Q4 2020 inTest Corp Earnings Call
[music].
Welcome to the Intest Corporation, 2024th 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 and you wouldn't need to press star one on your phone.
As a reminder, this conference is being recorded.
A replay will be accessible at www Das Intest dot com.
And we'll now turn the call over to Intest Investor Relations consultant and Laura Guerrant.
Please go ahead.
Thank you operator, and thank you for joining us for Intest Twenty-twenty fourth quarter and year end financial results Conference call.
With us today are Nick Grant Intest, President and CEO, and Hugh Regan Treasurer, and Chief Financial Officer, Nick will briefly review the quarter's highlights as well as current business trends.
And some time, describing the companys new strategic plan. He will then review into detailed financial results for the quarter and discuss guidance for the 2020. One first quarter. We'll then have time for any questions. A copy of today's press release can be obtained on Intest website, www dot Intest dot com.
In addition to our press release, we have issued supplemental information, which can be downloaded from our website on the investors page just mentioned the supplemental information is offered to provide shareholders and analysts with additional information and detail for analyzing our results and advance of the quarterly results conference call.
Before we begin the formal remarks. Please note 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 management's 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 and.
And to the factors mentioned and our press release, such risks and uncertainties include but are not limited to the risk factors set forth from time to time, and our securities and Exchange Commission filings, including but not limited to our annual report on form 10-K for the year ended December 31 2019.
The reports on form 10-Q for the quarters ended March 31, and 2020 June 30, 2020 and September 30, 2020.
Any forward looking statement made by US and this conference call is based only on information currently available to us and speaks to circumstances only as of the date on which you just made we undertake no obligation to update the information on this call to reflect events or circumstances. After the date hereof or to reflect the occurrence of.
Pay debt or unanticipated events.
During today's call, we will make reference to non-GAAP financial measures. We have provided additional information concerning these non-GAAP financial measures, including a reconciliation to the directly comparable GAAP financial measure and our press release as well as in the supplemental information on the slide presentation for this call.
The release and supplemental information are posted on the Investor page of our website www Dot Intest dot com the slide deck will be posted after the call's conclusion and.
With that let me now turn the call over to Nick Brandt. Please go ahead Nick.
Thank you Laura and welcome everyone.
Thanks for joining us for the fourth quarter and year end 2020 financial results Conference call.
2020 was a very challenging year as we all adapting to the changes brought about by the geopolitical environment and the global pandemic.
I'm pleased to report that and.
And just rose to the challenges managing through it and no logistical.
Complexities and we ended the year with notable momentum.
I wish to express my sincere thanks to the entire Intest team for their dedication and execution throughout the year as well to our customers and suppliers for their continued partnership and support.
We've made a lot of progress over the last six months of interest.
Simultaneously manufacturing, which cost us a little bit of production capacity late in the quarter.
And so while we enjoyed strong order momentum and the semiconductor business we.
We also picked up some opportunistic and industrial related leads which really hasnt hit us yet.
Timing.
And our management team not only at the CEO level and.
And as we previously discussed and the earnings report for the third quarter, we've taken a number of nonrecurring charges and the fourth quarter to better position us for 2021 and beyond.
I like where we are and where we're headed.
Now, let's look at the fourth quarter performance.
While our results for the fourth quarter were at the high end of our prior guidance I believe the real story and the surge in orders that we experienced during the quarter driven by increasing demand for our innovative tests and process technology solutions across a diverse set and applications.
And the momentum surpassed our internal expectations and continues into the current quarter.
Heading into 2021, we have a healthy backlog of $11 $5 million.
Up approximately $6 million compared to where we were a year ago.
And we continued to generate positive cash flow.
And as you can see from our press release, we expect to approach record booking levels for the company and the first quarter of 2021.
Order activity, especially in the semi market has heated up and that continues as we share our results with you today.
Fourth quarter consolidated bookings of $17 6 million increased 22% sequentially and 58% year over year.
With semi accounting for 63% of the total bookings for the quarter and multimarket and making up 37 percentage. This is compared with a 50 50 split last quarter.
Fourth quarter semi bookings increased 53% to $11 $1 million sequentially, while multimarket bookings of $6 5 million declined 9%.
And the industrial sector continues to be our largest portion of the multi market business and.
And the sequential decline was a result of three primary drivers first.
Late timing of some large orders that slipped into the current quarter second the global pandemic resurgence and the fourth quarter and finally with traditional seasonal holidays Lotus.
On the positive side, we continue to strengthen see strength and a couple of our targeted growth markets, such as electric vehicles, and cannabis, which I'll talk more on and just a minute.
Q4, consolidated revenues of $14 9 million increased 3% sequentially and were at the high end of our guidance again, driven by the semi and industrial markets.
The percentage of the overall revenue semi comprised 51% and multi markets, where it will be 9% consistent with last quarter.
Semi revenues for the fourth quarter increased 3% sequentially to $7 6 million and.
Q4, multi market revenues increased 3% to seven $3 million.
And as I noted, we also successfully advanced our manufacturing consolidation program in Q4 to the point, where we were able to transition manufacturing of our EMS interface products from California to our New Jersey facility.
I would like to thank the entire team that was managing this project for their efforts and dedication to complete the move by the end of the year.
Also while he will discuss the financials in detail I think it's important to note debt as we've discussed last quarter and as we expected on.
