Good afternoon, ladies and gentlemen and welcome to the inTEST Corporation’s Second Quarter Fiscal Year 2022 Financial Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions.] As a reminder, this conference is being recorded. I would now like to turn the call over to Deborah Pawlowski, Investor Relations. Please go ahead.

Thank you, and good afternoon, 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 second quarter 2022 financial results, which we released just after markets close today. If not, you can access the release as well as the slides that will accompany our conversation on our website at ir.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 accompany today’s release and in the slides. So, with that, if you will turn to Slide 3, I will turn it over to Nick to begin. Nick?

Thank you, Deb, and good afternoon, everyone. Thanks for joining us for our second quarter 2022 earnings report. The quarter played out better than we expected with both top and bottom line results exceeding our guidance. This was truly notable when you factor in ongoing supply chain constraints, transportation challenges and continued inflationary pressures the organization had to overcome. I would like to thank the entire inTEST team for delivering an outstanding quarter. We continue to advance our 5-Point strategy, and we are executing well. Revenue grew 36% year-over-year and 23% sequentially to a record level of $29.6 million. Organically, revenue grew at an impressive 12% year-over-year. These strong results continue to show increasing demand for our innovative and differentiated solutions. Acquisitions contributed $5.2 million in revenue in the quarter with demand across most of our end-markets. Double-digit organic growth reflected our increasing presence in Automotive/EV and our Industrial markets. We believe that our diversification efforts around our targeted growth markets are working well. This is demonstrated by our strong sales of our leading Test and Process Solutions to the automotive industry, including electric vehicles. In fact, compared with the prior year period, we saw sales for Automotive quadrupled to $3.6 million, of which, 57% was related to the EV market. Sales to the Industrial market were also quite strong, up 92% to $2.9 million and sales to the Life Sciences market doubled to $1.2 million. As we have been communicating, our diversification within Semi is also providing benefits. Both sales and orders for our innovative solutions for the front-end space, specifically in silicon carbide crystal growth applications were up year-over-year and sequentially. This is important as these applications are a relatively new space for us with our Induction Heating Solutions. For our back-end Semi solutions business, sales were lower…

Thank you, Nick. Starting on Slide 4, we provide some detail regarding our top line. As Nick indicated, revenue for the second quarter 2022 was $29.6 million, a 36% increase over the same period last year and above our guidance of $27 million to $29 million. Compared with the prior year period, revenue growth of $7.8 million was comprised of $5.2 million from the acquisitions we made in the fourth quarter last year and $2.6 million from the balance of inTEST operations, which is 12% organic revenue growth. Both organic revenue and acquisitions contributed to growth in our Industrial, Automotive, including EV and Other markets. The acquisitions were the main contributor to growth in the Life Sciences and Security markets. This broadening contribution is indicative of the company’s strategy to diversify and expand revenue with new customers and from new markets. Sales to the Semi industry were strong with 4.7% growth versus the prior year period and 22.5% sequentially. Within Semi, shipments to front-end applications, including production of silicon carbide crystal growth were up 136% over both periods as we continue to deliver into strong demand. Back-end Semi sales were down 1.5% sequentially. Overall, the level of supply and logistics challenges in the second quarter were similar to our experiences in the first quarter, and we estimate these issues impacted Q2 2022 revenue negatively by approximately $1 million. I would reiterate Nick’s comments that even though the global environment remains challenging, our teams continue to do an outstanding job working through the issues, finding alternative sources and aligning operations to best meet customer expectations. In addition to Semi sales, Industrial, Automotive, Life Sciences, Security and Other markets saw a healthy sequential growth. Moving to Slide 5. Our second quarter gross margin, 45.8% was comparable with the first quarter of 2022,…

Thanks, Duncan. Slide 9 highlights our orders and backlog performance. Overall, demand for our products and solutions remain very strong with a second quarter book-to-bill of 1.4. In the first half of 2022, our businesses continued to add new customers with a focus on both end users and OEMs. Orders for the second quarter of $40.5 million were up 61% when compared with the year ago period and 62% compared with the first quarter of 2022. As mentioned earlier, this was a record level for inTEST, which shattered the previous record by 33%. What I believe makes it even more remarkable is that, the previous record in the fourth quarter of 2021 included a single $10 million order for our Induction Heating Solutions to be used in silicon carbide growth applications. This quarter’s record was much more diversified and achieved with the largest single order being just around $3 million. Year-over-year, demand was strong across all of our end-markets, especially in Semi, Industrial and Life Sciences. Sequentially, orders grew across all markets, except Industrial, which was down primarily due to timing of orders that we expect to receive in the second half of this year. Orders for the Semi market were up 62% year-over-year to $26.7 million. One-third of this total was related to front-end applications, which more than doubled sequentially. Back-end orders were exceptionally strong, achieving 26% year-over-year growth and was up 78% sequentially. Our pipeline on Semi business opportunities remain very active with more front-end orders expected from our Induction Heating Solutions used in silicon carbide crystal growth applications as well as our back-end solutions as our new innovative products continue to gain traction. We are really enthused about diversifying our Semi business beyond its historical reliance on back-end Test. Our backlog at quarter end reached another record…

Thank you very much, Mr. Grant. Hello, everyone. My name is Dave, and I will be your Q&A moderator for today. [Operator Instructions.] Our first question will come from the line of Jaeson Schmidt with Lake Street. Your line is open.

