Q4 2023 inTEST Corp Earnings Call
Operator: Welcome to inTest Corporation, fourth quarter. This time, I'll, The question and answer session will follow the following If anyone should require operators, press star zero on your telephone. I will now turn it back over to you. Good morning, everyone.
Greetings and welcome to Intest Corporation fourth quarter 2023 financial results at this time, all participants are in a listen only mode.
A question and answer session will follow the formal offerings intuition, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Deborah Pawlowski Investor Relations for Intest. Thank you you may begin.
Deborah Pawlowski: Good morning, everyone. We certainly appreciate your interest in Intest Corporation and thank you for sharing your time with us today.
Deborah Pawlowski: We certainly appreciate your interest in inTest Corporation and thank you for sharing your time with us today. Joining me on our call are Nick Grant, our President and Chief Executive Officer, and Duncan Gilmour, our Chief Financial Officer and Treasurer. You should have the earnings release, which crossed the wires yesterday after the market, as well as the slides that will accompany our conversation today. The 2023-10-K was filed yesterday as well. These documents are available on the Investor Relations section of our website, inTest.com. You will also find restated third quarter and nine months 10 Q. A.
Deborah Pawlowski: Joining me on our call are Nick Green, our President and Chief Executive Officer, and Duncan Gilmore, Our Chief Financial Officer and Treasurer.
None: You should have the earnings release, which crossed the wires yesterday after market as well as the slides that will accompany our conversation today.
None: The 2023 10-K was filed yesterday as well. These documents are available on the Investor Relations section of our website Intest Dot com.
Duncan Gilmour: You will also find there are restated third quarter and nine months 10-Q, a it was also filed yesterday Duncan will touch on that briefly.
Deborah Pawlowski: It was also filed. Yes. Duncan will touch on that briefly. But if you would turn to slide two, I will review the safe harbors.
None: But if you would turn to slide two I'll review the Safe Harbor statement.
Deborah Pawlowski: During this call, management may make some forward-looking statements about our current plans, beliefs, and expectations, as well as state and supply for future events that are subject to risk, uncertainty, and 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 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.
None: During this call management may make some forward looking statements about our current plans beliefs and expectations.
Statements apply to future events that are subject to risks uncertainties and other factors that could cause actual results to differ materially from what is stated here today.
None: Risks and 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.
None: These documents can be found on our website or at SEC Gov.
Deborah Pawlowski: Also, management will refer to 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 GAP. You can find reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides. So with that, if you would turn to slide three, I will turn the call over to Nick.
None: Also management will refer to some non-GAAP financial measures. We believe these will be useful in evaluating our performance.
None: Should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP.
None: You can find reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides.
None: So with that if you would turn to slide three I will turn the call over to Nick.
Richard N. Grant: Yep. Thank you, Deb. And good morning, everyone.
None: Nick.
Nick Green: Thank you Deb and good morning, everyone. Thanks for joining us on our fourth quarter of 2023 earnings call.
Richard N. Grant: Thanks for joining us on our fourth quarter 2020-30 earnings call. I'm pleased to report that 2023 was our second consecutive year of record revenue, achieving $123.3 million, while also reaching net income of $9.3 million for the year, the highest level in over a decade. So I'd like to start by acknowledging and expressing my appreciation to the entire inTest team across the globe for their outstanding efforts and commitment to our strategy.
Nick Green: I am pleased to report that 2023 was our second consecutive year of record revenue achieving $123 3 million. While also reaching net income of $9 3 million for the year the highest level in over a decade.
Nick Green: So I'd like to start by acknowledging and expressing my appreciation to the entire intest team across the globe for their outstanding efforts and commitment to our strategy.
Richard N. Grant: We believe our effective execution of our five-point strategy is delivering growth, solid financial performance, and strong cash generation. Our strategy provides the framework that drives innovation, deeper penetration into target markets, geographic expansion, and attracts top talent. Through the year, we've made good progress on Key Accounts and strengthened our channel relationships around the world to improve our customer reach. Additionally, we announced a new center of excellence in Malaysia for applications engineering, product development, and localized manufacturing that will support all of our divisions and allow us to better serve customers in Southeast Asia.
Nick Green: We believe our effective execution of our five point strategy is delivering growth solid financial performance and strong cash generation.
Nick Green: Our strategy provides the framework that drives innovation deeper penetration in targeted markets geographic expansion and attracts top talent.
Nick Green: Through the year, we've made good progress at key accounts and strengthen our channel relationships around the world to improve our customer reach.
Additionally, we announced a new center of excellence in Malaysia for applications engineering product development and localized manufacturing that will support all of our divisions and allow us to better serve customers in southeast Asia.