Q4, net loss included $1 3 million and restructuring and other non recurring costs.
Excluding these charges, we would have been profitable and in the fourth quarter.
The majority of these restructuring and other non recurring costs were associated with the previously mentioned consolidation of arc and California manufacturing operations into New Jersey.
The actions, we took and the fourth quarter will not only provide ongoing cost reductions through footprint optimization, but they also allow us to better serve our customers globally through streamlined operations going forward.
Which from a timing perspective and have been better given our recent order surge.
We expect the consolidation of our EMS manufacturing operations will resolve it and annual savings of approximately $600000 going forward and that the operational upgrades that we're making will position us for improved growth and profitability in 2021 and beyond.
For the full year 2020 consolidated bookings.
$59 7 million increased 13% compared to 2019.
SME accounting for 54 per cent of the total bookings for the year and multi market, making up 46%.
This was compared to $48, 52%, respectively and 2019.
Stronger semi markets, especially in the second half was driven by consumer electronics and automotive pent up demand, while industrial markets were slower impacted by Covid and the global demand drop off.
2020, consolidated revenues of $53 8 million decreased 11% compared to 2019 due to a number of factors, including a weak backlog coming into the year continued softness and the semi markets earlier in 2020, the impacts of COVID-19, as well as the timing of orders and the second half.
Jimmy and multi market revenues were evenly split each accounting for 50% of the total revenues for the year, compared with 51% and 49% respectively and 2019.
We had a net loss of $895000 or <unk> <unk> per diluted share for 2020 compared to net earnings of $2 3 million or <unk> 22 cents per diluted share and 2019.
Included in the 'twenty results were $1 8 million of restructuring and other non recurring cost.
Excluding these restructuring and other nonrecurring charges, we would have been profitable for 2020, and our net earnings would have been.
693000, or <unk> <unk> per diluted share non-GAAP.
Now, let's turn to the quarterly performance over two operating segments, along with some customer highlights starting with EMEA, where we continue to secure new customers and broadened our geographic reach.
After a couple of years of headwinds due to the trade wars automotive contraction and COVID-19 semi.
Semi industry is experiencing a significant demand spike, which I'm sure you've all been hearing from others in this space.
As the World comes out of the pandemic, many businesses and industries are struggling with shortages of semiconductors and this.
This has the industry scrambling to increase capacity.
Our EMS business is benefiting from this broad based recovery.
His experience and strong increase across all of our product lines driven by pent up demand by the automotive industry, coupled with the continued increasing demand for consumer electronics mobility and Pcs.
More people continue to work and study from home.
While we've seen and order surges from our largest customers. We're also seeing increased business from many of our other customers as well as adding new customers to drive further diversification.
And as we noted in our earlier press release.
Q4, EMS bookings were up a substantial and 91% sequentially to $6 6 million.
EMS revenues of $4 2 million increased by 13% sequentially during the period, where we were also consolidating manufacturing.
We are pleased to have the EMS entering 2021 with an expanded backlog and good momentum.
Let me share with you some specific EMS highlights and the quarter.
After a long development and qualification cycle the business started receiving orders from a major player and the memory test base.
This is very exciting for us as we are making inroads into the memory market, which is where we have not had a presence before.
While we are early and entering this market. It is the key win and it puts us in a good position for opening up more opportunities over time.
Couple of other notable accomplishments and the fourth quarter for Ams, where a major win at a customer for their advanced traffic automotive radar systems, featuring next generation Ultra high definition technology.
And designing the first automatic probe card change or for a specific test or model.
I am pleased with the progress of the EMS business is making and expect that the new products being designed in why are customers now will lead to additional growth opportunities going forward.
Another example of organic growth traction as it relates to new products or E&S is the continued adoption of our intelligent test cell technology, which we launched early last year.
We are developing on the early presence in this emerging automation market and we are pleased with the market traction to date.
As a result of the technological advances are automatic testing at the layers and intelligent docking systems are capable of increasing customers tools utilization and yield.
With these innovative solutions, we are poised to achieve deeper penetration into our current customer base as they expand and move to upgrade older systems as well as driving growth across the industry and new accounts.
Yeah.
Moving now to the thermal segment.
And Q4 thermal bookings were up slightly which and a quarter that saw some resurgence of COVID-19 restrictions and the traditional holiday slowdown. This is was in line with our expectations.
We continue to make inroads across multiple industries and verticals and non.
And on quarter over quarter drop in revenues from this segment was due to the timing of larger deliveries in Q3 and the holiday season.
Let me share some details of recent thermal successes.
Both of our businesses and the segment are also benefiting from the semiconductor Serge.
<unk> saw nearly $1 billion and orders placed for a front and CVD applications and Ikea zone with spring bookings for the backend test space have averaged over $1 million per month.
For eight consecutive months now which is the first time. This has happened since 2018.
And multi market, we are focused on diverse applications and growth markets and verticals outside of semi electric.
Electric vehicles and candidates are two emerging markets, where we continue to see significant growth opportunities for our thermal solutions.
Electric vehicles are becoming more mainstream each year and I believe the market is that an inflection point with many of the majors, including GM Ford Jaguar and Volkswagen All recently announcing plans to move heavily in this direction.
I see interest is being very well positioned.
And we're really only started developing opportunities for this space back in 2018, and we are pleased with the customer acceptance and adoption by noteworthy EV manufacturers.
