Q1 2020 Earnings Call
[music].
Please standby.
Welcome to Intest corporations, 2021st quarter financial results Conference call.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session at that time. If you have a question you will need to press star one on your push button phone.
As a reminder, this conference is being recorded in the replay will be accessible at www Dot Intest dotcom.
I'll now turn the call over to Intests Investor Relations consultant Lora guaranteed. Please go ahead.
Thank you Matt. Thank you for joining us for intestines, 2021st quarter financial results conference call with US today, Jim Pelrin into President and CEO and heat rate and Treasurer, and Chief Financial Officer, Jim will PGW, the cordis highlights as well as current business trend.
You will then review into detailed financial results for the quarter and discuss guidance for the 2022nd quarter. Well then have telephone question. If you've not yet received a copy of today's release a copy can be obtained on intense website www dot Intest Dotcom. In addition to our press release, we have issued supplement.
All information and advanced at this call, which can be downloaded to my website on the Investor Relations page. The supplemental information was offered to provide shareholders and analysts with additional time in detail. The analyzing our results in advance of the company's quarterly results conference call before we begin the formal remarks, the company's attorneys supplies, but this time.
This call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1990 fives.
These statements do not convey historical information that relate to predicted or potential future events that are based upon managements current expectations.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. In addition to the factors mentioned in our press release, such risks and uncertainties include but are not limited to the impact of the Cook at 19 pandemic on our business liquidity financial condition results about three.
And including as a result of evolving public health requirements in response to depends on such a government mandated facility closures availability of employees supply chain and distribution constrain customers inability or if it's useful to accept product deliveries and the sufficiency of our current level of working capital to address the impact of the ERP.
And then.
To patients are the change in the market cycles in the semi market or other markets leases, including as a result, the cobot 19 pandemic changes in business conditions of general economic conditions, both domestically and globally. As a result of the covered 19 pandemic changes and the demand for semiconductors generally and as a result, with the cobot 19 pandemic.
The success of our strategy to diversify our business by entry markets outside of the 70 market the possibility of future acquisitions or dispositions and successful integration of any acquired operations the ability to bourbons or raise capital to find this major potential acquisition changes in the rates of anytime you're not capital expenditure by.
Our customers, including as a result of the coping 19 pandemic.
Aggressive product development program increases in raw material this application costs.
So theoretically hair products, including as a result at the coded 19 pending.
The other risks for factors set forth from time to time, they are actually see funding, including but not limited to our periodic reports on form 10-K, that's going to Q.
Any forward looking statements made by his test during this conference call is based only on information currently available to in test and fix the circumstances only adds up to date and that should have noted in his undertakes no obligation to update the information in this conference call to reflect events or circumstances. After the date hereof orchards like the appear.
And with anticipated or unanticipated events during todays call you don't make reference to non-GAAP financial measure.
We have provided additional information concerning these non-GAAP measures, including a reconciliation to the directly comparable GAAP measures in our press release, which is posted on the investor patients on the Investor page of our website and with that let me now turn the call relationship. Helen. Please go ahead Jim.
Thank you Laura.
Good morning covers joining us on today's conference call and also those listening online. We appreciate your interest and then test.
I hope all of you and your families are safe and healthy.
Before I discuss our financial results.
I'd like to say a few words about the Corona virus My response to this global pandemic.
The impact of Cobot 19 on our country industries and most importantly people has been dramatic and I want to Frank and commend all in test employees customers and supply chain partners would help keep our business operating during these challenging times.
Andrew Express our heartfelt concerns for all those who has been affected.
As we navigate the covert 19 endemic in recovery and pets is focused and aligned on three top priorities.
Safety business continuity and liquidity.
I want to touch on each of these three beginning first and foremost with safety.
While we after my responsibility to maintain our operations and continue to deliver important products I see an even greater responsibility to protect the health and safety of every intest employee.
We have been highly proactive in implementing workplace safe courage to protect our employees and ensure their health and wellbeing and are taking all precautions and adjusting operational norms to ensure the continued safety of our employees customers and business partners, while continuing to provide worldwide sales and service support.
