks that you’re baking in the assumption for some gradual improvement throughout the year. Curious if you’re seeing signs of improvement now to give you that confidence or if this is more – just based on the worst task be over, because it’s been so challenging.

Hey, good morning, Jaeson. Great question. And I would say, the improvement is really a result of the actions we’re taking and our ability to qualify second sources and provide alternate components avenues for us here to be able to get our products to market. So I wouldn’t say things are improving in the marketplace as the frequency of supply challenges continue to occur weekly out there in that. But the teams are getting better at it. That’s really, what’s driving the confidence in the second half. Duncan, would you want to add anything?

Yes, I would agree that we aren’t necessarily seeing improvement. The situation is pretty much the same that we’ve been seeing the last few quarters. The impact, I would say, on our numbers as we – I know, we talked about roughly $1 million kind of impact a little bit higher than we’ve seen in prior quarters, really due to the additional impact of the acquisitions. So our acquisitions certainly were also impacted by the supply chain challenges that our legacy businesses have been dealing with for a number of quarters now. As Nick has indicated, the teams are certainly get things familiar with managing through that. We do assume some modest improvement in the second half. So there isn’t a change there. We’re not seeing that yet. The situation is much the same as of right now.

Okay. That’s really helpful color. And kind of just sticking with the supply chain topic, really impressive to see you guys, reaffirm that gross margin outlook for the year, just given all the challenges out there. But does that also bake in some potential friction of qualifying new suppliers?

Yes. Absolutely. That assumes – the activities that we’ve been seeing on that supply side, as we switch those suppliers has usually a cost impact on that. So that’s baked in and – but the volume that we’re picking up as we grow through the year here is driving improvements there, plus we laid out in the press release, a number of cost activities that we’re driving with dedicated cells for production supporting this silicon crystal growth technology in our induction heating facility. We’ve recently consolidated our Videology North America into our Mansfield environmental technologies facility up there So we are taking some actions to factor – to try to contain the cost side things there as well.

Okay, got it. And then just the last one from me, and I’ll jump back into queue. Semi revenue was up nicely sequentially. Just curious how you’re thinking about the end market just given the historical cyclicality that has plagued that industry. How far does visibility extend in that space for you guys?

Yes. Semi is still as we said at elevated levels, not at the historical highs we saw at the beginning of last year. And as we’ve highlighted, we do have the benefits of being at different parts of semi very front end, as well as back-end electronic test and back-end lab test, if you will. And so we’re seeing the different pieces the dynamics kind of all play out, where one might offset another, but still at a healthy level. As you know, lead times for products have gotten out there pretty far. So it gives us really good visibility of the projects that are coming in the second, third quarters out there that we feel confident that semi is going to maintain at a healthy level for us.

Yes. I mean, I would just add is, I think, we commented on, I mean, nice to see semi growing sequentially as you point out the dynamics within semi certainly interesting, our traditional back-end electronic test piece of the business. As projected has moderated a little bit, but we’ve been able to offset that with the activity on the front-end side, in particular, as well as some of the back-end lab activity. And I think that just kind of demonstrates, a little bit more diversity even within the semi space. And then I’d also add, it’s great to see that our non-semi business is, all kind of demonstrating kind of growth, which just proves the additional resiliency that we think we’re going to bring into the table by virtue of the acquisitions in particular and the additional markets that we’re now playing in.

Okay. Appreciate that color. Congrats on the strong results and outlook guys.

Thanks, Jaeson.

Thank you. The next question is coming from Robert Marcin of Penn Capital. Please go ahead.

Good morning guys. Thanks for taking my questions. Congratulations on the solid start. Hopefully, there’s sequential improvement the rest of the year. Can you guys talk – give us an update on the improvements in organic revenue growth for both the Ambrell and the semi businesses that Nick talked about, when he first arrived, the commentary then was low hanging fruit for significant market share gains, geographical gains more sales efforts. And do you feel that the organic revenue growth of both of those businesses today are positioned to be higher than they would’ve been a year or two ago? Thank you.

Yes. Hey, good morning, Robert, and thanks. Appreciate the questions. Relative to the low hanging fruit comments that I made when I came on board, specific in semi, I really pleased with the work our teams have done there to go, I would say, more from a farming mode to the hunting mode and establishing key account programs going after customers that we typically did not have in the past, likewise, increasing our portfolio through product innovation, an area that also was kind of starved in the past. So that work has really opened up new customers, new applications for us, and believe positions us from where we were before I joined out there. On the induction heating side and which also pertains to Videology or image capture. So our whole process technology space there, it’s all about lead generation and we’ve been investing in Marcom and direct sales and channel partner programs and OEM programs to really just drive qualified leads. And now with our efforts to expand our labs to help drive higher conversion of customers, when we do demonstrate our technology solutions. We feel really good about the organic growth that we’re going to see in the core businesses, as well as the acquisitions and the investments we’re making there.

