Q1 2022 inTest Corp Earnings Call
Greetings and welcome to the Intest Corporation first quarter 2022 financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
She would like to ask a question you May press star one on your telephone keypad.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Ms. Deborah Pawlowski Investor Relations for Intest. Thank you. Please go ahead.
Thanks, and good morning, everyone. We certainly appreciate your time today and your interest in Intest Corporation here with me are Nick Grant, our president and CEO and Dunkin' Gilmore, our Chief financial Officer and Treasurer.
Should have a copy of the first quarter 2022 financial results, which we released this morning before markets opened.
If not you can access the release as well as the slides that will accompany our conversation today at our website www dot Intest dot com.
After our formal presentation, we will be opening the line for Q&A.
You'll turn to slide two in the deck I will first review the Safe Harbor statement, you should be aware that we may make some forward looking statements during the formal discussion as well as during the Q&A session.
Payments apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed with Securities and Exchange Commission. These documents can be found on our website or at SEC Gov.
During today's call. We will also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP we.
We have provided reconciliation of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and in the slides.
With that if you'll turn to slide three I will turn it over to Nick to begin Nick.
Thank you Dan and good morning, everyone.
Thanks for joining us this morning for our first quarter 2022 earnings report.
I would like to start by thanking the entire Intest organization for their resiliency and never ending desire to exceed customer expectations and deliver a solid start to the year.
The first quarter played out as expected with both top and bottom line results in line with our guidance. Despite omicron supply chain constraints transportation shortages and continued inflationary pressures.
We are advancing our five point strategy and executing well.
Revenue grew 23% year over year, and 8% sequentially to $24 1 million.
And was the result of continued demand of our innovative and differentiated solutions.
Quarter was not without its challenges.
There was an estimated $1 million of product that was not able to ship due to supply chain constraints or logistic issues.
As an example, we had a product on a ship that could not get into port and Baltimore in time.
However, as we advance through the quarter, we were able to improve our ability to deliver with bringing on more qualified suppliers, increasing inventory of raw materials and driving greater efficiencies in our production processes.
Becoming experts at whack, a mole to get product out the door to our customers.
Acquisitions contributed $4 million in the quarter, primarily from demand in industrial security and other markets.
Organic growth of 3% reflected our growing presence in automotive electric vehicles and select industrial segments.
We believe that our diversification efforts around targeted growth markets are working well this.
This is demonstrated by the strong sales of our leading test and process solutions to the automotive industry, including electric vehicles and.
In fact in Q1, we saw our bookings and sales of our automotive EV applications more than doubled from the prior year period.
As we have been communicating our diversification within semi is also providing benefits.
We had sales of our innovative solutions for the front end space, specifically in silicon carbide crystal growth applications as well as sales of our thermal backend solutions, both increased sequentially in the quarter more than offsetting lower volume in our backend electronic test solutions.
For semi sales to hold up that well is quite remarkable given the atypical strength. We saw during the first half of 2021 for our back in electronic test solutions.
There were a few factors that impacted margins, both sequentially and from a year ago period.
When comparing the year over year the change in product mix was the primary reason for margin contraction.
This was mostly due to the significant volume from our backend semi electronic test solutions during the first half of 2021.
Our custom engineered solutions and this backend test space generally tend to command our highest margins.
From a sequential comparison the initial contributions from the acquisitions had a drag on margins as they were not where we expect they will be at the end of the year.
Margins should improve as we drive productivity gains and as the investments we have made to grow revenue and realize operating leverage begin to pay off as we advance through the year.
Integration of the three acquisitions that closed during the fourth quarter of 2021 is going as planned.
We are improving their systems and processes with more discipline and sophistication to enable greater scalability, while investing in the sales organization across our enterprise.
Our growth plans.
We are building out our sales teams, both domestically and in Europe .
Recently, we opened our newest induction heating demonstration lab in conjunction with our channel partner in Mexico.
History has shown we have a high success rate of converting prospects to customers. When we demonstrate our technology solving their production challenges in our labs, our strategy is to invest in more labs around the world to drive greater market penetration through customer conversion.
In parallel with these sales and marketing efforts, we continue to advance our new product innovation efforts that will further enhance our solutions offerings.
And helped drive additional sales growth.