Since 2018, we've seen our bookings and our space essentially double each year.
And the success as a high profile example of our strategy to focus on end market applications and product development for higher growth opportunity.
Another area of organic growth as with our <unk> chillers for cannabis extraction, where we continue to make inroads.
Our solutions are widely used and THC and CBD extraction processes, where it's critical to pool hydrocarbons and ethanol to ultra low temperatures.
He used to announce that during the fourth quarter. We delivered the first units of our next generation liquid nitrogen extraction chillers to one of the largest cannabis extraction processes and the U S.
These new Chillers include new features such as heating and cooling of the process. Louis.
Variable fluid flow rates and a dry gas purged eliminate frosting on.
All technology that this emerging markets and value.
And Additionally, we saw an increase and medical related orders placed in the quarter for applications and MRI systems stent vascular closure systems and surgical devices evidence of progress across thermal and positioning us for.
For growth and expanding markets.
All in all we are making strides to position us for growth and 2021, and beyond which will be driven by stronger semi market, improving general industrial segments and targeted growth investments.
Now, let's turn to our plan and view for the future It and test I am pleased to share with you today and overview of the corporate strategy that we have formulated to drive new and more sustainable long term growth.
As mentioned on our last earnings call in early October the executive management team met to kick off the development of a corporate strategy that would define what intest with cool collectively strive to become.
We define the vision and mission to guide us on the journey that we arent barking on.
We identified the growth strategy that we believe will transform this company and we outlined the initiatives will be driving within each of these strategies.
Out of that meeting we have developed a solid go forward plan for the company with an emphasis on growth and on customer focus.
As James Carville will say, it's all about growth.
Well it starts with the vision and for us.
It's to be the supplier of choice for innovative test and process technology solutions.
While this may seem like motherhood, and Apple pie, let's break it down to see what it's really inspiring has to be.
Supplier of choice.
Indicates we want customers to think of and tests when they have and need for it.
Process solution.
And that only happens when you're a market leader that's focused on customer satisfaction day in and day out.
Innovative and that means we need to focus on bringing unique and differentiated solutions to our customers.
Innovation must be at the core of our DNA.
Interestingly innovation.
Innovation is something that intest used to pride itself on holding numerous patents around its technologies.
We must bring this back and challenge ourselves on developing unique solutions for the industry and customers we serve.
Cash and process technology solutions, we are laser focused on targeted technology applications and must move away from a product centric sales and more of it solution sales, which bundle and our broader product portfolio of services and support while driving increased value to our customers.
Division also guides us to do.
And who we do not want to become and that is a supplier of off the shelf commodity products or solutions, our focus will be on broader niche value added segments, where we can stand out.
Yeah.
Now, let's look at how we get there.
Our mission is to leverage our deep industry knowledge and expertise to develop and deliver high quality innovative customer solutions and superior support to solve complex global challenges.
What I like about this as debt will be building off our core strength.
Know, how and expertise to deliver solutions that customers value and are broadly applicable across multiple markets customers and regions.
The quality aspect is directing us to ensure we have the best in class engineering manufacturing and quality systems.
We certainly have some work to do on this area, but we are starting from a good place while the vision and mission are there to guide and inspire us and the strategies, where the rubber meets the road.
And we've identified five core growth strategies that will be collectively driven to generate sustainable growth, which will allow us to execute the mission and deliver the vision.
Let's look at each starting with global and market expansion.
This is an area that we believe will provide significant growth for the company through a larger installed base.
We will be making investments to drive further penetration in existing markets going deeper and wider we'll look to increase our global footprint and coverage to better serve customers and we'll be targeting expansion into new markets with existing products.
Next is innovation and differentiation, which basically provides growth through innovative technologies.
Can't emphasize enough how critical this is and how highly I value it.
We will start by leveraging our knowhow and expertise to deliver innovative solutions others can't.
We will be putting increased focus on spending more dollars on developing solutions that are new to the business moving the industry are new to the world and.
That are more broadly applicable through standardized platforms that offer late stage configuration.
The focus of driving more standardization to increased market availability and lower cost will have a positive impact on the company its customer breadth and depth as well as the employee skill sets.
Turning to service and support which is a valuable way of strengthening customer satisfaction loyalty and retention.
And we must challenge ourselves to ensure we are serving the customers. The best we can day in and day out whether that's by ensuring we have the best service coverage and response time or through expanded and enhanced service offerings.
We must improve to drive growth.
And we'll be looking at adding more resources to fill gaps as well as adding remote service capabilities, which can monitor the health of the assets the customers purchase from us.
This is certainly an important feature and this day and age.
Another area, we will be focusing on is driving more consumables more ongoing business that allows us to touch customers more frequently through our best in class support and pre and post sales efforts.
And I've mentioned this is an area that should be much larger part of our business and I believe it will over time.
Shifting now to our growth strategy around talent and culture.
Any business can have the best laid out plans, but without the right talent to execute them or the right culture and to support the plans they are destined to fail chain.
Changing a company's culture is not easy.
From what I've seen during my first six months of interest I believe it can be done the and.
Uzi Azzam I've seen and felt across the company is real and I believe the organization is ready to embrace this change.
Again crucial to our success will be ensuring the right people are and the right roles and empowering them to deliver success.
