inTEST Corporation Q1 2023 Earnings Call
Greetings and welcome to the <unk> Corporation first quarter 2023 financial results.
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<unk> are in a listen only mode.
A brief question and answer session will follow the formal presentation.
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It is now my pleasure to introduce your host Sean started stimulations.
Good morning, everyone. We appreciate your interest and thank you for sharing your time with the Intest Corporation here with me are Nick Grant, our president and CEO and Don can Gilmore, our Chief financial Officer and Treasurer.
You should have a copy of the first quarter 2023 financial results.
We released earlier this morning, if not you can access the release as well as the slides that will accompany our conversation on our website at <unk> Dot com slash investor cash relations.
After our presentation, we will open the lines for Q&A.
If you'll turn to slide two.
I'll review the Safe Harbor statement you.
You should be aware that we may make some forward looking statements during the formal discussions as well as during the Q&A session.
These statements apply to future events, they 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.
These risks uncertainties and other factors are provided in the earnings release as well as in other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at SEC Gov.
During today's call, we will discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP.
We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides.
With that please turn to slide three.
And I'll now turn the call over to Nick.
Thank you Sean and good morning, everyone. Thanks for joining us on our first quarter of 2023 earnings call.
We delivered another strong quarter as the team is continuing to execute well on our five point strategy for growth.
I would like to once again, thank the entire organization for their commitment to our strategy and for delivering to plan.
Revenue grew 33% year over year totaling 32 million driven by strong performance across most markets with particular strength shown in front end semi for silicon carbide crystal growth in epitaxy applications as.
As well as defense Aero and life Science markets.
The revenue growth was all organic as we now have a full year of the acquisitions under our belt.
I believe our results are demonstrating the success, we're having with the integration of those three businesses.
Under our five point strategy, we are beginning to unlock their potential.
I should point out that we believe innovation is at the heart of our success, which is validated with every new product. We launch for example, our compact eco heat system is now a standard offering in our induction heating solutions.
We've made significant headway in our electronic test business with our high voltage high current Super set interface solution for testing higher powered chips as well as our continued expansion of our automated manipulator portfolio with our new L. S C and L. S. L manipulators.
And we are excited about video Gees, new scale axes in black camera with AI capable edge computing technology, which formally launched last quarter and will start shipping in June .
Innovation is driving demand.
Our sales and marketing efforts to expand our business are also validated by our continued success.
We are consistently adding new customers deepening our reach into existing customers in key markets, while expanding into new applications.
A good example of this is our industrial grade embedded video cameras, which are finding their way into pipe inspections for the energy industry.
Our opportunities also continue to expand in silicon carbide and gallium nitride as those markets develop we are supporting our customers in this space as they ramp capacity and optimize operations.
Profitability in the quarter increased year over year on favorable mix and realization from our ongoing pricing efforts.
Our year over year expanded operating margin also demonstrates the power of operating leverage as we achieve higher sales.
As to demand, we continue to see strength in semiconductor industrial defense Aero and life Sciences markets.
These markets drove first quarter orders of 31 million up 23% versus the prior year.
Larger orders can often create lumpy comparisons quarter to quarter. For example, while auto EV orders were down year over year. They were up sequentially and we just announced this morning, a nearly $2 million of order from an EV customer for a brand new application utilizing our chiller solutions.
In fact this is just another example of where our focus on this target market is helping to uncover new opportunities in the manufacturing of Evs for our portfolio of technologies.
And our backlog at the end of the first quarter remained solid at approximately $46 million.
Organizationally, we continue to add talent to the team and we are pleased to have announced the addition of Michael Tanner rule as president of our environmental Technologies Division.
He joins us from Cincinnati test systems, and I had the opportunity to work with Mike in the past at both Emerson and AMETEK, where you had a track record of success.
We are excited to welcome him to the team and look forward to seeing the impact he will have in the role.
With that let me turn it over to Duncan to review the financials in more detail Duncan over to you.
Thank you Nick.
Starting on slide four revenue for the first quarter 2023 was $31 9 million up 32, 5% or $7 8 million versus the same period last year and at the top end of our guidance range of $30 million to $32 million.