As we tackle supply chain constraints, we are having to redirect our development engineers to qualify new suppliers and validate product specifications, which is somewhat slowing our new product development efforts.
Last year, we defined our vision and mission and initiated our five point strategy.
As we announced at our recent Investor Day, we felt it was necessary to reorganize our structure. After completing the three acquisitions. We made at the end of last year to better execute our forward plans.
We now have three reportable segments that align with our technology platforms of electronic test environmental technologies and process technologies.
We believe this division structure enables us to increase efficiencies broadened opportunities.
Better utilize our managers talent and leverage our strong customer relationships to accelerate growth and capture cost synergies.
We also expect to be able to increase collaboration across the businesses, which will help to create broader customer solutions.
Finally, with our new technology Division structures.
We believe we are well positioned to build our forward vision of innovative tests and process technology solutions and the platform to support our growth ambitions.
You can find the results by segment in our news release as well as in the supplemental tables of our slide deck.
We had orders of $25 million in the first quarter of 2022, a record backlog at quarter end and demand has elevated as we advanced into the second quarter.
This provides us with the confidence to reaffirm our guidance for 2022 and establish second quarter revenue guidance of approximately $27 million to $29 million.
With that let me now turn it over to Duncan to review the financials in more detail.
Duncan over to you.
Thank you Nick.
Starting on slide four we provide some detail regarding our top line.
Nick indicated revenue for the first quarter of 2022 was $24 1 million or 23% increase over the same period last year.
Mid point of guidance.
Compared with the prior year periods revenue growth with $4 5 million included $4 million from our Q4 acquisition.
This contributed to growth in life Sciences security and other markets and is indicative of the companys strategy to diversify and expand with new customers and into new markets.
Ganic growth amounted to half a million dollars or 3%, reflecting demand from the automotive market in particular electric vehicles as well as industrial market.
Sales to the semi industry were relatively unchanged on a year over year comparison as growth in shipments to front end semi customers offset the decline in sales to the traditional backend semi market, which were exceptionally strong in the prior year quarter.
It is also important to note that the level of supply and logistic challenges in the first quarter was similar to our experience. The last couple of quarters, and we estimate supply chain and logistic constraints impacted Q1, 2022 revenue by approximately $1 million each.
Even as our teams continued to do an outstanding job of working through the issues finding alternative solutions and aligning operations to best meet customer expectation.
Compared with the trailing fourth quarter of 2021 sales to the semi industry grew 9% driven primarily by demand from backend semi thermal applications.
Life Sciences, industrial and defense Aero markets also improved sequentially.
The company's top five customers in the first quarter represented approximately 20% of revenue and no single customer during the quarter accounted for 10% or more in revenue.
Moving to slide five.
First quarter gross margin of 45, 7% compared with 46, 3% in the fourth quarter of 2021, and 48, 7% a year ago.
Contraction from both prior periods reflected less favorable product mix the impact of acquisitions production inefficiencies driven by supply chain constraints and delayed recovery of cost increases as pricing improvements tend to lag inflationary increases in component material and labor costs for pre existing order commitments.
As it specifically relates to mix and the prior year quarter backend semi test was that an exceptionally strong level the market with Celgene and we believe we were capturing more market share.
As we have noted in the past or backend semi test business has the most lucrative and our product portfolio from a margin perspective, what is encouraging going forward for this segment is that the new leadership and focus has reignited our customer relationships.
Sales to backend semi were $11 1 million in the 2022 first quarter compared with $12 million last year front end semi sales stepped up from $1 3 million in last year's first quarter to $2 3 million this year.
The impact of our acquisitions is tied to them closing towards the tail end of 2021 inefficiencies from the early stages of integration that's to be expected and we anticipate improvement with more consistent go forward quarterly performance on.
On an overall basis, we expect modest margin improvement through the rest of 2022, driven by improving contributions from acquisitions and increasing volumes.
Slide six details, our operating expenses and expectations going forward.
<unk> expenses were $10 2 million in the first quarter, representing 42, 4% of revenue compared to $10 1 million or 45% of revenue in the fourth quarter.
First quarter 2022 operating expenses reflect the impact of full quarter of costs associated with the company's fourth quarter acquisitions and also include approximately 780000 pre tax intangible asset amortization expense.