Starts there and are supplemented by creating a culture and environment of openness on that as a results oriented and drives accountability across the organization.
Along these lines I am pleased to communicate to you today that I recently appointed a new VP and GM of our EMS products business Joe Mcmanus.
Joe joins us with over 20 years of semiconductor experience as well as more recently exposure and the industrial markets.
He spent the majority of his career and accurate on systems, a leading supplier of advanced wafer surface prep solutions and.
And a number of diverse roles of increasing responsibilities ranging from global product management and the director of worldwide sales the VP of sales marketing and project management.
Warehouses career, there and he had a track record of increasing sales and driving growth.
What I like is the similarities between accurate on and our EMS products business.
And the early two thousands they were a small technology organization.
And then $20 million and size and during his tenure they grew both organically and inorganically over time too.
<unk> hundred $65 million and size and.
Joe was a key enabler of bank growth.
He later made the switch out of spending and moved into the industrial markets, joining CECO environmental where he had senior leadership roles as well.
We are very pleased to welcome Joe to the Intest organization and look forward the city and the success you will bring to our EMS products business.
Before I move on to M&A I would like to highlight the key initiatives under this talent and culture strategy will be focusing on promoting diversity and inclusion across our workplace.
And respect the unique needs perspectives and potential book all of our team members and strive for equal involvement and support and all areas of the workplace and have identified actions to drive this important initiative.
And finally the.
Key part of our growth strategy will be strategic acquisitions and partnerships and.
Area that I know, well and we will be accelerating efforts and.
We will be aggressively driving M&A activities, both top down and bottoms up and are always looking for.
Deals that will help us to build out our portfolio of technologies to better serve customers.
These could be a bolt on to an existing business that adds and expansion to their product line or expands our geographic presence.
As well as new businesses coming into the segments or divisions that allow us to touch more customers and new markets and and new ways I'll also better serving existing customers.
There's a lot of work and be done on this space and I'm excited to see the impact our efforts can create.
It's clear that path management focus heavily on pursuing deals and our thermal segment, while largely deemphasizing our EMS segment.
This will change.
We will explore opportunities across both segments with an eye towards expanding our electronic test capabilities widening our thermal test capabilities in areas, such as environmental test and finally building out around the processing technologies that <unk> added to the company.
The market appears very active for US right now and we look forward to exploring M&A opportunities.
As mentioned, we have identified key initiatives across the businesses.
We'll be executing under each of these core growth strategies and I look forward to continually updating you on our progress and the quarters and years ahead.
So to summarize this strategy market expansion innovation acquisitions and increased service initiatives will be the key growth enablers the.
The critical success factors that underpin the strategy are first and foremost people.
And so that the right processes and finally, having the discipline and to stay the course and drive the business to achieve growth levels that we and you expect.
This is the journey, we are embarking on with executable steps along the way.
Don't happen overnight and it will require some adjustments and investments and our organization, which always takes time, but we are very focused on prioritizing investments in these areas that can generate near term impact while positioning us for long term sustainable growth.
I launched the strategic plan to the organization earlier this year and have received overwhelmingly positive feedback and the organization is getting behind it and while the business leaders and I own. It it's really all about execution now.
It is important to note that this will be a living strategy. One that we will revisit regularly and fine tuned from time to time to ensure we are developing the right initiatives to drive the business forward over the next five years.
I believe we have identified the right areas for growth and our plans are very executable, which if done successfully will enable us to increase shareholder value.
So what do I see from a growth perspective.
I could see this business organically doubling in the coming years.
And I expect that by layering on strategic acquisitions for diversification and bringing in new technologies and better serving customers. We will transform this company.
I am pleased to report that we are already advancing the plan with key investments made and others currently underway across the company.
We have hired a business development manager and Ambarella is a focus on the rapidly growing EV market.
Released on next generation chiller for cannabis industry.
We are expanding engineering and service capabilities across all three businesses, while increasing R&D programs with an innovative focus.
And finally systems and tools are being upgraded to support growth.
It's exciting to see the amount of change that and there's a recurred and just six months with the company.
So what are the key takeaways and tested a new strategy that extends from leadership down to every employee.
Laser focused on our customers on growth and and on innovation with an eye towards standardization and scalability, which should open up new markets and customer opportunities.
Before I turn it over to Hugh to walk you through the financials I want to once again, thank the entire intest team for delivering a truly solid quarter and for weathering a challenging 2020.
With business conditions, continuing to improve coupled with our growth initiatives. We entered 2021 optimistic for the year ahead.
Market tailwind and investments are driving growth worldwide chips shortage is expected to last into next year utilization rates are projected to stay historically high which normally correlates to the strong semi business that interest and we're making inroads into a number of growth markets and segments outside of semi.
We continue to meet the demanding requirements of our customers with an impressive breadth of products to operations that are now more streamlined to better serve our global customer base.
And this level of execution I believe we are building a foundation for positive change.
I will now turn it over to Hugh Regan, our CFO to walk you through the details of the most recent quarter performance and full year results.
Q over to you.
Thanks, Nick.
Our fourth quarter gross margin of 45% came in at the top of our guidance range and was consistent with the gross margin and we reported for the third quarter.
Q4, 2020 component material costs were essentially unchanged at 35, 1% compared to 34, 8% and the third quarter.
The slightly increased component material costs were more than fully offset by reduced charges for inventory excess and obsolete materials as well as lower direct labor costs.
