Q2 2020 inTest Corp Earnings Call
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In addition to our press release, we have issues supplemental information in advance of this call, which can be downloaded from our website on the Investor Relations page. The supplemental information is offered to provide shareholders and analysts with additional time in detail for analyzing our results in advance of the company's quarterly results conference call before.
Before we begin the formal remarks, the company's attorneys advise that this conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These statements do not convey historical information, but relate to predicted or potential future events that are based upon 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 cobot 19 pandemic on our business liquidity financial condition results of.
Operations, including as a result of evolving public health requirements in response, the pandemics such as government mandated facility closures availability of employees supply chain and distribution interruptions customers inability or refusal to accept product deliveries and the sufficiency of our current level of working capital to address.
Our cash requirements.
[noise] indications of a change in the market cycles in the semi market or other markets, we serve including as a result of the cobot 19 pandemic changes in business conditions in general economic conditions, both domestically and globally changes in the demand for semiconductors generally and as a result, with the cobot 19 pandemic.
Success of our strategy to diversify our business by entering markets outside the semi market the possibility of future acquisitions or dispositions and the successful integration of any acquired operations, our ability to borrow funds or raise capital to finance potential acquisition changes in the rates and timing of capital expenditures by our customers.
Including as a result of the Cobot 19 pandemic successive product development program increases in raw material and fabrication costs associated with our products and other risk factors set forth from time to time in our Securities and Exchange Commission filings, including but not limited to our annual report on form 10-K for the year ended December 30.
The first 2019, then quarterly report on form 10-Q for the quarter ended March 30, Onest 2020, and subsequent quarterly reports on form 10-Q.
Any forward looking statements made by Intest. During this conference call is based only on information currently available to us and speaks to circumstances only as of the date on what your dismayed we undertake no obligation to update the information in this press release to reflect events or circumstances. After the date hereof or to reflect the occurrence of anticipated or unanticipated event.
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During today's call, we will make reference to non-GAAP financial measures.
We have provided additional information concerning these non-GAAP measures, including a reconciliation to the directly comparable GAAP measure in our press release, which is posted on the investor page of our website www dot in pest dotcom.
And lastly, we will we will be participating in the following virtual investor conferences in September.
LD micro Collier and company, formerly Dougherty and Lake Street capital markets and with that let me now turn the call over the Hugh Regan. Please go ahead view.
Thank you Laura.
And welcome everyone and thank you for joining us for our second quarter 2020 financial results Conference call first of all I Hope all of you when your families are healthy and safe.
Before we go into detail of our normal quarterly results review I'd first like to provide you with a brief update on our response to covert 19, and how we are maintaining through it.
And then I want to give you some information with respect to the transition underway in our CEO office.
On our Q1 results call, we laid out our three top priorities as they pertain to covert 19 pandemic in recovery as being safety continuing to meet our customer requirements and a shrink continuity and liquidity and all of our businesses and that has not changed these remain the greatest areas of importance as we continue to navigate this.
Challenging environment and provide the critical support our customers require to meet their technical roadmaps.
Operations capabilities are largely back to normal and our supply chain is holding up well.
And while we've continued to make some shifts on sourcing certain items here and there the demand for our products and the long term drivers of our growth has not abated and we fortunately not encountered any major disruptions. We have our strong covered 19 safety measures in place at all of our sites worldwide and our operating with special measures in place.
To ensure the safety of all of our employees and to reduce the risk of operational disruption.
We are taking a conservative phased and site specific approach to returning our team members onsite prioritizing our manufacturing workforce and engineering teams.
Until this pandemic is behind US we will be vigilant to ensure the safety of our employees, while providing the best possible customer support.
And now I'd like to turn to our CEO transition.
We're very pleased to announce that Richard grants junior who prefers to go by Nick has been appointed a new CEO and president of the company and we'd be joining us on August 24.
We'll also be joining our board of directors, replacing our prior president and CEO, Jim Pelrin, who has resigned from his executive roles, but the company as well as the board of directors effective today, but we will but he will continue to advise the company in the transition as a consultant.
Nick comes to us with quite impressive resume with over three years with over three decades of experience and executive management roles within a number of well respected international industrial products companies.
He was the outstanding candidate from a number of potentials that were identified in the course of the board's conducting a national executive search over the last months.
Rather than spend a lot of time on this evenings call reviewing the details of his career I will refer you to our press release and merely say that I believe you will find him to be quite capable and charismatic with an outstanding track record when it comes to executive management skills, as well as product market and customer development.
He has been through many acquisitions and transitions and the board and I are quite excited to have him joining us as the company's new visionary leader I.