This revenue growth of $7 8 million was entirely organic and as Nick mentioned was driven by strong demand across semi defense Aerospace life Sciences security and other markets in the case of semi increased demands for induction heating technology solutions for silicon carbide crystal growth in epitaxy.
<unk> combined with strength in supporting trailing edge or less capital intensive technologies for analog and mixed signal applications grow semi sales to $17 7 million up 32% year over year.
The automotive EV market was down 6% on a tough comp on the large order we announced this morning. We believe shows the decline is less meaningful than it might first appear.
Moving to slide five gross margin of 47, 2% in the quarter was up 150 basis points compared with the prior year Q1 period due to higher volume better product mix and improved pricing.
Compared with the trailing quarter gross margin improved 100 basis points, reflecting favorable product mix and improved pricing.
Our trailing 12 months gross profit of $57 5 million or 46, 1% of sales is in line with our updated outlook. This year of gross margin between 46% and 47%.
As you can see on slide six.
Operating expenses were up $1 3 million versus the prior year, but down 630 basis points as a percentage of revenue.
Driven by operating leverage as the business scales up.
First is the trailing quarter total operating expenses were up 600000 to 11 5 million.
This was a little higher than anticipated due to slightly higher selling commissions and noncash stock compensation expense as we saw higher and more profitable revenue and an increased stock price.
We continue to invest in sales and marketing as we execute on our strategy to drive growth.
Turning to slide seven you can see our bottom line and adjusted EBITDA results.
We had net earnings of $2 8 million or 25 cents per diluted share for the fourth first quarter, which is up from 600005 cents per diluted share in Q1, 2022 and at the upper end of our guidance range.
Adjusted EBITDA was $4 8 million up from $2 1 million last year, adjusted EBITDA margin expanded 620 basis points to 15, 1% year over year.
On an adjusted basis non-GAAP EPS was <unk> 29 cents per diluted share compared with 12 cents per diluted share in the first quarter 2022.
Adjusted EPS reflects adding back tax effected acquired intangible amortization.
On an after tax basis or acquired intangible amortization amounted to 452000 in the first quarter.
We expect after tax intangible amortization for the second quarter to be similar.
Slide eight shows our capital structure and cash flow.
We had a strong quarter of cash generation, adding $2 5 million from operations, given our modest capital requirements to grow the organic business free cash flow was $2 2 million or about 80% of net earnings.
Cash and equivalents at the end of the first quarter with $15 4 million up $2 million from the trailing quarter.
We also have 500000 in restricted cash related to a prepayment on a customer order.
In addition, we have 30 million available with our delayed draw term loan and an incremental $10 million available under our revolver.
Current leverage ratio is also below one 0.81 ex giving us considerable flexibility to continue to pursue our acquisition strategy.
As we did in each of the prior quarters, we repaid 1 million of debt, bringing it down to $15 1 million notes that repayments of debt does not increase funding available under the terms of our $30 million term loan facility.
Turning to our order activity as previously mentioned, our first quarter orders of nearly $31 million was a 23% increase versus the prior year.
This reflected increased across all end markets, except in automotive EV, which declined 600000 due to the timing of orders received.
While orders are generally lumpier from quarter to quarter demand in that market remains strong as noted by the order we announced this morning.
Sequentially overall overall orders were down a modest one 6%.
Growth in demand in both front end and backend semi automotive EV and industrial helped to offset sequential declines in security defense Aerospace life Sciences and other markets.
Again, while we think most of the sequential declines are primarily driven by the timing of underlying customer projects. We are seeing more cautious spending from customers with smaller order sizes appeals taking longer to get sign off well not unexpected given the macro environment. We are optimistic about our funnel activities, which remain healthy.
Our backlog at March 31, 2000, 22023 was $45 7 million, a 35% increase over the prior year.
Though down two 3% compared with December 31, 2022, mostly on variability in timing of orders and shipments.
Approximately 45% of the backlog is expected to ship beyond the current quarter.
Turning to slide 10, let me review our updated outlook for 2023.
We continue to be excited about where we're headed this year, while we expect the quarterly cadence of orders to be lumpy. We believe we can achieve our revenue target, which represents high single digit organic growth. In addition, we continue to pursue strategic acquisitions and partnerships to expand our portfolio and better serve our target markets.