Selling expense increased 12% sequentially to $2 million and the fourth quarter, driven primarily by higher commission expense and to a lesser extent to increase spending on advertising and third party installations.
Engineering and product development expense decreased 5% sequentially to $1 $2 million, primarily as a result of lower levels of spending on product development materials.
General and administrative expense increased 4% sequentially to $3 million driven primarily by increased stock based compensation costs related to our new CEO and to third party recruitment costs related to the new G M and our EMS product segment.
These increases were partially offset by reduced spending on professional fees.
During the fourth quarter, we incurred restructuring and other charges of $1 $1 million compared to $161000 in the third quarter.
The fourth quarter restructuring charges were primarily driven by costs associated with the recently completed restructuring and manufacturing consolidation of our EMS product segment, which totaled $889000 during the quarter.
We expect this restructuring and consolidation action will generate approximately $600000 and annual savings.
Also included in the fourth quarter restructuring charges was $189000 accrued for costs associated with exiting the additional space and our Mansfield, Massachusetts offices.
We accrued and income tax benefit of $74000 and the fourth quarter, reflecting a 16% effective tax rate.
This compares to a $25000 income tax benefit accrued and the third quarter, which reflected an effective tax rate of a negative 6% we.
We expect that our effective tax rate in 2021 will range from 16% to 18%.
For the fourth quarter, we reported a net loss of $380000 or <unk> <unk> per diluted share compared to net earnings of $458000 per <unk> per diluted share for the third quarter.
As previously guided our fourth quarter results included $1 3 million and restructuring and other nonrecurring costs and.
And when tax effected these costs amounted to $1 $1 million or <unk> 11 per diluted share.
Excluding these restructuring and nonrecurring costs, our fourth quarter net earnings would have been seven cents per diluted share non-GAAP.
For 2020, we reported a net loss of $895000 per <unk> per diluted share compared to net earnings of $2 $3 million or 22 per diluted share for 2019.
Our 2020 results included $1 8 million and restructuring and other nonrecurring costs and when tax affected these costs amounted to $1 6 million or <unk> 16 per diluted share and.
Excluding these restructuring and other nonrecurring costs. Our 2020 net earnings would have been seven cents per diluted share non-GAAP.
We have provided a summary of 2020 nonrecurring costs by quarter and this.
Supplemental information posted to our website and connection with this call.
Diluted average shares outstanding were $10 $3 million for the fourth quarter of 2020 and during the quarter. We did not issue any shares of restricted stock nor had any forfeitures of restricted stock and did not repurchase any shares.
EBITDA was $12000 for the fourth quarter down from $908000 and the third quarter and for 2020, our EBITDA was $665000 down from $4 $5 million and 2019.
Consolidated head Count at December 31 was 204, an increase of force staff from the level, we had at September 30.
I'll now turn to our balance sheet.
Cash and cash equivalents grew by $804000 sequentially to $10 $3 million and cash flow provided by operations was $848000 for the fourth quarter and $3 $2 million for 2020.
Cash today stands at approximately $12 million.
We expect cash and cash equivalents declined slightly and the first quarter as a result of the payment of 2020 annual bonuses and then increased throughout 2021.
Accounts receivable declined $1 $1 million sequentially to $8 $4 million at December 31, with 52 DSO down from 61 at September 30.
Inventories grew $552000 were 8% sequentially to $7 $5 million driven by the increased semi demand we are seeing.
Capital expenditures during the fourth quarter were $138000 down from $330000 and the third quarter.
Included in third quarter capital expenditures was $202000 for tenant improvements to our Mount Laurel, New Jersey facility related to the EMS consolidation.
We currently expect to spend $230000 from the first quarter to complete these tenant improvements.
Our backlog at December 31, 11.
$11 $5 million up $2 $7 million, or 31% sequentially and up $6 million or 107% year over year.
As to guidance as noted in our earnings release, we expect that net revenues for the quarter ended March 31, 2021 will be and the range of $18 5 million to $19 5 million and that our GAAP financial results will range from net earnings of 18.
And to 'twenty two cents per diluted share and we currently expect that our first quarter gross margin will range from 49% to 51%.
On a non-GAAP basis, we expect our adjusted net earnings per diluted share will range from 21 to 25 per diluted share.
Our guidance is predicated on business trends, we are currently seeing as well as our expectations for the balance of the quarter.
Operator that concludes our formal remarks, we can now take questions.
Thank you.
If you would like to ask a question on the call today. Please press star one on your telephone keypad.
Star one to ask a question if you would like to remove yourself from the queue at star two.
Pause for one moment to assemble the queue.
And we can now take our first question from Jason Smith from Lake Street. Please go ahead.
Hey, guys. Thanks for taking my questions. Just curious if you are seeing any component or supply constraints out there and I guess relatedly can you remind us what sort of capacity you guys can handle from a revenue standpoint with all the recent changes.
Yeah, Hi, Jason.
And one question.
From a supply constraints, we're working diligently and started two and in Q4 as we saw the orders start to increase there too to ensure we were we had the pipeline.
Material available for us.
And so far I'd say, we've we've done a good job as a group to ensure that now it certainly is a lot more focus and effort given the growth we're seeing in here, but so far we've been able debt to meet demand from our supply side.
And.
The second part of your question.
Does the relative to capacity.