Well over half of our employees are working from home and have been provided the tools and technology necessary to serve our customers and investors upon a secure basis, our manufacturing teams and the people who support them continue to work in our factories following world Health organization and C.D.C. recommended practices.
Yeah, well state and local directors. These safety precautions implemented in each of our facilities, though vital make it more difficult for our manufacturing folks to do their job.
Yes, they do everyday and they do them wealth.
Second I want to speak to how we are focused on business continuity intest corporate offices and all business units are open and operating and have been deemed critical in the central business operations.
Under the various government covert 19 mandates.
We are using all for public safety practices to project or employees, while supporting the critical needs of our customers across the board the products, we manufacture play a critical role in helping in the nation withstand the virus as well as rebuilding our economy in the coming months.
Umbro induction heating tools are used for the manufacturer of critical and 95 face masks BMS products are being used to test semiconductor devices that will ultimately be used in such things as ventilators another health related tools.
I guess is supporting a variety of critical applications in essential industries, such as satellite industry peaked in communications open and defense, we ride TSS sole source provider.
Specialized product for several important military programs and of course semiconductor test.
Each one of our businesses has a final job to do and they continue to design manufacture and deliver their products. During this crisis, our supply chain is holding up well and while we have had to make some shifts on sourcing certain items were Fortunately, we've been able to continue operations without any major disruptions.
And lastly.
As to shorten liquidity, we took some of the central steps during the quarter each of which has helped us be more certain of our future and add to our confidence that we can meet our financial obligations as we operate each business.
Sure of our customers during the nation's recovery in addition to securing a new working line of cap credit we continue to stress disciplined cost management.
On another note as you will see in today's press release.
We have returned the 2.8 million dollar ppt loan, which we get qualified for when we first considers a loans we carefully reviewed our financial condition in the economic impact and uncertainty caused by the CRO virus pandemic at that time, we determine the funds where necessary to maintain our ongoing operations in accordance with a tour.
Terms and conditions of carriers out.
We apply for loans in good faith.
After we entered into the loans the S.P.A. in numerous department of Treasury announced changes and guidance and statements.
In light of the new guidance, we repaid the loans in fall.
As we go forward, we are evaluating all new information daily to ensure we are positioned to make the best decisions for our employees in our businesses.
I know that's a lot to digestion and if it's been stressful it's been a stressful time amidst a rapidly changing environment, but it's critical for our investors to understand.
So now let me turn to our business review for the first quarter of 2020.
Despite uncertain business conditions stemming from covert 19, Q1 has shown an uptick in demand with Q1 consolidated bookings or $13.8 million, a 24% increase over Q4, we had a positive book to bill It and are getting a good mix of orders across all divisions and our thermal division the pickup was led by saying.
Looking at the front end products BMS orders increased quarter over quarter at an even higher rate somewhat reflecting the Q4 softness.
Turning to shipments Q1 consolidated revenues of $11.2 million decreased 18% sequentially as we had expected due to the soft Q4 bookings, reflecting continued had headwinds in the analog mixed signal production test sector.
Breaking down overall revenues semi revenues for the quarter were $5 million, representing 45% of overall revenues. The sequential decline in semi revenues was also largely attributable to the week semi bookings reported in Q4 <unk>.
In Q1, multi market revenues were $6.2 million or 55% of revenue.
Multi market revenues were predominantly driven by industrial and Mil Aero markets as we've noted in the past.
Our ultimate goal is to grow multi market business to reduce the impact of the volatility that is inherent in SMB market.
Let's now turn to our true operating segments, beginning with thermal which consists of two businesses umbrella and I too yes.
You'll recall that thermal is responsible for all multimarket revenue as well as important revenue from semiconductor front end manufacturing and Bakken test.
You want thermal bookings increased 21% sequentially to $10.5 million and included a number of large orders in the quarter thermal Q1, net revenues decreased 70% to $9.3 million due in part to delays in the plan shipments to areas that had been affected by the chroma bars.
A major driver now thermal business is the semiconductor arena, where we continue to see important orders in wafer deposition and silicon carbide crystal growth rounding out key thermal market applications are mil Aero industrial which includes packaging automotive and medical these applications as well as Sami accounted for nearly.