We expect revenue for the second quarter of 2023 to be in the range of 31 to 33 million with a gross margin of approximately 46% second quarter operating expenses, including amortization she'd run between 11, four and $11 7 million. This is elevated to reflect annual merit increases.
<unk> stock compensation expense and continued sales and marketing investments.
Intangible asset amortization is expected to be approximately 540000 pretax or 450000 after tax given.
Given the loan balances and current rates, our interest expense should be approximately $190000 for the quarter.
We anticipate second quarter 2023, EPS to be in the range of 21 to 26 cents, while non-GAAP adjusted EPS should be in the range of 25 to 30.
As a reminder, we simply adjust for tax effected amortization expense and this lots of our non-GAAP measure of profitability.
We expect our growth this year to be driven by strong demand across nearly all technology offerings and end markets.
The progress we are making with our five point strategy is being realized through the implementation of disciplined processes in sales and marketing and accountability across the entire organization.
We are holding our guidance and outlook for 2023 annual revenue of $125 million to $130 million, which represents a 9% organic increase year over year at the midpoint of the range. This of course does not include the potential impact from any acquisitions. We may make this year, we are raising our gross margin.
For 2023, which is now expected to range between 46%, 47% driven by anticipated improved mix and pricing realization.
Offsetting this increase at the gross profit line are likely higher operating expenses for the year, we should be in the range of 45% to $47 million.
This includes intangible asset amortization expense of approximately $2 1 million for the full year. This translates to tax adjusted amortization expense of approximately $1 7 million for determining adjusted non-GAAP earnings.
Our effective tax rate is expected to be similar to 2022 or approximately 16% to 17% finally, our capital expenditures for 'twenty. Two 'twenty three are expected to continue to run between 1% to 2% of sales with that if you would turn to slide 11, I will now turn the call.
Back over to Nick.
Thanks, Duncan Slide 11 shows that we are making solid progress towards our 2025 revenue goal of 200 million to $250 million.
Including our 2023 expectations, we will have grown the company at a greater than 30% CAGR since we implemented our five point strategy at the start of 2021.
Excluding future acquisitions, we expect to continue driving high single digit growth with our base business.
With future strategic acquisitions, it should enable us to achieve our 2025 goal of between 202 hundred $50 million in revenue.
We have an active pipeline of acquisition and partnership opportunities and we have flexibility with our capital structure that we believe will allow us to execute on our plan.
If you'll turn to slide 12.
Our revenue growth goals should translate into strong earnings growth. Our plan is to deliver divisional operating income of over $40 million adjusted EBITDA of over $30 million and improve earnings power to over 20 million in 2025.
Let me sum up on slide 13.
As I have noted our five point strategy is delivering results for our shareholders. Our engineered solutions that enable our customers to improve productivity or create more effective solutions within their own portfolio are in high demand.
Our growing sales force is reaching more prospects and our new organization structure with three technology focused business segments has driven greater focus and collaboration across the company.
We believe this in turn will create even more opportunities for growth.
We continue to unleash the potential event tests on our journey to becoming a supplier of choice for innovative test and process technology solutions.
We are driving organic growth and actively pursuing acquisition opportunities to build our technology base deepen our market penetration and broadened our market reach.
With that operator, let's open the lines for questions.
Thank you Sir.
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Our first question is from Jason Smith of Lake Street. Please go ahead.
Hey, guys. Thanks for taking my questions and congrats on a nice start to the year.
Just wanted to start with the Silicon carbide business. I mean, you guys continue to see some really nice traction there just curious how much of the revenue pie is coming from those type of applications. This year and I guess Relatedly is this ramp in the business more driven by overall market growth or <unk>.
Can you share gains as well.
Hey, good morning, Jason and.
Thanks for acknowledging the performance in the quarter yeah.
Yeah. As you said sick continues to perform well for us are our front end semi.
Business in the quarter was roughly dunkin run 30% of our semi number we saw nice strength in our back in semi business in.
In Q1, and then within that our front end semi.
The 60% of it probably or more is related I would say, yes, correct correct right, 70%, 70%, 80% yeah. So.
Yeah, it's an area that we have.