No we.
And manufacturing.
And on consolidation in Q4 and.
And.
We've got that up and running and right at the end of the year. So that was our objective to be able to.
To have a more streamlined operations heading into 2021 and very pleased to have that.
Executed in line with our plans there and so we from a cash capacity perspective, I believe we've got the footprint we need.
And.
We'll be looking to potentially add some additional testing capability or capacity, if you will but outside of that.
We've got the capacity to support our growth for years to come we believe.
Okay, that's really helpful and then.
Obviously, a really strong Q1 outlook are you at all concerned about potential pull ins into Q1 and not looking for full year guidance by any means but just curious how you're thinking about the split this year, just because there tends to be some differing views out there, especially on the SME space on it.
This is going to be more of a first half or second half weighted type year.
Yes, I can tell you is that we've communicated that obviously the first half is looking very strong.
And you know unfortunately don't have a whole lot of visibility on Q3, and the second half right now, but I believe there is.
Underlying trends in this industry around the automotive technology advancements and buildup.
On the capacity side.
The <unk> E mobility, and <unk> build out and the internet of things getting worse, but connected world will continue to drive this and so.
And so it's tough to say, but you know clearly Q on Q1, and the first half will be strong quarters for us.
Okay Perfect and then just the last one from me and I'll jump back into queue.
Really nice expected step up and gross margin here in Q1.
And I assume a lot of that is a function of a higher revenue, but how should we think about gross margin trending the remainder of 2021.
Jason Yes, Youre correct about that day improvement in the revenues is driving the improvement and the margin.
And as Nick said, we don't know where the second half of the year is heading at this point, but we would tend to believe that debt.
It could be reasonably strong based upon the trends that we're seeing for the first half we expect the margin to be.
And the ranges that we've guided today for Q1.
And the second half, we'll have to see where revenues go but we're optimistic that we will be able to hold the 50 per cent or better margins.
Okay. Thanks, a lot guys.
Alright, Thanks, Jason.
We can now take our next question from Peter Rice from and Chill Act. Please go ahead.
Great Congratulations guys on on a wonderful quarter outlook and and plan that you shared.
Two questions for you.
Wonderful two questions for you Nick My first one is you I understand.
Visibility is somewhat limited beyond the first half of the year, but if you could help us understand what would have to happen with what you see for a book to bill ratio to remain above one <unk>.
Through the course of 2021 and.
Where do you see kind of the potential of that occurring.
The second question I have is related to your plan, which was very detailed thank you very much I'll just focus on one part which is your your innovation.
Component and two questions there.
Okay.
And part that really stuck out to me is the idea around standardization and my question. There is kind of what is the key economic metrics that you're focused on.
Yes.
To prove that out is it more about SKU reduction or across learning of product across.
Technology across different.
Markets, where is the opportunity and standardization.
And I guess also taken a step back and kind of how you think of innovation, how and how should we think of the lowest hanging fruit and biggest opportunities there or is it better faster cheaper products for existing customers adjacent products to existing customers new customers and the same markets new markets I know, it's a little bit of all the above but what is what is the what sticks out to you is the law.
It was taken and group most immediately and then I have one follow up for you.
Okay.
Excellent questions there Peter Thanks, a lot there as we said the visibility we do see.
First half being relatively strong.
And beyond that we really don't have a whole lot and the second half, but what I can tell you is that we are making investments now as I highlighted and the communications there.
To help.
Help us diversify even further and.
And position us for growth and other markets. So.
As things and the second half start day.
Improving and other areas, we could we could either supplemental and mitigate any potential slowdown and that so we're going to do what we can to do.
<unk> 2021 being a.
Really a breakout year for us.
And then the second piece on innovation and thanks for the questions.
And there as well.
And I said this is an area that I really have a passion for and clearly standardization is one one area that I started discussing on the calls last year and one area that is really low hanging fruit force. If you will the company operates.
And the past largely is engineered to order.
Different customers different solution and what have you. So we're basically working and leveraging our knowledge and knowhow.
Say, how do we build these into platforms that will drive better cost more.
Streamlined operations and.
Better applicability across multiple customers versus individual customers. So it is looking and what we're doing now what's in the pipeline how can we how can we build this.
Platforming.
Portfolio, if you will and ask what are the targeted areas. It is and it is really on all of the above that you commented you know how do we make sure we've got the.
The lower and better best position, there as well going after new markets as we design these platforms, which markets can be targeted and go into.
And it really is right now looking across the broad spectrum.
Wonderful and and Q1 follow up if we if we look out a couple of years to kind of what the target model would look like on sales doubling from current rates 100 day, 100, and Twentyish million, what would what would the margins look like they are and and maybe if you can help us understand.
And what the drivers are so a couple of positive ones the standardization and the service model getting layered in there the offsets maybe in the short term the global expansion and the and the.
Increased expense on talent, what metrics are most important to you and kind of the margin and cash metrics on the target.
Good question, Peter you know.
Clearly as we drive further growth and the businesses you know we would expect the gross margin to continue to improve as.
As we drive further.
And utilization of our fixed cost base as revenues grow.
Thank you.
The company grows both organically and Inorganically, what we don't know yet is what the composition of our margin will look like on newly acquired products, but clearly.