I would like to thank Jim for the opportunity to have worked with him and acknowledge has long service 19 years to the company. Most recently as our CEO since 2018.
Now I'd like to move to a discussion our Afirma financial performance for the second quarter ended June Thirtyth.
Our results for the second quarter exceeded expectations, resulting in both revenue and profitability growth and while the overall environment continues to be challenging largely in light of co bid. We are seeing positive signs in the market. We serve the markets, we serve particularly as they relate to semiconductor manufacturers in fact each of our.
Three business units have reported an uptick in semi activity.
Technological advances in electric vehicles are developing at a very fast pace and our SMB business is growing steadily along with increased demand in the market, we booked $873000 TV manufacturers during the second quarter, bringing our year to date total to just over $1 million.
The defense Aerospace market continued to be it second largest market for both bookings and revenues in Q2 and is showing no signs of softening strength in defense aerospace during the quarter horse bolsters, all three itps brands Temptronic segment and Thermonics.
Demand for our Thermonics cryogenic process Chillers continues on a very strong level with Q2 bookings of $790000, bringing the year to date totaled to 1.56 million.
While in the past we've highlighted the strategic advancements of our Chillers are making in the cannabis market. Our bookings this quarter were 100% defense aerospace application.
Okay. That's what the operator, we are unable to hear you at that.
Our telephone audience. Please standby.
Okay.
Correct.
Operator can you hear me.
Hi.
Thank you.
A good part of Vms as growth in the second quarter has been in supportive power management devices for the mobile handset market and the home computing space for many people are working we're studying from home during the Cobiz 19 pandemic.
We are seeing that companies in general are realizing they can remain in production mode in a cobot restricted world specifically for Intest, our customers have a higher level of confidence than they did at the onset of a pandemic in their respective abilities to plan and execute and there for their need for more equipment from us as the pandemic unfolds.
Due to consolidated bookings of $13.9 million were consistent with a $13.8 million reported in the first quarter and order flow has strengthened especially in the analog mixed signal production test sector, which you will see reflected in our guidance for the third quarter.
For the second quarter semi bookings increased 9% sequentially to $7.3 million, while multimarket bookings for the same period decreased 7% to $6.6 million.
On a long term basis, a diverse set of end applications is driving our business growth confirming our multi market strategy.
On a quarterly basis, the sequential decline in multimarket bookings was largely due to the fact that we had a very strong orders that came in at the ended the first quarter, which makes the comparison difficult if not less meaningful.
Well most of our manipulator customers have been essential and have remained open there are a number who are not places like fabricators integrators weld shops, and auto manufacturers, who were closed down during the quarter by mandate and we're not able to open for business, we're still well below normal business levels.
Q2, consolidated revenues of $13.3 million increased 18% sequentially and were 2% above our guidance and 10% above consensus largely fueled by the semi market, which is I. Just noted has increasingly showing strength.
Breaking down overall revenues semi revenues for the second quarter increased 37% sequentially to $6.9 million and Q2 multi market revenues increased by 3% to $6.4 million.
Multi market revenues were predominantly driven by industrial and defense Aerospace 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 the semi market.
Let's now turn to our two operating segments, beginning with thermal which consists of ambrielle and EPS.
Thermal is responsible for all multimarket revenue as well as important revenue from semiconductor front end manufacturing and back end test.
Despite the continued impacts of cobot 19 business activity was good and we enter Q3 with a stronger backlog with several key projects and ongoing orders that we expect will close in the third quarter.
Q2 thermal bookings of $10.4 million were relatively consistent with the $10.5 million reported in Q1 and thermal net revenues for the quarter of $9.5 million were up 2% compared with the $9.3 million reported in Q1.
The pandemic has limited our ability to provide service to certain of our customers, which typically has contributed approximately 8% to 10% of consolidated revenues.
This is due to travel restrictions imposed during the quarter along with customers prohibiting on site visits. The net result of this is reduced service revenue, which in turn has negatively impacted our gross margins.
Compared to the year ago period consolidated service revenues are down 29%.
Semiconductors remain an important driver of our thermal business driven by continued important orders in wafer deposition and silicon carbide crystal growth.
Keith thermal market applications also include defense aerospace and industrial which includes packaging automotive and medical.
These applications as well as semi continue to account for the majority of business.
We continue to focused on advanced applications within our thermal segment, which are key to our long term growth drivers and advance our technical capabilities as well as diversification.
Now, let's turn to the HMS product segment, which predominantly service production test for analog and mixed signal semiconductor applications.
The semiconductor market has been much stronger recently with our SMS business, clearly, which are Vms business clearly reflects.