<unk> identified as a nice growth Avenue and given them the market trends out there we believe stick will be a.
You know a nice driver for growth for us for quite some time.
Okay, No that's great to hear and when you look at that full year outlook thinking about sort of the low end versus the high end is semi in general look really just the biggest swing factor.
I would say yeah semi obviously is.
Is the big part of our business. So it can it can impact the full year I would say, though are ramping up our acquisitions will also be a big.
Part of the the full year achievement, there that were driving Duncan would you would you agree yes.
Yes, I mean, I think across all the markets. We serve there is.
Obviously more optimistic and more pessimistic potential outcomes. So I don't think it's it's just Sami.
I think the fact, we're playing across a number of interesting kind of sectors and markets.
You actually can add helps us from a diversification perspective. So it is not just Sami the swinging our business.
And as you probably saw Jason or our automotive V. V. Order. This morning, you know that there was kind of wins in new applications for our product lines, you know really positions.
Opportunities for future growth.
Yeah, Okay, and that's a good segue into my last question and then I'll jump back into queue looking at that announcement. This morning. It definitely seems really interesting just curious if this is with a new or existing customer and if you could provide some additional color on the potential for follow on.
On orders or how are you looking at this sort of new opportunity in this market.
Yeah, absolutely. So as you know we've been serving this automotive EV space for quite some time with Oh, our induction heating solutions.
And then with the acquisition of <unk> late 'twenty, one we added our battery inspection equipment, which which expanded our customer base. So this this customer is a traditional automotive.
Big player that has.
<unk> been working to establish their electric vehicle production lines and this win is really.
Exciting because it's driven also by sick and the power.
The higher power devices that are going into electric vehicles and.
What they have to do or what they would like to do is test test as well as thermally control the process with the with these chillers as they manufacture these inverters.
But manage the power from the battery to the to the wheels and that so pretty exciting.
Obviously.
And that we believe is applicable outside of just this this particular.
A particular customer and something we're going to explore and exploit as much as possible.
Okay. That's helpful. Thanks, a lot guys.
Thanks, Jason.
Thank you very much. The next question is from take Jackson Northland Securities. Please go ahead.
Thanks excuse me thanks.
I'd also went up.
Reinforce it was a very nice quarter congratulations.
Thanks Ted.
I'm going to ask a couple of questions one probably more just for Duncan.
Have a little discussion on or maybe.
Provide some commentary about.
The working capital structure, and how you see that playing out on a go forward basis.
Not to knock the cash flow generation because it was the free cash flow number was a very nice number.
Your inventory was.
It was up quite a bit.
It could have been even better you know until I guess, what I'm asking is how should I think about your <unk>.
The structure of your working capital.
Looking at kind of the current quarter particular focus perhaps on inventory and trends we might see there as we roll through 'twenty three.
Sure.
Thank you you kind of hit the nail on the head there Ted I think we had a nice free cash flow quarter as you pointed out but it could have been even better we do continue to invest in inventory of low supply the supply chain World is certainly a lot better than it was we do still.
We are still being cautious with certain kind of parts and so on where we want to make sure we have enough supply.
We do have a nice strong backlog as well as we talked about so the inventory levels, we have certainly supported by backlog.
It's something that as we go forward supply chain continues to moderate we will we will be looking to kind of squeeze that and push that a little bit more than we have but I think as you said you know really nice cash flow generation in the quarter.
And the opportunities there to see that continue.
Would it be fair.
Would we be if I thought about your inventory numbers too.
Forward part of the year when I think about.
And kind of trending sideways.
Hours basis on the balance sheet, or where do I think about it as you kind of execute against the backlog of supply chain issues.
Paid that.
We would see inventory levels trend down.
Kind of days inventories are current or however, you want to look about it.
You know kind of move back to.
Yeah, I think it's really a case of.
And so I'm, sorry that I think it's really a case of executing against backlog as I said we have.
$46 million of backlog, there that we obviously need to deliver on.
Certainly there's components within within inventory, there, where we are making sure we have the right parts and pieces and so on on hand to be able to deliver against that so Neil if backlog kind of trends down then we would expect to see inventory trending down.
Top line is obviously another factor in terms of where that's trending.
Based on the kind of.