Intangible asset amortization expense was $522000 the fourth quarter with the step up directly related to the acquisitions.
We expect quarterly operating expenses for the balance of 2022 to be in the $10 nine to $11 $2 million range. We have annual merit pay increases that come in during the second quarter, and we expect growth related investments to step up through the year under reflected in this range.
As we continue with our investment plans to support our five point strategy. We are confident that we will continue to demonstrate improving operating leverage with volume and scale.
On slide seven you can see our bottom line and adjusted EBITDA results, both GAAP and adjusted EPS were within our guided ranges, we had GAAP net earnings of $577000 or five cents per diluted share for the first quarter, which compares with net earnings of 287.
<unk> or <unk> <unk> per diluted share for the fourth quarter of 2021.
On an adjusted basis EPS was <unk> 12 per share compared with seven cents per share in the fourth quarter. Adjusted EPS reflects tax affected acquired intangible amortization on an after tax basis acquired intangible amortization of $689000 in the first quarter.
We expect a similar amount of intangible amortization in the second quarter of 2022 with declining levels during the second half.
The effective tax rate for the quarter was 12% as we continue to benefit from tax credits related to high export sales and released a small valuation reserve our tax assets associated with some old foreign net operating losses.
Adjusted EBITDA was $2 1 million for the first quarter up 56% from the fourth quarter of 2021, reflecting higher bottom line profitability and the impact of acquisitions on Q1, 2022 amortization and interest expense.
And our adjusted EBITDA calculation, we removed the impact of stock based compensation stock based compensation is a noncash expense and as such does not impact our liquidity. Accordingly, we believe our adjusted EBITDA is a better performance measure to assess the strength of our cash generation ability than EBITA load.
More detail on the calculation of adjusted EBITDA can be found on the non-GAAP financial measures in our earnings release slide.
Slide eight shows our capital structure and cash flow cash and cash equivalents were $17 2 million compared with $21 2 million at the end of 2021.
We used approximately 900000 in cash to pay down debt in the quarter, reducing our balance to $19 2 million.
As a reminder, we had debt of $20 1 million at the end of 2021 as we establish a term loan facility to finance two of our key acquisitions during the fourth quarter.
We believe we are better leveraging our balance sheet than we had historically and have plenty of financial flexibility to continue executing on our five point strategy for growth.
Our liquidity stands at $32 2 million, which includes cash and approximately $15 million available on our revolver and term loan facilities.
We used $2 7 million in cash during the first quarter. The first quarter typically consumes cash due to the timing of year end bonus payments and cash taxes.
Capital expenditures during the first quarter with $335000 compared with 417000 in the fourth and 388000 in the year ago quarter.
The 2022, we expect capital expenditures to be around 1% to 2% of annual revenue. However, depending upon changes in market demand or manufacturing and sales strategies, we may make purchases of investments as we deem necessary and appropriate.
With that I will now turn the call back over to Nick.
Thanks Duncan.
Slide nine highlights our orders and backlog performance.
Overall demand for our products and solutions remains solid with the first quarter book to Bill of one four.
While we will always welcome market tailwind our objective is to execute our five point strategy to grow faster than our served markets.
We continued to extend our reach in targeted growth markets, while deepening customer relationships across these industries.
In the first quarter, our businesses continued to add new customers with a focus on both end users and Oems.
Orders for the first quarter of $25 1 million were essentially flat with a year ago period and were down from a record $30 5 million in the fourth quarter.
As we mentioned in our last call. The fourth quarter included a large approximately 10 million dollar order for our front end semi solutions.
We are delivering against this orders throughout 2022, primarily in the second third and fourth quarters and the pipeline remains very active for more front end semi orders for our induction heating solutions used in silicon carbide crystal growth applications.
Our semi backend orders were lower year over year as they compare with <unk> and <unk>.
<unk> typically strong period of demand that occurred during the first half of 2021, but still remain at an elevated level from historical rates.
Outside of semi orders for the first quarter of 2022 reflected strong demand from the automotive industry in particular for EV applications, requiring and test the induction heating technology and our newly acquired battery test solutions.
Orders were up in life Sciences, as well driven by demand for a variety of Intest technology solutions, including digital imaging and induction heating.
Demand increased from the defense Aero industry for environmental technology solutions in the quarter.