Clearly, we're looking at strong technologies that have strong margins associated with them similar to the products that we have and our portfolio. Today. So we would hope that we would continue to be able to support a strong margin and growth ultimately and and and the margin and the long term.
One thing I want to emphasize is you know nyx desire to grow the business does mean that we wouldn't be making investments in the future and that is critically important for sustained growth over time.
So investors may see that we will see some trends up and the R&D line.
Selling line as we make investments on feet on the street and additional engineering staff to further drive innovation, which is clearly at the heart of everything that we are doing here at Intest. So.
Think.
We look forward to speaking to our longer term model later in the year as we.
And build out our or our strategic plan, and and and and talk to the marketplace, but you know I'm I'm optimistic that.
We're going to see strong results from the company.
But it is important to note that we will be making investments for the future.
And hopefully that responded to your question Peter.
Wonderful congratulations again.
Thank you.
We can now take our next question from Dick Ryan from <unk>. Please go ahead.
Thank you.
So net question a couple of questions around the semi side, you talked about breaking into the memory.
The market can you put some perspectives around that is this a result of.
Bringing some new technology to the market are just internalizing.
Getting a little better strategy to expand the market opportunities and in addition to that if you could kind of talk about what that could do to the served market on the E&S side.
Sure. So the memory is oh penetration.
Penetration there is really.
What are you working with the customer and working more so on the R&D side of things and they're designing the next next.
Memory solutions and the marketplace, there, which is that we want to get in and.
And opened the door for us and we've been making some some really good inroads on that side.
And for.
The R&D space and I believe you know as we look at this space because memory is very much.
And I volume.
Dedicated lines once it's in place.
Our opportunity really is more on that development piece, there with multiple customers and we've made inroads and one so.
I think.
I believe it's an area that well.
Further diversification and and the semi market, there, but oh isn't going to be.
Production type.
<unk> solution more of a development and R&D type solutions that we're pursuing there.
That answered that piece of it.
Yeah, Yeah, exactly now on the front and with Ambarella on what what have you seen.
From them wrapping up 2020, and the kind of outlook going into 'twenty one.
And now I, Umbro and and <unk>.
And up 2020, I would say they were.
They had a number of big opportunities that actually slipped into 2021 here, but the momentum with that business is good and.
And in 2021 as really just.
Taken off and as new budgets became and place.
But a lot of customers as this capacity build out on the semi side of things continue customers really go on all in on on some product expansions and.
And our further penetration efforts with integrators.
To position ourselves across multiple end users, we're making really strong inroads at ambarella, there and really pleased with the.
The progress.
As we ended 2020, but more.
More so with what we're seeing and your 2021.
Okay. When you look at your Q1 guidance and maybe commentary for the first half how do you see the mix top line mix between multi market and semi.
And kind of.
And in Q4 was 49 51, but how does that shift.
Going into the first half.
Yeah, obviously anything and so hot right now is it going to be a much.
Well, a larger piece of our mix going forward and then as I mentioned, just with the hambro, that's not only on the EMS side of things, but also and CBD front end applications and Ambarella and then we continue to see that semi strengthening in our backend test at Ics.
So semi orders or I.
And I believe roughly two thirds one third at the Oh from a bookings perspective relative to multimarket and Q4, and that's going to drive revenue in Q1.
But as I mentioned, you know Enbrel and also making inroads and number of other areas and.
And Q1 multi market bookings are looking extremely strong as well, so but I would expect standard to be a bigger piece of our Q1 next Q and he comments there.
Consistent with you Nick I think it's going to look a lot like it did this quarter from a bookings perspective.
And market, but on was only about 37% of total bookings I think you'll see semi dominant and in Q.
One revenues at between 55 and 60 per cent.
One last one from me how did what was the level of the revenue and 2020.
And ballpark that.
Sure Dick EV revenue for Us and 2020 bear with me one moment as I spoke to that EV revenue for us and 2020 was.
About one.
1.35 million approximately.
Yeah as I mentioned.
Amber really started developing solutions and this space and 2018 and so we really do believe we're at the early early stages and talking with a lot of other REIT players and getting in or.
And with them and committed from it.
And so expect.
Thank you.
The growth for us.
Okay, great. Thank you and congratulations on the strong outlook and.
The nice strategy going forward and yet.
Hey, Thanks, Nick Thanks, a lot.
We can now take our next question from R&D and our center from our center caps from Africa. Please go ahead.
And good morning, and first of all congratulations on a very thorough review, but I do have a number of questions and I apologize I am somewhat new to your story the $600000 benefit youre, hoping to get in 2021.
From the restructuring what will be the breakdown of that between gross margin SG&A placed.
Yes.
Is it.
Thanks, and good questions.
Eight youre your interest and your enthusiasm here and we're very happy with where we finished but I'll, let you address that.
Thanks, Nick Arnie, we would expect the bulk of that the bulk of the savings are related to the savings.
Savings that will be created by the reduction and and lease costs and and those costs had been because it was on manufacturing facility were included in our.
Cogs number so.
The bulk of it above the line, but there is some of it below the line as a result of.
Reduced staffing levels as a result of the elimination of the California operations.
Okay. My second question is a very simple a general one.
And obviously your outlook for Q1 is very favorable and.
And Q4 was pretty good can you just remind me or educate me on the seasonality if any and your business.
Yeah, I'll, let you comment on that one as well.
He's been around quite a bit longer than I have.
Thanks, Nick.