We we see could have nice steady steady top line, but not explosive top line growth there so we'd expect to see inventory.
Really moderate around where it is we are as I said looking to kind of work that down as we slowly get our supply chain challenges kind of behind US here is as I said is that world motor rates.
Okay. Thanks, and then my second question, which is.
Honestly, I think probably will be.
A fun question for you guys to answer it.
Ties into the previous one.
Line of questioning and that goes around your acquisitions then.
We're ramping of those acquisitions.
And then bear fruit.
Where I'm going with this.
When you had.
Put out the announcement in the quarter with regards to the distribution arrangement for your.
What was it you are.
Altra, Bob Cole.
What do you call it the six children's refrigerators.
Discussions are touched based on it and.
And you had talked about how you. This was part of the efforts that you are making in terms of growing.
Was you know, albeit a small acquisition and really taking it and bringing it to the next level and creating value and with that kind of thought in mind.
Think about that spread in terms of your guidance and the ability of you to come to the higher end with some of that being a success on the acquisitions.
You guys can take a little bit of time and talk about these acquisitions some of the actions and things that you've done on an operational basis to grow those businesses in terms of you know.
Actions in terms of.
Improving the sales function, improving the products or reducing costs or do you see what I'm, saying just just kind of how are you going about generating value because you're not just buying a business plug it in and just letting it run on its own it per say youre actually buying a business that is perhaps resource Star tour.
And then provide some kind of leverage to intestine, then making out it's.
It's not a one plus one equals two to one plus.
One equals three kind of scenario is that fair to is that a question that you can answer.
Yeah happy to address them.
Yes, the acquisitions here. So yeah as we noted that these acquisitions were really lifestyle businesses.
Bran.
To a certain level and we still saw the ability that being part of <unk> tests getting them integrated into our our processes and procedures and the way. We operate we believe we can scale these things and each one's a little different in some areas, where the investments were needed but in general.
It's about driving.
Innovation and are these businesses building.
Our robust product roadmaps that are market driven.
As one of the key avenues for growth that we're driving across all three and I'll give you. An example, the north sciences.
Freezers in.
Chiller refrigerators that are that you were referencing there we are.
Completely rebranded.
We are I would say upgraded some of the designs and launched the new product lines.
After acquiring that business and then have continued to expand our capability and functionality at these products with adding.
Our cloud based monitoring et cetera into the products, so making them smarter there.
As just one example for that product line on innovation to create demand.
We've touched on <unk> and the.
The new scale X product that we've launched beginning of this year and it will be starting to ship in Q2 here. This is a really state of the art kind of AI capable edge computing.
Zoom block camera out there. So we can actually take embedded software and run it on the camera versus having to feed the.
Data back to.
Our cloud computer or a server or wherever and run the analysis and then make the determination that it can actually do that on the camera now.
And we've gotten a lot of interest.
After launching this product.
From a lead generation perspective, so we're excited to see where that goes and then last but not least our oracular logic innovation areas. There we've been focusing on.
Driving.
I would say an enhanced measurement capabilities and they're flying probes.
Systems that they have out there to better serve these battery markets and the trends, we're seeing out there and we've got.
Some new technology, there that are non contacts that technology for measuring.
Measuring properties of these batteries, which customers are looking for that we believe will be a nice demand generator as well. So innovation is the key part of it obviously investments in sales and marketing.
Adding direct sales heads building out the channels that announcement, we did four more sciences was just another example of a channel partner we brought on two to.
To help US go after more government.
Opportunities.
Out there and so yeah, we're excited about.
The progress were making with these businesses in.
Now that they're integrated and then test and look forward to seeing the results that we get.
Oh that was that was nice.
Can I ask one last question that I won't get out of the herd just since we're talking about M&A.
The acquisition strategy.
And is that you've got a good pipeline and the pipeline is full.
Is there a chance we will see some action on that front you know within the fiscal year and then are you seeing you know I mean with all the turmoil, we're having with regards to <unk>.
Capital access with the banking prices and interest rates going higher what are you seeing in terms of.
Valuations is it driving any.
People to feel more of a need to execute in terms of maybe selling the business or something.
Kind of what's the general activity and how has it changed given all the turnarounds were seeing in the capital markets.