Our backlog at quarter end reached another record level at $35 million.
Approximately 63% of which is expected to convert to sales in the second quarter.
Our level of longer term backlog is higher than historical trends as customers seek to secure production capacity and to cope with longer lead times.
Slide 10, reaffirms our guidance for 2022 and provide second quarter expectations.
Although we just have one quarter in the books I'm pleased with how the year is shaping up.
As a result of our solid start we continue to expect revenue for 2022 to be in the range of $110 million to $115 million with quarterly gross margins ranging between 46% and 49%.
We also expect interest expense to run approximately $150000 per quarter, and our effective tax rate to be between 15% to 17% for the year.
As I mentioned earlier for the second quarter of 2022, we expect revenue to be in the range of 27% to $29 million.
Q2, GAAP EPS should be in the range of 11 to 16 <unk> per diluted share while adjusted non-GAAP EPS is anticipated to be approximately 18 to 23 per diluted share.
The difference between GAAP and non-GAAP is tax affected acquisition amortization expense.
Our guidance is based on our current views with respect to operating and market conditions and customer forecast, which are subject to change as.
As well as our expectations for the balance of the quarter and are subject to any strategic investments we may choose to make.
It also assumes supply chain challenges remain relatively consistent with what we've been seeing with gradual improvement as we move through the second half of the year.
Actual results may differ materially as a result of among other things. The factors described under forward looking statements found in the materials that accompany this conference call, including the press release and the slides.
Slide 11 highlights our longer term aspirational goals that we delineated at our Investor day in early March.
With the talent, we have in place and strong adherence to our five point strategy for growth, we can see a path to essentially doubling the size of the company from what we expect to report in 2022.
This path includes both organic and acquisitive growth expectations and would represent a very strong top line CAGR.
Slide 12 shows the operating leverage we expect our business model to ultimately deliver that should drive cash generation and improved earnings power.
Let me now summarize the key takeaways for <unk> on slide 13.
A focused and energized workforces in place to continue to drive growth as we diversify and expand our markets and our customer base.
Executing our five point strategy for growth is delivering results and we will see more secular growth trends across our addressable markets.
Our M&A funnel development is ongoing our team continues to identify acquisition targets that we believe will bring differentiated and innovative technologies.
Provide complementary capabilities or enabled deeper and broader reach within our targeted markets and geographies.
To capitalize on future opportunities, we have in place a strong balance sheet and the financial flexibility to execute our growth plans.
We are encouraged by the strong demand across our markets our solid first quarter results along with the pace of the second quarter orders, thus far gives us confidence in our 2022 outlook even in the face of continuing supply chain challenges.
We are optimistic about our healthy pipeline of projects as we skillfully manage our operations to meet customer needs.
With that operator, let's open the lines for questions.
Okay.
Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
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Once again that is star one to register a question at this time.
The first question is coming from Jason Smith of Lake Street Capital markets. Please go ahead.
Hey, guys. Thanks for taking my questions just wanted to start with the supply chain. Nick I know you mentioned in your prepared remarks that youre baking in the assumption for some gradual improvement throughout the year curious if youre seeing signs of improvement now to give you that confidence or if this is more just based on.
On the worst has to be over because it's been so challenging.
Hey, Good morning, Jason Great question, and I would say the improvement is really a result of the actions, we're taking in and our ability to.
Qualified second sources.
And provide alternate components.
Avenues for us here to be able to get our products to market. So I wouldn't say things are improving in the marketplace.
The frequency of supply challenges continue to.
To occur weekly out there in that but the teams are getting better at it.
Really what's driving the confidence in the second half Duncan would you want to add anything.
Yes, I would agree that we aren't necessarily seeing improvement situation is pretty much the same that we've been seeing the last few quarters.
The impact I would say on our numbers as we talked about roughly a $1 million kind of impact on that little bit higher than we've seen in prior quarters really due to the the additional impact of the acquisitions. So youll are acquisitions certainly were also impacted by the supply chain challenges to our legacy businesses have been dealing with for a number of quarters now.
As Nick has indicated the teams.
Certainly <unk> seen a familiar with managing through that we do assume some modest improvement in the second half.
There isn't a change there we're not seeing seeing that yet the situation is much the same as of right now.