Hey, guys. Thanks for taking my questions and congrats on the continued execution, really impressive in the challenging environment. You know just want to start with sort of the supply chain. I know you mentioned $1 million in the revenue, you couldn’t ship in Q2. Did that primarily fall in one end-market? Or was that pretty spread out across each application?

Yeah. Hey, Jaeson and thanks for your question there. That $1 million was pretty diverse across the businesses. I think in Q2, we talked about it being more heavily weighted towards the acquisitions. In this case, it’s really a collective number across the five businesses with product that either sitting on the dock didn’t get out or we were expecting the components to get in that we could have turned that to get it out. Duncan, any further color on that?

Yeah. No, no, exactly. It’s spread across the businesses, supply chain challenges across all of our portfolio.

Okay. No, that’s really helpful. And then just following up on that, I know you did mention to see some incremental improvement in the backdrop here in the second half of the year. I mean are you seeing tangible signs of this? Or is it more just the expectation that things have had to have bottomed earlier this year?

Yeah. No, I’d say it’s still you know one component after another, but we have done really a good job of building inventory. You probably see that in our working capital numbers there. So, we believe we’re well positioned. I mean, we grew the company $5.5 million in quarter-over-quarter. So, we did a nice job really executing and you know we think with the investments we made, new suppliers on board, you know we’re well positioned to deliver the second half.

Yeah. I mean I think as we’ve said before, we are managing the situation – we continue to manage the situation better. We are just more and more experienced with dealing with the supply chain challenges in the world, if it moderates a little bit great, but we’re just able to deal with it.

Okay. And then just the last one for me, and I’ll jump back into queue. Some really nice traction in that Auto/EV segment. Is that really being driven by one or two customers? Or is that strength pretty broad-based?

Yeah. It’s pretty broad-based. And as you know, with the acquisition of Acculogic, we also expanded our presence in that Auto/EV space. So, we’re leveraging their installed base to you know help us drive further growth.

Okay, got it. Thanks a lot, guys.

All right. Thanks, Jason.

[Operator Instructions.] Our next question comes from the line of Peter Wright with Intro-act. Your line is open.

Great. Thank you for taking my question and congratulations on the wonderful results. A couple of questions. The first one is on the comment that Semi profits you know are, I guess, leading the stack from an end-market. Can you help us understand why you think that is? Is it just because it’s more mature? Is it the solution that you’re providing there? And really, the heart of the question is, is the same trajectory of profit improvement going to be happening in other segments and kind of how should we think of that? My second question is, if you look at the upside versus expectations in the second half, is it the same customers, maybe [depth] [ph] you know placing bigger orders with you than kind of you expected? Or is it more kind of on the breadth side, more investors coming to the table? And you know if there’s any quantification you can help us think about there that would be helpful.

Sure. Peter, hey, good to talk to you. Thanks for your question there. On the Semi profit side, our back-end is, you know as you know the heritage of the company is where we’re well established in the back-end Test space. But really what’s driving the high margins is the engineered aspects to it relative to some of more of our standard say, platform products like the Induction Heating with the EASYHEATs and the EKOHEATs and what have you. So, these things are very customized to end-user needs for specific tooling and – chips that need to be measured in that. So you know we – due to that, we have the ability to get to higher margins on those type products. Not to say that we aren’t capturing you know value-add and our other opportunities. Believe we are, it’s just at a different level. Relative to the second half and the growth, you know – and really pleased with the broad-based activity that’s going on out there. Each of our markets grew from an orders perspective in Q2. And it really is, as I commented on the call, it’s not one big order. It’s a lot of orders you know with the largest being $3 million in the quarter and that. So, we’re very enthused about the number of customers, our pipelines, our activity that’s going on out there that – that’s going to drive that second half.

That’s wonderful. And Duncan, maybe just one last one for you. You guys did allude to the ramp in inventory and AR about $10 million, I guess, in the first half. Any guidance on free cash flow in the second half? And do you think that working capital – how should we think of that? Is that kind of the steady state that you’re at? Do you think that’s going to reverse in the second half? How should we be thinking that?

Yeah. I mean clearly, we ran working capital in the first half. I mean, two main drivers, obviously fueling the growth, you know as you can see, growing from $24 million to $29 million. So you know partly fueling that and also helping manage supply chain. We have invested in working capital intentionally to help manage some of the supply chain challenges, you know which the teams, as I’ve said, are dealing with kind of really well. You know so that certainly did eat into cash. We do expect that to turn around and be operating cash positive in the second half of the year.

Great. Thank you, guys.

Thanks –

Absolutely. Thanks, Peter.

[Operator Instructions.] And there are no further questions pending at present time. I’ll turn the call back to Nick Grant, President and CEO, for closing remarks. Please go ahead, sir.

Thank you, Dave. In summary, we’re making excellent progress with the execution of our 5-Point strategy, and I’m grateful to the entire inTEST team for their resiliency and persistence to exceed customer expectations. It is this dedication that enabled us to deliver our strong first half results. You can note on Slide 14, that we will be presenting at the Midwest IDEAS Conference on August 24th, and as well as presenting at the Needham Semiconductor & SemiCap Conference on August 25th. So perhaps we’ll see some of you there. We really appreciate you taking the time to join us on our call today and your interest in inTEST. Thank you all, and stay safe.