Q2, Dms bookings increased 6% sequentially to $3.5 million NMS revenues of $3.8 million were up 100% sequentially.
Our business model is one of our most significant strength and is based on identifying strategic opportunities and a wide array of markets in industries, and leveraging our technology and product suite to partner with our customers.
We provide them with the best technology for their application and to advance their technology Roadmaps all towards building a strong preferred vendor relationship.
One of the more noteworthy things we are seeing is the growth of our Thermonics chiller brand within our thermal segment. This business continues to gain momentum and is becoming exciting driver of future growth.
Organic growth of this nature requires commitment and perseverance, but we are excited by its potential.
We've talked quite a bit about the cannabis business related to chillers, but we believe the most important aspect is the broad demand that schiller's like induction heating tools command. They can be sold into a cross section of customers Oems and users and integrators and in addition to the cannabis market. We have a myriad of customers. We are actively engaged with.
Representing markets such as defense Aerospace as I noted earlier as well as semi and the broader industrial market as usual, we're precluded from giving specific details regarding customers, but we will keep you updated on our progress in this area.
As we noted last year relative to M&A uncertain economic conditions, along with scarce resources due to covert 19 have by necessity taken president over our long term growth strategy and we have not seen a change while our M&A strategy excuse me, while our M&A activity of course is an important component of our.
Our strategy there has been no activity in the second quarter.
I'll now turn to my detailed financial review.
Hi provided details of bookings and net revenues earlier in the call our second quarter gross margin of 46% came in at the high end of our guidance range and was up from the 43% gross margin we reported for the first quarter, reflecting a more favorable absorption of fixed production costs at higher revenue levels, which was.
That by increased component material costs, which grew from 30.3% in Q1 to 33.0% in Q2.
Fixed manufacturing costs decreased 3% or $82000 during this quarter due to reductions in operation staff.
Selling expense decreased by 14% sequentially to $1.8 million for the second quarter, driven primarily by reduced levels of travel as well as lower salary and benefit costs and to a lesser extent reduced spending on advertising and lower Commission expense.
Engineering and product development expense decreased 6% sequentially to $1.2 million, primarily as a result of decreased use of third party product development consultants as well as reduced patent legal costs.
General and administrative expense was $2.9 million for both the first and second quarters with reduced salary and benefit expense fully offset by increased professional fees and profit related bonus accruals.
We accrued income tax expense of $13000 in the second quarter, reflecting a 7% effective tax rate. This compares to a $250000 income tax benefit booked in the first quarter, which reflected an effective tax rate of 18%.
We expect that our effective tax rate will range from 15% to 17% through the balance of 2020.
The lower effective tax rate in the second quarter was driven by additional book to tax return adjustments.
For the second quarter, we reported earnings of $170000 or two cents per diluted share compared to a net loss of $1.1 million or 11 cents per diluted share for the first quarter.
Our second quarter earnings exceeded our EPS guidance by two cents and the consensus EPS estimates by eight cents per share.
Diluted average shares outstanding were 10.3 million for the second quarter.
During the second quarter, we issued 15840 shares of restricted stock and did not repurchase any shares.
EBITDA was $672000 for the second quarter compared to a negative $927000 for the first quarter.
Consolidated head count at June Thirtyth was 197, a reduction of eight or 4% from the level. We had at March 31.
I'll now turn to our balance sheet.
Cash and cash equivalents grew by $106000 sequentially to $7.4 million and cash flow provided by operations was $200000 for the second quarter.
We currently expect cash and cash equivalents to increase by year end and as of today cash stands at $6.5 million.
Accounts receivable increased by $1.4 million during the second quarter and was $9.5 million at June Thirtyth with 65, Dsos No change from where we were at March.
Inventories increased $210000 were 3% sequentially.
Our backlog at the end of June was $8.7 million up from $8.1 million at March 31.
As to guidance as noted in our earnings release for the third quarter, we're guiding up for both revenue and EPS, we expect that our net revenues for the quarter ending September Thirtyth two to 2020 will be in the range of $13.5 million to $14.5 million and that our GAAP financial results.
I will range from net earnings of one cents to six cents per diluted share on a non-GAAP basis. Our adjusted net earnings per diluted share will range from four cents to nine cents per diluted share and we currently expect our third quarter gross margin will range from 46% to 48%.
Our guidance is predicated on business trends, we're currently seeing.
Well as our expectations for the balance of the quarter. We are encouraged by the overall improvement in our orders and the tone from our customers and as I noted earlier I believe companies in general are realizing they can remain in production mode in a cobot restricted world, but there is still uncertainty related to the pandemic resurgence.