Yeah, No we are.
As we said our pipeline is healthy we remain very active on the M&A front and have done so through 2022 after completing the 2021 deals.
Lots of opportunities to look at but.
We remain diligent to R. R.
Syria and being able to.
Then identify and close deals that we believe will bring.
Shareholder value for the company better position us with our customers aren't target markets and that so timing of closures of deals are very out there in that so it's very difficult to say.
But we remain diligent at it as for valuations, yes, I think the credit.
Markets that that's out there is certainly.
Yeah.
Multiples more a more realistic if you will where you don't see a lot of.
Teens multiples or anything like that off the EBITDA with PE.
PE firms that are sitting on a bunch of cash in that.
Absolutely absolutely kind of moderated the expectations are from the the owners the sellers on what they can.
Their businesses are worth than that so it's a good opportunity out there.
We're remaining very active in it.
And would you add anything.
No I think you captured it Nick.
Great. Thanks very much.
Got it.
Thanks, Terry I appreciate it.
Okay.
Okay.
Thank you very much.
Question is from Tim <unk>.
Please go ahead.
Thanks, and congratulations on the strong gross margin beat in the quarter and the continued execution of your strategic plan.
Couple of my questions already asked but I'll start off with asking about I believe a comment you made.
During your opening remarks, it seems like what's going on with a few other competitors there are smaller order sizes coming from smaller customers just.
They may be buckled down or delay for macro concerns could could that be possibly.
Enough upside to move the needle on your sales guidance.
Those possible delay orders come through in the September December quarters did they make up enough of amount the smaller customer side to maybe move the needle.
Well I would say youre exactly right the smaller order sizes.
A bit of the economy you see that also in the fact that the supply chain has improved so much lead times have come down and they're more confident on the ability for our suppliers.
Suppliers to be able to deliver so they've kind of moved to that trend.
<unk>, which is a good thing for us and our lead times are down as well so.
We're able to as you said respond more quickly when opportunities come so with.
The demand surges to the point, where that you know.
Creates a lot of opportunity for shipments later this year that that could certainly have an impact.
Modeled in what we believe to be a.
A very doable case here that we've laid out so we'll we'll keep marching towards that but we'll see how the quarter plays out in our activity. Our funnel activities remain very active very robust. So yeah, if something changes in order patterns will be able to capture it.
Thanks, that's helpful. I wanted to follow up on.
A news announcement you had a few weeks ago Coincidentally I think the stock was up 14% that day, but just on the stellar scientific ultra low temp biomedical stores.
We use the partnership for the U S government agencies.
Have you have you thought about maybe how sizable that to be have you gotten any indication.
Rfps on that I mean could that be $4 billion in sales over the next 12 months or something like that.
Okay.
We're we're optimistic on.
With all of our channel partners on what they are able to achieve there in that.
Too early to say what that number could be.
And the next few months or in that but we're excited to add these really quality channel partners as we build out our go to network for these freezers.
Refrigerators and our.
Our.
Our transportation Chillers as well.
Great that's helpful.
Switching gears for geographic opportunities it seems like Europe , and South East Asia to be a pretty attractive expansion opportunities.
How much of your overall strategy are you starting to focus there and maybe related on that question.
It seems like some of the low cost regions.
Maybe penetrate more with automated back back and testing where some of the competitive offerings only to you Emmanuel.
Are you seeing more opportunity for that in the automation backend side in the southeast Asia and Europe .
Yeah, no absolutely that's part of our globalization strategy out there is Europe and southeast Asia are to target areas that we want to explore.
Expand our presence in in that so yes.
We believe we can better serve customers in those regions. We made some progress with the acquisitions of <unk> and <unk> in Europe , they're both brought.
Small footprint to us, but expanding our exposure there.
Yeah. We're currently assessing how do we better.
Serve southeast Asia, and some of our customers as you know our backend test business as you know.
Ah ships a lot into the <unk>.
And southeast Asia regions, there so in particular.
But with that said, obviously a lot of activity with investments and regionalization of course, the U S. Here and then Europe recently announcing their their versions as well so.
Yes, we've got to make sure we're well positioned to capitalize on those.