80% of thermal bookings and over 70% of thermal revenues.
I want to highlight a few interesting developments during the quarter thats demonstrate our expanding ability to quickly respond with innovative products.
And then application for our firm from Onyx cryogenic progress Chiller product, we provided a custom chiller to an OEM for use in the industry's first turnkey closed loop ethanol extraction system optimized for CBD extraction.
Umbrella solutions latch resources were expanded and scope and precision and now our for a broader geographical reach with state of the laboratory equipment to deliver innovative in effect of heating solutions for the most challenging applications. Our applications laboratory facilities are located in Rochester, New York, Angola, when in the Netherlands, and now a third.
Location in Fremont, California.
And we stepped up our application support of a key medical customer who is aggressively ramping their capacity to produce and 95 covert 19 masks.
So we continue to focus on applications within our thermal segment that advance our technical capabilities and diversification.
Now, let's turn to even this product segment, which predominantly search production test for analog and mixed signal semiconductor applications.
Q1, M.S. bookings were increased 33% sequentially to $3.3 million in Fms revenues were $1.9 million were down 47% sequentially.
As expected Dms bookings were slow at the start at the quarter, but picked up considerably beginning mid quarter, even in the face to the continued macro economic pressures, which were compounded by the corporate 19 related slowdown further a major supplier to consumer electronics placed a docking interface order for continued ramp in their power management.
Products.
Now let me close here with a couple of comments and then handoff to queue for detailed operating numbers overall, despite the challenge over the last months, we're still seeing a diverse set of end applications right around business growth confirming our multi market strategy.
On a macro basis the uncertainty so by covert 19 has led to industry forecast any signals that are mixed at best.
And this new whenever changing landscape, it's hard to know what the future holes. The reality is no one knows exactly what will happen Nash and that can make developing scenarios for guidance more challenging for in test we remain engaged with our entire customer base, most of whom continue to place orders and as usual we are designing.
Manufacturing and shipping products to meet their needs. Our standard lead times are intact and our team is prepared to provide the responsive assistance our customers require including an ample supply of spare parts ready for immediate shipment.
We are prepared to help develop any new applications our customers require.
Now I'd like to address M&A.
We featured M&A as an integral part of our long term growth strategy, but economic conditions through to covert 19 hat.
Fine necessity, taking precedence.
And this time of uncertainty and scarce resources, we have paused, our M&A activity until such time is economic headwinds subside.
It of course remains an important component of our growth strategy, but as we laid out in the big beginning of this call. Our primary focus is on safety continuing to meet our customer requirements and assuring continuity and liquidity and all of our businesses.
While there is still considerable end market uncertainty now compounded by the covert 19 situation the diversification of our customer base remains the anchor of our business and we believe our long term fundamentals remain intact I'm extremely proud of each and every intest employee individually and as an organization.
We have reason to the share challenges this pandemic has unleashed.
We continue to drive forward as we always do partnering with our customers to advance their technology Roadmaps.
And with resilience in efficiency, we're positioning the company for success as this crisis Abates, and lastly, I'd like to express our profound thanks to the numerous people on the front lines, who are carrying for those were taking meal and who are working to keep our economy running as well as to those working countless hours to provide much needed equipment just.
Sort them.
Heros all.
And with that I'd like to turn the call over to Hugh.
Thanks, Jim as we noted earlier, our first quarter net revenue was at the lower end of our guidance range and came in at $11.2 million down 18% sequentially.
First quarter gross margin of 43% was also at the lower end of our guidance range and was down from 48% gross margin, we reported for the fourth quarter, reflecting a less favorable absorption of fixed production costs reduced revenue levels, which was partially offset by improved component material costs, which declined from 30.
1.5% in Q4 to 30.3% in Q1.
Selling expense grew by 5% sequentially to $2.1 million for the first quarter driven by increased compensation expense and commission, partially offset by reduced advertising and warranty costs.
The higher sales Commission expense was primarily driven by seasonal related increases as well as new sales staff added in the first quarter and the increased commission expense.
With the result of an expansion of Ambrose sales representative network.