Okay. The organic revenue growth is a key component of our 2025 target. So at some point, it needs to show up in the numbers in a significant double digit way. And I don’t think we’ve seen that yet, from what I believe the markets themselves have been doing, but looking forward to seeing that. Regarding M&A activity, do you think this year could include another deal or so? Or do you really want to get these three acquisitions completely humming before you will bite off another acquisition transaction? Thank you.

Yes. On the M&A front, as I mentioned, quite healthy our funnel strength, as we shared a little more details our Investor Day, but our activity remains strong. And I’ve mentioned it in the past, our objective really is to do at a greater frequency inorganic growth path at inTEST here and with a goal of completing one deal annually at least and last year we were successful with the three. But I do believe if our activity continues and we’re successful here, we could see another in the – later this year.

Stock market acting the way it has the evaluations are coming down. So don’t let your acquisition candidates forget that.

Absolutely right. Hopefully, you can see from the deals we’ve did, we’ve been pretty prudent about getting good multiples and finding companies that we believe we can drive tremendous value being part of inTEST. So yes, we won’t lose sight of that.

Yes. That you have. I mentioned your acquisition placed to sales ratios to another CFO recently, and he said, “you got them for free”. So anyway, he was very [indiscernible] He’s not working hard enough, because they have [indiscernible]

We’re going to show you we are looking harder here.

And then finally, anything on the – any updates on the opportunities in the service businesses that we’re trying to expand over the next year or two?

Yes. We’re making some progress on the service front there. In the first quarter, we landed on a few master supply agreements with customers that have larger installed base. They really don’t show up in the numbers immediately, as you know, these are multi-year contracts, and we believe those in as they go on that. But the teams are focused on driving service growth, driving greater customer satisfaction with after sales support. And I do believe also our acquisition with Acculogic and their test programming services business that they have provides us an opportunity to do more on the service front that other parts of the company can leverage. So Duncan, any other comments on service you want to add?

No. No, I think you captured it there. Certainly seeing some nice initial wins there, but still plenty of opportunity.

All right. Thank you. And then one final one just quickly, not for you, but are your customers, customers factories expansion plans on schedule to do the fabs that have been announced, seem to be on schedule. I’m hearing that there’s not insignificant delays in the factories, the build out to the fabs.

Yes. Yes, as you know, we’re more on the backend test side of things. And so, but what we hear is that, that progress is continuing on the front end space, which will eventually drive more back end demand as these get established in that. And so yes, obviously COVID lockdowns in China, everything has kind of extended lead times on things, but these not like anyone’s pulling the plug, they’re just delaying things weeks or what have you out there. So but we feel good about what semi holds for us in the future here and really excited about our – this shift from silicon to silicon carbide is really creating some nice opportunities for us on the front end.

Thank you.

Thanks, Robert.

[Operator Instructions] The next question is coming from Peter Wright of Intro-Act. Please go ahead.

Great. Good morning, guys. Thank you for taking my question. Congratulations on the amazing transformation and execution. Nick, since you’ve built the team around you to do what you’ve done.

Thanks, Peter. Yes. Now excited about the how the year’s shaping up and where the company’s heading.

So I have a couple questions for you. One, near-term, one long-term, and then Duncan, I have a couple for you as well. So Nick, on kind of the short-term, you’re looking for 20% half on half growth in embedded in your guidance. What do you think the primary drivers of that are and maybe the risks as well that, that we should be aware of because that’s very aggressive guidance for the year. So congratulations to that. And then longer-term, the second question is, looking at your 5-Point Strategy, you’re looking to double organically to the organic question. If you were to break it down, kind of breadth number of customer, depth penetrating each customer deeper, and the service business, how would you rank kind of the importance of those three things, breadth, depth, and service?

Well, maybe I’ll let Duncan address the first part of that. And then I’ll comment on the 5-Point Strategy.

The first part being in terms of the year. And yes, I mean, looking at the year, I think as we talked about in the initial remarks, I mean demand – the demand side has been strong. Continues to be strong. Our backlog is at record levels. So we certainly have – we have the backlog there to give us a fair degree of confidence with respect to the next kind of quarter or so. So the demand picture that the teams are seeing out there is also strong. That top line is the biggest kind of driver obviously of the growth. So I think it’s as simple as that really Peter in terms of the short-term.