Great. Thanks for that color and then my last question is you know what efforts are you may be making to grow your aftermarket service business have you added more dedicated workers there over the last two or three quarters.
Yes, we have expanded.
The service.
<unk> personnel.
And our.
Our.
<unk> here across our businesses and that fill in gaps where we we've got the customer base and we can better serve them locally and that likewise ramping up our service capabilities.
On product offerings as well as.
Trying to better serve customers through more service agreements and helping them to ensure they are their equipment is optimized out there as well so.
Multi pronged approach to expanding our service out there and we had some some good.
Good service numbers right Dunkin in the service.
Service business, a bigger piece of the pie in Q1 getting into the kind of low teens. So that's nice to see.
I would I wouldn't say, we're claiming victory, it's all nice to see the strength in the quarter certainly helps the margin side, but we'll continue that journey there are plenty of opportunities.
For us as we as we move forward here.
Great. Thanks, Nick and Jonathan I appreciate that that's it for my questions. Thanks, Tim.
Thank you. The next question is from Pizza right.
Please go ahead.
Great. Good morning, guys. Thank you for taking my questions and congratulations on the great quarter.
Thanks Peter.
Nick Mike I got a couple of questions for each of you. Nick My first question is kind of on the innovation cycle I'm, hoping you can share with us some insight into how product evolution is changing it and test.
Whether it would be more aggressive new product introductions.
Faster next generation kind of enhanced product cycle.
Any insights into kind of what is changing on the innovation curve and how it's reflected in the asp's of your product over time relative to kind of the long term trajectory of your curve there.
Sure.
Perfect go ahead, sorry to interrupt.
And then just kind of tagging that's a little piece of under that on the service business. As you as you build that out is more of the innovation customer driven or is it still primarily engineer slash and test driven.
Okay.
Let me start with the innovation, there and you know.
Kind of I would describe this and it's part of our strategy here is the innovation is really driving these businesses that.
Really do a fantastic job with our engineering knowhow and expertise of solving customer problems, but the focus in the past had been more of from one customer to the next customer to the next customer and we're taking more of a market driven.
<unk> approach to our innovation developing.
Developing.
Product portfolios product lines that are applicable to two broader customer a broader number of customers versus one individual customers.
But allows for the flexibility of late stage customization to specifically address the needs for those.
That those applications with that customer. So you are seeing much more of that standardization sub assembly type approach.
Product funnels.
B E.
The eco heat compact eco heat in a compact where kids. Good examples of that where we've reduced the size, but now we have a wide variety of power setting firepower.
<unk> options as well as.
We design, our coils and solutions around the particular applications as late as late stage customization, so being more market driven is one of the big changes.
We commented last year throughout.
The supply chain challenges Unfortunately innovation has.
It took a bit of a back seat on some of our R&D projects as we had to qualify new suppliers new vendors on products in that so I would say now that things are more stabilized we're able to put more focus on that.
Excited to see that kind of ramp back up here going forward shifting to the service side of things.
I'd say, it's a mix.
Some of the service.
Avenues in growth that we're driving here are.
Requests we've seen from service I mean from our customers and others are more of a.
And test driven just specifically trying to.
To place individuals and regions to better serve better response time et cetera, et cetera out there as well as his frame.
Framing up these agreements that we could expand our.
Capabilities and solutions that we're providing from a service perspective, the customers. So it's a mix across the board.
And any comments on kind of the ASP trajectory that you guys.
Our.
There is in the evolution from kind of component to solution, usually there is some decent ESP lift is there any.
Anything you can point to there yet that's materializing.
I would just say that you didn't go as we take the market driven approach were looking for trying to assess market pricing rather than a cost plus in the past.
So that gives us the opportunity to to validate that we're not leaving money on the table all out there in that but I mean, it varies across the product that's being developed in the end.
Across the businesses in that so from an ASP perspective.
Fantastic and then on the on the.
Acquisition strategy, if I look congratulations on your margins really kind of already hitting long term plan.
On an EBITDA margin basis.
I guess, what I'm really asking is there upside to go long term target, but when you look at your acquisition strategy. Obviously, there is integration and everything of the sword, but.
Any thoughts there in in kind of the landscape of Biz Dev.