Engineering and product development expense increased 7% sequentially to $1.3 million, primarily as a result of seasonal related increased compensation expense, partially offset by decreased patent legal costs.
General and administrative expense grew 7% sequentially to $2.9 million driven by increased professional fees and seasonal related compensation expense, partially offset by reductions and stock based compensation expense and travel.
Our loss for the first quarter drove our accrual of a $250000 income tax benefit, which was which reflected an effective tax rate of 18%.
This compares to a $76000 income tax benefit booked in the fourth quarter, which reflected an effective tax rate of minus 12%.
The income tax benefit booked in the fourth quarter was the result of reconciling the impact of the foreign derived income.
Intangible income deduction allowed under the new income tax law, which benefits companies that manufacturer in the U.S. and have significant overseas sales as well as a book to tax return adjustment.
We now expect that our effective tax rate will range from 16% to 17% throughout the balance of 2020 and at the higher effective tax rate in the first quarter was driven by an additional book to tax return adjustment.
For the quarter, we reported a net loss of $1.1 million or 11 cents per diluted share compared to net earnings of $724000 or seven cents per diluted share foot fourth quarter.
Diluted average shares outstanding were $10.2 million for the first quarter of 2020.
During the first quarter, we issued 58160 shares of restricted stock and repurchased 13767 shares under our stock repurchase plan.
Which commenced on.
Tempur 18th 2019.
In response to concerns over covered 19, we suspended our stock repurchase plan on March Threerd 2020, and through the state we had repurchased 243075 shares at a total cost of $1.2 million.
EBITDA was negative $927000 for the first quarter compared to $1.1 million for the fourth quarter.
Consolidated head count at March 30, Onest was 205, a reduction of one from the level. We had at December 30 Onest.
I'll now turn to our balance sheet.
Cash and cash equivalents declined by $294000 sequentially to $7.3 million and cash flow used in operations was $119000 for the first quarter.
The decrease in cash was primarily driven by our operating loss in the first quarter.
We currently expect cash and cash equivalents to increase throughout 2020 and as of today cash stands at 6.9 million.
Accounts receivable decreased $1.2 million during the first quarter and was at $8.1 million at March 30, Onest with 65 DBSO up from 63 at December 30 Onest.
Inventories increased $538000 were 8% sequentially and was primarily driven.
The increase was primarily driven by the ever mentioned customer shipment delays caused by cobot 19.
Our backlog at the end of March was $8.1 million up from $5.5 million at December 30, Onest, reflecting the growth in orders in the first quarter.
As to guidance as noted in our earnings release, we continue to see uncertainty with regard to our customers ordering patterns stemming from responses to the Corona virus pandemic, which we're closely monitoring accordingly, we are providing a wider than usual guidance range and expect that net revenues for the second quarter ending June thirtyth twentytwenty will be in the range of.
$11.5 million to $13 million and that our financial results will range from a net loss per diluted share of nine cents to breakeven.
On a GAAP basis, our financial results will range from an adjusted net loss per share of six cents to net earnings of three cents and we currently expect our gross margin for the second quarter will range from 44% to 46%.
Operator that concludes our formal remarks, we can now take questions.
Thank you as a reminder for those on the phone. It is star one if you'd like to ask a question at this time.
My first question will come from Jason Schmidt with Lake Street.
Hey, guys. Thanks for taking my questions just wanted to start with seeing if you could provide some color on what you saw from an order momentum standpoint, and linear video borders in April and no. Sir the first part of May.
Okay.
Yes, Jason.
Orders were for the quarter.
I wouldn't call. It linear we actually fell a bit of baby at peak in the middle of the quarter. This particular quarter on a consolidated basis within the business units, though we did see some different activity for instance, yeah Thats had a more backend loaded quarter.
Well, I Ts and Enbrel had a quarter that was more evenly spaced five on a consolidated basis.
If you looked at the bookings pattern. It was 4.25 0.2, and then 4.4 on a monthly basis.
Okay. That's helpful. And then apologize if I missed it but are you guys seeing any component shortages or supply constraints anywhere.