Yes, our business the seasonality hits.
Historically over the last several years has been where Qs two and three will be our peaks of demand and Qs one and four will be our troughs of demand.
But that changes and clearly this is a year, where that's not following suit because you know you can see the strong demand, we had and and in Q4, leading into Q1 and I can tell you.
We look forward to reporting Q1 results and and demand has been very strong and Q1. So.
Net debt that curve can move and and clearly and as we enter 2021. It is as a result of the significant pent up automotive dim.
Demand, that's really driving a lot of the semi business that we see at this time.
But.
But I would expect you'll see and another several years debt. It could go back to the middle of the year, but.
That's what we've seen historically.
And it seemed more quick questions the earnings guidance, you're providing versus the street expectations going into Q1 into the current quarter were roughly 10 times the numbers that the street had what.
What changed so fast that the street just didn't catch this enormous change and I guess the broader question many of the other analysts to answer how sustainable is it.
Yeah, and the excellent question there and.
I would say you know last year semi for a lot of a lot of folks were it was pretty strong but as parts of semi was with debt.
Others were up with automotive real growth part of the year and then the PC and mobility piece picking up with Covid and people working from home and that but what it meant overall was with the other.
And those down and then picking up the capacity and place was sufficient.
And to support the need for semi conductor and devices chips et cetera. So what you see now is.
Everything kind of coming back online automotive research and.
Et cetera that now that actually that was in place and four is not sufficient and so those are the build out on capacity going on right now that really started for us and Q4 from what we see more customer base, there and continuing strongly into into Q1 and.
And our.
Building into Q2 is that it will be strong as well and.
So.
We're optimistic that the investments and other areas will also kick in and the second half and.
It could be a oh.
It's a good help to offset and so flonase and the other and semi if it does slow down and the second half.
Okay. My final question is you mentioned, two buzzwords that wall Street loves EV and cannabis.
And you mentioned and easy you had a $1 billion.
One 3 million of revenue and at what point do you see meaningful or impactful revenue and earnings contributions from these two segments.
Yeah, I think the comment.
We highlighted then and the message today as it's been doubling since 2014, and we with the activity picking up around EDI and Kansas.
And it's a simple story there for candidates that we also would expect that we'll just continue to accelerate going forward. So and really has a runway that Alaska from time to this market moves.
Towards these.
Growth applications and.
And so yeah.
Yes.
And so forth is it going to.
The 10 X next year or something like that day I hope, so, but I can't tell you. That's the case, we're going to capture everything we can.
Okay. Thank you very much for taking my question.
You bet. Thanks.
Thank you as a final reminder, if you would like to ask a question. Please press star one our.
Our next question comes from charge me and that's from M. K H management. Please go ahead.
And I. Thank you operator, and good morning, Nik and good.
Good morning Dara.
I have a couple of more margin.
The first question relates to your EMS units had very strong bookings.
And then and their bookings are strong I mean, the strongest we've seen and three or four years and I think since 2017.
I'm trying to see how the mix has changed there within CNS portfolio.
And to what extent on innovation driven the continued success of that business.
And I'll just use and my second question right now and it relates to umbrella and thinking and Brown had a couple.
Partnership and growth technology was embedded into third party applications and other things, finishing on the Sydney.
Syed.
And how has that fair and is that still.
Are you looking for more such partnerships, where you end up with technology and.
Yes.
Let me, let me address the first one that the EMS bookings as we indicated our strong and continued to be strong and right now we expect them to surpass the 2017.
Rates that we saw out there back during that debt.
Buildup that occurred during that timeframe and.
As for the mix, we're seeing the growth and across the board on the product lines that we have although I would say are manipulators are.
Growing probably a little faster than we anticipated and I believe that's just the accelerated adoption of the newer technologies that we have.
And those products and that so we are seeing more mix on manipulator side of the.
EMS business there.
And.
The second part of your question I'm, sorry, I didn't quite capture it.
Yeah.
Sorry suites on the umbrella side, I think that and growth technologies embedded into a number of third party applications and I'm trying to see how that's doing and.
And to what extent are you looking to replicate that strategy with those partnerships and the future.
No absolutely right day is ambarella is.
Laser focused on OEM integrator opportunities, where we can sell multiple systems.
Multiple and users as they set up their equipment and their various sites and all that kind of stuff.
Versus just this just the end users, but it's all it's important that we get specced in and qualified by end users. So we're pack and both sides of it but.
These third party integrators and Oems are.
Very important to ambarella and areas that we're making really good inroads in fact later this quarter.
Quarter, well I I believe its and Q2 apologies for that debt.
Have a and integrator program dedicated to again, providing some some benefits the integrators debt.
We will help to make us even more attractive out there. So it's an area that we were.
We're going after a strong.
Great. Okay. Thank you very much.
Absolutely Thanks George.
We have no further questions on car right now I would now like to turn the call back to Mr. Grant for any concluding remarks.
Alright, Thank you and.
And thanks to everyone for the interest and interest we really appreciate your listening in if you have any further questions don't hesitate to reach out to me Hugh or Laura.
We look forward to updating you on our progress and we'll report our results for the first quarter and early May and until then I wish everyone.
A safe and healthy first quarter.
Thanks, everyone.
Thank you that concludes today's Intest corporation, 2024th quarter financial results call.
You may now disconnect.
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