And we are being cautiously optimistic until we have a better sense of how it will all play out.
While there is still considerable end market uncertainty further compounded by the pandemic and the geopolitical uncertainty related to China to diversification of our customer base remains the anchor of our business and we believe our long term fundamentals remains firmly intact.
Finally, I would once again like to thank Jim Pelrin for his 19 years of dedicated service to Intest Corporation and wish him well.
And we look forward to welcoming our new incoming CEO Nick brand when he joins US later this month until then I'm happy to keep this CFO or CEO chair warm operator that concludes our formal remarks, we can now take questions.
Yes, Sir thank you.
Good question.
Thanks.
Thank you.
Gary.
Thank you Sir your mute function.
Sorry equipment.
Again that is dollar.
I would like to ask a question.
And our first question will come from.
Ill.
Sales of Hills research.
Thank you congratulations on the great quarter.
Thanks.
You may have addressed this obliquely are directly in the in your prepared remarks, but the drop in industrial bookings quarter to quarter in year over year could you talk about that.
Sure go quarter over quarter were really do think that it was a function of of the first quarter.
Timing really timing issues as I noted during my conversation.
Year over year AG remember as I talked about earlier, our service revenues are off because of.
David and that is a significant while it's a component of the revenues for our thermal group.
And that's why you're seeing that that that off year over year also our flow business.
What we described as our flow business, which is recurring orders of easy hits are also off.
Because customers that are purchase those are either closed or not operating at normal business levels.
And I think at times in the pass you may have talked about Fiveg rollout is as an opportunity for you is you have any comment to that area.
No.
Well, Jim had talked about that in the past during the quarter, we didn't really have any business specifically attributable to fiveg.
Okay. Thanks very much.
You're welcome thank you.
Once again that is star one.
Good question.
Hi.
Gentlemen.
Well now take our next question from Dick Ryan.
Thank you so he'll I think last quarter, you are opening up upstream on.
Ill facility with.
Limited employees, but.
So for me it was down the road from the.
Easy player.
And I missed what you said earlier in the conversation here about what your E bookings, where can you kind of give us an update on leave pretty mild facility. What your expectations are and then can you.
Claire relaunch instead of your easy bookings.
Sure.
The Fremont facility has has been reopened as we talked about the bookings there were $873000.
Well actually not in Fremont they were booked by our Ambrielle group to the TV manufacturers during the second quarter, bringing that to just over 1 million.
Dick.
And what was the follow up question I apologize I guess, just let me like that is that just because.
Now serve the marketplace or are there either.
Vertical that.
That's pretty much on facility is going to serve.
Well actually the Fremont facility doesn't serve the market you may remember that that Sam ROE and its induction heating tools and thats based out of Rochester, our Fremont facilities RTL tester interface facility. So that supports our semiconductor semiconductor customers. So.
But our our induction heating group continues to do very well and has a number of customers other than ease that it continues to support I'm not at Liberty to discuss those customer names as I mentioned during the call, but it's a wide variety that we're driving business during the quarter.
Okay, well when you look at your guidance for Q3, how are you.
Splitting that what are your expectations for multi market you saw new side.
Well with that as the current strength, we're seeing in semi my expectation would be that we would continue to see that in the third quarter.
Based upon what we're seeing from.
I feel ESI and other data sources that we have utilization rates are expected to be very.
Strong in Q3 for our semi business.
My expectation is that we'll also see an improvement in our multimarket business as a result of a number of opportunities that we're currently pursuing with various customers.
Okay.
And can you talk a little bit more on these CEO transition what the board is attempting to do I know the.
Really said something like unlocking the potential.
What's what's the board's view of.
What hasn't happened or what they want to have happened.
I think.
Jim has been with the company for quite some time and and left US as you know today I think the board was looking for a new leader to.
Take the company and move it forward with its long term strategy of growing through acquisition.
That brings a significant level experience in that area to the company and we're very excited about having him join us as our new visionary leader. So I know personally I really look forward to working with Nick and hoping that we can can outgrow the company further through acquisition as we've discussed in the past with investors.
Okay. Thank you.
Thank you Dick.
Okay.
Later that is dollar.
Good question.
And well.
Okay.
And it appears there are no further telephone question.
The conference back over to our presenter for any additional or closing rate.
Thanks.
Well. Thank you for interest in Intest, everyone. We appreciate you listening in if you have further questions don't hesitate to call Lora or me, we look forward to seeing you online at the virtual conferences, Laura mentioned earlier and to updating you on our progress when we report our results for the third quarter, everyone stay safe and healthy and have a good evening.