Okay. That's really helpful color and kind of just sticking with the supply chain topic really impressive to see you guys.
For that gross margin outlook for the year, just given all the challenges out there, but does that also baked in some potential friction of qualifying new suppliers.
Yes, no absolutely that assumes the activity that we've been seeing on that supply side with as we switch the suppliers has usually a cost impact on that so thats baked in.
But the volume that we're picking up as we grow through the year here.
What's driving improvements there plus we laid out in the press release, a number of cost activities that we're driving with.
Dedicated cells for production supporting this silicon crystal growth.
Technology in our induction heating facility.
We've recently consolidated our video <unk> North America into our Mansfield.
Environmental technologies facility up there. So we are taking some actions to the.
The factor.
Just trying to contain the cost side of things there as well.
Okay got it and then just the last one for me and I'll jump back into queue.
Semi revenue was up nicely sequentially, just curious how you're thinking about the end market just given the historical cyclicality that has plagued that industry.
Part of the visibility extend in that space for you guys.
Yeah.
Semi is still as we said.
At elevated levels not at the historical highs we saw at the beginning of last year and as we've highlighted we do have the benefits of being at different parts of the semi very front end as well as Bakken and electronic test and backend lab.
Test if you will and so we're seeing.
The different pieces, the dynamics kind of all play out.
One might offset another but still at a healthy level as you know lead times for products have gotten out there pretty pretty far. So it gives us really good visibility of the projects that are that are coming in the second third quarters out there that are.
We feel.
Confident that somebody is going to maintain a healthy level for us.
Yes, I mean I would just add is I think we commented on <unk> nice to see Sammy growing sequentially as you point out the.
The dynamics within Sammy certainly interesting our traditional backend electronic test piece of the business as projects. It has moderated a little bit, but we've been able to offset that with the activity on the front end side in particular as well as some of the backend lab activity and I think that just kind of demonstrates.
Yes, a little bit more diversity, even within the <unk> space.
And then I would also add it's great to see that our non semi business is all kind of demonstrating kind of growth, which just proves the additional resiliency that we think we can bring into the table by virtue of the acquisitions in particular and the additional markets that we're now playing in.
Okay I appreciate that color congrats on the strong results and outlook guys.
Thanks, Jason.
Thank you. The next question is coming from Robert <unk> of Penn Capital. Please go ahead.
Good morning, guys. Thanks for taking my questions. Congratulations on a solid start and hopefully there is sequential improvement the rest of the year.
Can you guys talk a give us an update on the.
Improvements in organic revenue growth for both the Enbrel and semi businesses that Nick talked about when you first arrive. The commentary then was low hanging fruit for.
Significant market share gains geographical gains more sales efforts and do you feel that the organic revenue growth of both of those businesses today, our position that would be higher than they would have been a year or two ago. Thank you.
Yeah, Hey, good morning, Robert and thanks.
Appreciate the questions relative to the.
Low hanging fruit comments that I made when I came onboard.
The eat specific in semi.
Really pleased with the work our teams have done there to go.
I would say more from a farming mode to the hunting mode and.
Establishing key account programs going after customers that that we typically did not have in the past likewise.
Okay.
Increasing our portfolio through product innovation, an area that also was kind of starved in the past.
That work has really opened up new customers new applications for us and I believe positions us well.
From where we were before I joined out there on the induction heating side.
Which also pertains to.
Video.
Image capture so our whole process technology space there, it's all about lead generation and we've been investing in.
Mark Com and direct sales and channel.
Partner.
Grams, and OEM programs to really just drive qualified leads and now with our efforts to expand our labs and to help drive higher conversion of customers. When we do demonstrate our our technology solutions, we feel really good about the organic growth that we're going to see.
In the core businesses as well as.
The acquisitions and the investments, we're making there.
Okay Allogeneic revenue growth is.
As a key component of our of our 2025 target so at some point.
It needs to show up in the numbers in a significant double digit way and I don't think we've seen that yet from what I believe the markets themselves have been billing but.
Looking forward to seeing that.
Regarding M&A activity.
Yes, I think this year. So that would include another deal or so or do you really want to get the three acquisitions completely humming before you will.
Bite off another acquisition transaction. Thank you.
Yes on the M&A front as I mentioned.