Great. And then on the 5-Point Strategy, breadth, depth, and service are all key parts of our strategy. I hesitant to say one’s more important than the other. We want to obviously expand our customer base, which we’re doing to reach more customers. We’re getting a larger share of our customer’s wallets as we go deeper in them. And so the teams are actively working both fronts there. And then as we commented our service, activities and programs are growing and will drive greater customer satisfaction to retain customers as we go forward here. And I don’t want to miss out on leave out innovation and talent both are also critical pieces of our 5-Point Strategy and really pleased about the progress we’re making on those fronts as well. So yes, it is a multi-pronged strategy with each piece being, I would say equally important to us.

And I just want to – this is Deb. I just want to throw in here too, just for clarification. I think I heard you say double organically, and that is not the goal. It does that doubling includes acquisitions.

Correct. Yes. Did not catch up on – catch that, but yes, our doubling of the business includes a certain amount of acquisitions by 2025, which we discussed.

Fantastic. But the – fantastic. The couple other clarifications, just a easy one on the guidance, the $10.9 million to $11.2 million. Great job on the G&A bringing that down almost 10% quarter-on-quarter. My question is that, that guidance in average of all four quarters or guidance kind of going forward from here.

I would say it reflects the next three quarters, and I would look at it as it steps up very slightly Q2 through Q4 is a bigger step up Q1 to Q2 because of for example, merit increases being a bit a component of that. But that range, I would expect to step up to Q3 through Q4 with the investments we’re making to drive growth there, I mean is on top of the merit, we’re – plans and as we bring resources on to get more sales coverage and improve our marketing to drive more engineering development, et cetera, et cetera. So that that’s also a piece of what’s driving it in the outer quarters.

So it’s almost, it’s selling, that there’s really no growth in the fixed portion G&A 5-ish a quarter is a good number on the G&A side.

Not dramatically, no. We’re looking to – yes, we’ll continue to make modest head count investments in selling, engineering, areas like that, where we need to do that in order to continue do the growth trajectory.

Fantastic. And very last question, free cash flow in 2022, any thoughts there?

I would expect, so cash was obviously weak in Q1, given the timing of bonus payments, certain tax payments, things like that. I’d expect us to be generating cash throughout the rest of the year. We haven’t kind of thrown a cash number out there, but I would expect looking at our adjusted EBITDA as a liquidity measure and the general kind of cash cycle that you see from the business that cash will start growing again through the rest of the year, even with the – we are paying down debt around $1 million a quarter. But I would expect to see our cash balances grow as we get to the end of the year. Absolutely.

Wonderful. Thank you, guys.

Thanks, Peter.

Thank you. [Operator Instructions] Thank you. Our next question is coming from George Melas of MKH Management. Please go ahead.

Good morning, gentlemen. Good job on a good start to the year and also thank you very much for the new reporting vision into the company. I think it’s going to help us understand the business a lot better, so very much appreciate that.

Hey, good morning, George. Thanks a lot. And yes, no, we’re pleased to be able to share a bit more visibility because this is really how we’re running the business. So I think it’s important that you guys see that.

That’s great. Yes. You guys noted that the acquisition contributed roughly $4 million in revenue during the quarter. Is there a way to give us some sense of what they contributed to the gross margin and also to the income? Did they contribute to the – this divisional operation income or were they – were there a slight distracter from that and do you expect some improvement during the rest of the year?

Yes. I mean, let me give you a little bit of color on that. Yes, I think we talked about the acquisitions being accretive to the year as a whole. And certainly, we believe that to be the case, I would say in Q1 at $4 million, which is about $16 million annualized, I mean that’s kind of below the kind of run rate that, that we’re ultimately expecting to see from the acquisitions. So if you look at it that way and work through the mechanics there, I would say that they certainly were a little bit dilutive to margins in Q1. And I think again, we kind of alluded to that in the prepared remarks and in the release there. So yes, there were a drag. As we said, we do expect that to resolve and we do anticipate them ultimately being accretive by the end of the year.

Great. Thank you very much.

Thanks, George.

Thank you. At this time, I’d like to turn the floor back over to Mr. Grant for closing comments.

Thank you, Donna. Before we wrap up, I want to reinforce that the inTEST team is the secret to our success. And I thank all of our team members for supporting and driving our transformation. You can note on Slide 14, that we will be presenting at the Sidoti Virtual Micro Cap Conference next Wednesday. That presentation will also be webcast. We are also presenting at the Stifel Cross Sector Conference on June 8. So perhaps, we’ll see some of you there. In the meantime, we appreciate you joining us today on our call and for your interest in inTEST. Thank you and stay safe.

Ladies and gentlemen, thank you for your participation. This concludes today’s event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.