Youre looking at.
What is the best way to think of your acquisition strategies impact on kind of your margin profile.
Yes.
<unk>.
As I think we've talked about a little bit before.
Our business is kind of running ballpark at those your longer term margin profiles.
However, we do need inorganic activity to move us into that next bracket that 200 to 250 million. There are inefficiencies there are costs associated with with acquisitions integrations et cetera. So our long term profile takes that into account.
It takes into account that you're growing organically, yes, we should see continuing operating leverage and improvements there, but but there is a cycle of inefficiency as we execute inorganically.
And integrate businesses, so that's factored into our thinking there Peter.
Fantastic and Dunkin' a follow up if I could on that.
Your commentary suggested that there might be some moderating.
Signs of a little bit of moderation the guidance really doesn't reflect that so I'm trying to understand.
The change in visibility. So is it is there is some push outs is it just slower incremental bookings as the phasing out of larger orders that were pressured from supply chain. What what is the impact that's causing kind of the moderate moderation and my very last little part I'll just add into it.
Is there any commentary you can share with us some kind of tool utilization or any of the other kind of forward looking things that youre looking at that is making you.
Add that that slightly cautious comments.
Okay, I think Nick touched on it.
One of the earlier.
So we're seeing less of these very large orders where people are buying well in advance because of significant concerns around the global supply chain.
Doesn't mean overall activity is dropping it just means those orders are smaller there perhaps on the ordering.
Quarter, a couple of quarters ahead, instead of a a year ahead, let's say so it does it doesn't mean visibility by definition youll can be hampered a little bit.
It doesn't mean the demand is not there we are seeing the demand we're maintaining backlog levels, even in spite of that dynamic.
So thats really what were talking about it it just makes that visibility.
Tiny bit tougher versus the situation, where youre getting orders for next year and even beyond.
Very clear.
So very healthy great. Thank you guys for the update.
Yeah. Thanks Peter.
Thank you very much.
And then just a reminder, if you wish to ask a question. Please press star one.
The next question is from Keith cleaner.
Global Partners. Please go ahead.
Great Nice results just one question for me you mentioned a couple of times.
Our price increases are occurring across the board are there pockets of strength based on certain solutions our verticals.
<unk>.
Further detail around the pricing landscape would be great.
Yeah, Yeah, I mean, let me try and address that Brian .
I mean pricing as we talked about a little bit in the past has been very dynamic continues to be dynamic.
And what I mean by that is the inflationary environment cost inputs changing quite dramatically very quickly over the course of the last kind of 12 months or so.
Obviously, you were looking at that constantly if oil prices go up we have to kind of move and push.
If our costs go up we have to move and push up prices up and our teams have absolutely been doing that and constantly kind of reassessing that and.
And that process continues.
Our input costs, we're seeing a little bit less in the way of that rate of change, but that's an ongoing process and then the other element of that that Nick alluded to is we continue to push around more kind of a market driven view, what's the value of our products and you'll continue to kind of push on making sure we're getting.
Value in the marketplace from a pricing perspective.
That's another angle from a longer term perspective that we continue to kind of work with our with our teams on.
But it's really across the board there's no one single product one single market or anything like that Brian I mean.
Really across the board with respect to those two elements, yeah, and I would just add another dynamic from pricing realization is this whole order trend.
If they're replacing a blanket for four quarters. These large largely.
Those prices are locked in on the on those orders basically and we have little ability to change.
Now the smaller orders every couple of quarters or so we have more flexibility to be able to adjust pricing in that so it gives us.
A better opportunity there.
Great. Thanks, Nice results again.
Thanks, Brian .
Thank you very much.
And gentlemen, with no further questions in the queue and I would like to hand, the floor back over to Greg for some closing comments.
Thank you Chris.
I want to reiterate that I'm exceptionally proud of our global team, who continue to deliver outstanding results.
We look forward to connecting with some of you aren't on May 10th at the EF Hutton inaugural Global Conference in New York City.
We really appreciate you taking the time to joining us today on our call and for your interest in Intest. Thank you all and have a great day.
Thank you very much ladies.
Ladies and gentlemen, this concludes today's conference you.
You may disconnect your lines at this time and thank you for your participation.
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