No quite healthy our funnel strength as we shared a little more details at our Investor day, but our activity remains remained strong and.
I've mentioned it in the past our objective really is to do at a greater frequency.
Our organic growth.
Path.
Test here.
Our goal of completing one deal annually at least and last year, we were successful with the three.
But I do believe.
Our activity continues and we're successful here, we could see another in the.
Later this year.
Stock market acting the way it has that valuations are coming down so don't let your.
There are acquisition candidates forget that.
No absolutely right.
And I hopefully you can see from the.
The deals we did we've been pretty prudent about getting good multiples and finding finding companies that we believe.
We can drive.
Tremendous value of being part of interest so yes, no we won't lose sight of that.
Yes.
Don.
I mentioned your acquisition price to sales ratios to another CFO recently and he said quote you got them for free.
So.
Got it.
He was born in the us.
Yes.
He is not working hard enough because of them.
Anyway, you can assure you we can assure you we're working harder here.
And then finally anything on any updates on the opportunities in the service businesses that were trying to expand over the next year or two.
Yes, we are.
Making some progress on the service front there in the first quarter.
Landed.
Few master supply agreements with.
Customers that have larger installed base.
They didn't really don't show up in the numbers immediately as you know these are multiyear contracts and we believe those in as they go on that but the teams are focused on driving.
Service growth driver.
Driving greater customer satisfaction with.
With the after sales support and.
I do believe also our acquisition with <unk>.
Back your logic and their.
Test programming services business that they have provides us an opportunity to.
Do more on the service front that other other parts of the company can leverage so ducking any any other comments on service you want to add no I think you captured it they're certainly seeing some nice.
In isolation initial wins, there, but still still plenty of opportunity.
Alright. Thank you and then one final one just quickly not for you but are your customers customers factories.
Expansion plans on schedule.
Do the Fabs that have been announced seem to be on schedule on hearing that there is not insignificant delays.
In the factories, the build outs of the Fabs.
Yeah as you know.
More on on the backend test side of things and so but what we hear is that progress is.
Continuing on the front end space, which will eventually drive more back end demand.
As these get established in that and so yes, obviously COVID-19 lockdowns in China, everything has kind of extended lead times on things, but.
Yes.
Like anyone pulling the plug they just delaying things weeks or what have you out there so but no. We feel good about what semi holds four for us in the future here and I'm really excited about R. R.
From Silicon to Silicon carbide is really creating some nice opportunities for us on the front end.
Thank you.
Thanks Robert.
Once again that is star one to register a question at this time. The next question is coming from Peter right of Intro Act. Please go ahead.
Great. Good morning, guys. Thank you for taking my question congratulations on the amazing transformation and execution.
You've built the team around you to do what you've done.
Thanks, Peter Yeah, now excited about.
How the year shaping up and where the company said.
So I have a couple of questions for you one one near term one long term and then.
Duncan I have a couple for you as well so Nick.
And kind of the short term.
Youre looking for 20% half on half.
Growth embedded in your guidance what do you what do you think the primary drivers of that are and maybe the risks as well.
That we should be aware of because that's very aggressive.
Guidance for the year, so congratulations to that and then longer term.
The second question is looking at your five point strategy Youre looking to double organically to the organic question. If you were to break it down kind of breadth number of customer depth penetrating each customer deeper in the service business, how would you rank kind of the importance of those those three things Brett.
Service.
Well, maybe I'll, let Duncan.
Address the first part of that and then ill comment on the five point strategy.
The first part being in terms of the year.
Yes, I mean looking at the year I think as we talked about in that initial remarks.
Demand the demand side has been strong continues to be strong.
Backlog is at record levels.
So we certainly have.
We have the backlog there to give us a fair degree of confidence with respect to.
The next quarter or so is that the demand picture that the teams are seeing out there is also strong.
Top line is the biggest kind of driver.
Obviously of the of the growth.
So I think it's as simple as that really Peter in terms of.
The short term.
Great and then on the five point strategy.
Breadth depth and service are all key parts of our strategy.
Is it meant to say one is more important than the other.
We want to obviously expand our customer base, which we're doing.
For reach more customers, we're getting a larger share of our customers' wallets as we go deeper in them.