No, it's a matter as well as Jim mentioned had my stock apologies.
Yes, Jason I'll I'll insist they happen to answer that.
We have we had some some components that we were sourcing from China in particular and back when in the January February timeframe, when when the Covance 19 erupted in China, we quickly change to non Chinese sources for those components.
So there was a slight delay for short period of time, but everything is pretty much normal now.
No we're not actually <unk>, then has not been an issue.
We have had we've had some customers we haven't been able to ship to with the end of the quarter rest. We noted because they they're facilities were closed due to the Corona issue, but now we haven't seen any push back on pricing, we haven't seen anyone asking for a special pricing or.
Anywhere in any of our businesses that I'm aware of.
Okay, that's awful.
<unk>.
Thank you Jason.
And our next question will come from Theodore O'neill, which field Hills research.
Oh, Thanks, good morning.
Follow up to Jason's question here when you switch to a supplier that was not Chinese.
Did the AD that I assume the costs went up somewhat and second question is you you mentioned that you had lower advertising costs and a quarter is how to change and strategy or a covert related reduction and things like conferences.
Well all into the first part it as far as increase costs. Yeah. They there was a small incremental increasing cost, but but these components are a very small percentage of the cost of the product. So it's really a it it's it's in the mind, even on a gross margin basis.
And fear the second part of your question was related to G.N.A. I I apologize it cut off and I didn't hear right exactly sorry, you you mentioned the had lower advertising costs in the quarter. It knows when to get that to change on strategy are coping related reduction and things like conferencing.
It's really a cobin related strategy and reduction to conferences, you know week, we continue to move forward with our a traditional marketing methods, but but things such as conferences and and other area quite frankly, that's off materially is <unk> start showing up in our in our explanations is travel simply at this point because we can't jump on planes.
There wasn't as much of that scheduled in the first quarter, but there's significant about obviously in Q2 and you know when we'll be able to get back to that is unclear.
Thanks very much.
You're welcome.
Hmm.
In our next question will come from Dick Ryan was already in company.
Thank you.
Say G.M. on on the wider guidance for Q2, how when you handicapping Ah you to the vision multi <unk> what are your kind of put some tapes.
<unk> for those segments for cute too.
Well I I <unk> I, let me answer that <unk> more generally and say that we've gone into cute too with a much stronger backlog.
And and that that has given us confidence in our guidance and the backlog is across the board in both Sammy and multi market.
I think you said you have some delays and shipments in warm ask for that so how should that backlog flow into two to how much will shipping cute too.
Just about everything that was delayed because of Ah Ah Corona virus has already shipped in fact, I think there's one or two orders that are still pending so I I would expect that Ah all of the delayed or a little shit and q. too.
Okay.
The new Fremont facility, what markets are you kinda keying off of that new opening.
Well, there's there's a tremendous amount of industry has you know on the west coast in general, but we also happen to be right down the street from one of the major E.D. manufacturers and that doesn't hurt which is which has been quite active building to new factories.
And how you stay offering what's your head count they're gonna be over there.
Well, it's right now it staff with a single body, which is which is more than adequate because it's supported also from our.
Our our Rochester, New York facility.
[noise], but particularly in this time, where travel is restricted to wherever you can drive too it's.
This is an important tool for us.
Okay. So he did you say you Amanda the credit facility or what's care for refresh me on what the availability of <unk>.
We have seven and a half million dollars available under the credit facility. As you mentioned, we did repaid the $2.8 million in P.P.P. loans that we had borrowed as a result of changes in the Treasury Department guidance on those loans.
Okay. Thank you.
You're welcome.
[laughter].
Once again for those on the phone it is star ones do you like to ask a question at this time.
Yeah.
And with no further questions I'd like to turn the call back over to Mr. Tell run for any closing remarks.
Well. Thank you for your interest and then tested every one we appreciate your listening in if you are further questions don't hesitate to call me Hugh or Laura we look forward to update anyone our progress one one reporter results from the second quarter.
Everyone, Please stay safe and healthy.
Thank you.
Mm.
Once again that does conclude or coffee today. Thank you for your participation you may now disconnect.
[laughter].
Oh.