So the teams are actively working both fronts. There and then as we commented our service activities and programs are are growing and we'll it will drive greater customer satisfaction to retain customers as we as we go forward here.
I don't want to.
Miss out on leave out innovation and talent. Both are also critical pieces of our five point strategy and really pleased about the progress we're making on those fronts as well so.
Yeah.
Our multi pronged strategy with each piece being.
I would say equally important to us.
And I just wanted to add this is Doug I just wanted to throw in here too just for clarification I think I heard you say double organically and that is not Nicole it does that doubling includes acquisition.
Correct.
Did not catch up catch that but yes.
Our our doubling of our business includes.
A certain amount of acquisitions by 2025, which we discussed.
Fantastic.
Fantastic.
A couple of other clarification just on the guidance the 10 nine to 11 point too.
Great job on the G&A, bringing that down almost 10% quarter on quarter.
My question is is that that guidance, an average of all four quarters or guidance kind of going forward from here.
I would say it reflects the next three quarters and I would look at as it steps up very slightly Q2 through Q4 is the biggest step up Q1 to Q2 because of for example, merit increases being a component of that but that range.
Spec to step up to 334.
With the investments primarily drive growth there on top of the Merit where were we.
Plans.
We bring resources on.
To get more sales coverage improve our marketing to drive more engineering development et cetera et cetera. So.
That's also a piece of what's driving it in the outer quarters.
So it's almost it's selling that theres really no growth in.
The fixed portion G&A.
Five ish a quarter is a good number on the G&A side.
Dramatically two risks.
So we're looking to we will continue to make.
Take care and investments in selling engineering. He is like not where we need to do that in order to continue the growth trajectory.
Fantastic and very last question free cash flow in 2022 any thoughts there.
I would expect so cash was obviously weak in Q1, given the timing of bonus payments certain tax payments things like that I would expect us to be generating cash throughout the rest of the year, we haven't kind of thrown a cash number.
I would expect looking at our adjusted EBITDA as a clinical liquidity measure on the general kind of cash cycle that you see from the business. The cash will start growing again through the rest of the rest of the year, even with the we are paying down debt around $1 million a quarter.
But I would expect to see our cash balances grow.
As we get to the end of the year absolutely.
Wonderful Thank you guys.
Thanks Peter.
Thank you.
Once again that is star one to ask a question at this time.
Thank you. Our next question is coming from George Melas of M. K H management. Please go ahead.
Good morning, gentlemen.
Good job on a good start to the year.
Also thank you very much for the for the new reporting.
Vision into the company I think is going to help us understand the business a lot better so very much appreciate that.
Hey, good morning, George Thanks, a lot and yeah no we're.
Pleased to be able to share a bit more visibility because this is really how we're running the business. So I think it's important that you guys see that.
That's great yes.
You guys noted that the acquisition contributed roughly $4 million in revenue during the quarter.
They are weakest.
Give us some sense of what they contributed to the gross margin and also to the to the income did they did.
It did contribute to the divisional operation income or whether a slight distraction from that and do you expect some improvement during the rest of the year.
Yes, I mean, let me give you a little bit color on that.
Yes, I think we talked about the acquisitions being accretive to the year as a whole and certainly we believe that to be the case I would say in Q1 at $4 million, which is about $60 million annualized I mean, thats kind of below the that kind of run rate that we are ultimately expecting to see from the <unk>.
Acquisitions. So if you look at it that way and walk through the mechanics there.
I'd say that they they certainly were a little bit dilutive to margins in Q1, and I think again, we kind of alluded to that in the prepared remarks.
The release there.
So yes, so yes, they were a drag as we said we do expect that to.
Resolve and we do anticipate some ultimately being accretive by the end of the year.
Great. Thank you very much.
Thanks George.
Thank you at this time I'd like to turn the floor back over to Mr. Grant for closing comments.
Thank you Donna before we wrap up I want to reinforce that the Intest team is the secret to our success and I. Thank all our team members for supporting and driving our transformation.
You can note on slide 14 that we will be presenting at the Sidoti Virtual Microcap Conference next Wednesday that presentation will also be webcast.
We are also presenting at the Stifel Cross sector conference on June 8th So, perhaps we'll see some of you there.
In the meantime, we appreciate you joining us today on our call and for your interest in Intest, Thank you and stay safe.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
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