Richard N. Grant: We believe that as we further deepen our presence in our key target markets, we are building greater stability, which is helping to offset our exposure in more cyclical semi-markets. Fourth quarter revenue was impacted by the downturn in semi-back-end orders that we discussed on our Q3 earnings call. However, we are benefiting from our breadth of innovative solutions serving the expanding needs of our non-semi-customers, especially in the industrial, auto EV, and defense aero markets. Specifically, compared with the fourth quarter of 2022, the industrial market had sales growth of 3.7 million, as our process technologies division realized strong demand for several of their innovative products, including our popular EcoHeat induction heating solution. Building on that success, we launched the EcoHeat2 induction heating product line in December, offering the next generation of this technology.
Nick Green: We believe that as we further deepen our presence into our key target markets. We are building greater stability, which is helping to offset our exposure in more cyclical semi market fourth quarter revenue was impacted by the downturn in semi backend orders that we discussed on our Q3 earnings call.
Nick Green: However, we are benefiting from our breadth of innovation innovative solutions, serving the expanding needs of our non semi customers, especially in the industrial auto EV and defense Aero markets.
Nick Green: Specifically compared with the fourth quarter of 2020 to the industrial market had sales growth of $3 7 million as our process technologies Division realized strong demand for several of their innovative products, including our popular eco heat induction heating solutions.
Nick Green: Building on that success, we launched the eco heat two induction heating product on December offering the next generation of this technology.
Richard N. Grant: We are excited about the exclusive enhancements that we've made to this popular product line. Additionally, we saw our fourth quarter sales in auto EV increase $1.2 million over the prior year, driven by our Environmental Technologies Division, where our process chillers are serving specific demands from the expanding need for inverter testing in electric vehicles. In the quarter, we also saw greater adoption of our battery test solutions for this market offered by our electronic test division. Further supporting our diversification, our fourth-quarter sales were up 11% in the defense aero market, as activity in this segment is on the rise due to global instability. We have seen increasing demand from this market for our environmental test chambers. These products provide high accuracy test capability over a wide temperature range, supporting capacity expansion in various arsenal systems.
Nick Green: We are excited about the exclusive enhancements that we've made to this popular product line.
Nick Green: Additionally, we saw our fourth quarter sales in auto EV increased $1 2 million over the prior year driven by our environmental technologies Division, where our process Chillers are serving specific demands from the expanding need for an burger testing in electric vehicles.
Nick Green: In the quarter. We also saw greater adoption of our battery test solutions for this market offered by our electronic test Division.
Nick Green: Further supporting our diversification our fourth quarter sales were up 11% and the defense Aero market as activity. In this segment is on the rise due to the global instability.
Nick Green: We have seen increasing demand from this market for environmental test Chambers. These products provide high accuracy test capability over a wide temperature range supporting capacity expansion in various Arsenal systems.
Richard N. Grant: We were encouraged to see fourth-quarter demand continuing in defense aero and industrial markets, with orders improving 70% and 110% compared with the third quarter, respectively. We also demonstrated strong cash generation that is inherent in our business in both the quarter and the year, which Duncan will cover in more detail. Organizationally, we continue to add talent to the team and are pleased to have recently announced the addition of Michael Goodrich as president of our process technologies division. Mike joined us from Vixar Inc., a subsidiary of AMS OSRAM, a manufacturer of high-performance optical components and solutions. He is a proven leader of global cross-functional teams and shares a passion for the customer fostered by his deep industry expertise. We welcome him to the team and look forward to his contributions to our organization. Mike is just one example of how we are building our team.
Nick Green: We were encouraged to see the fourth quarter demand continuing in defense Aero and industrial markets with orders, improving 70% and 110% compared with the third quarter respectively.
Nick Green: We also demonstrated strong cash generation and that is inherent in our business in both the quarter and the year, which Duncan will cover in more detail.
Nick Green: Organizationally, we continue to add talent to the team and are pleased to have recently announced the addition of Michael Goodrich as president of our process Technologies Division.
Nick Green: Mike joined US from Pixar, Inc. A subsidiary of <unk> Ram and manufacturer of high performance optical components and solutions.
Nick Green: He is a proven leader of global cross functional teams and share their passion for the customer fostered by his deep industry expertise, we welcome him to the team and look forward to his contributions to our organization.
Nick Green: Mike is just one example of how we are building our teams.
Richard N. Grant: Throughout the year and across our organization, strong talent has been added in sales, engineering, and manufacturing support roles to assist us on our transformational journey. Turning to slide four, I want to highlight the progress we've made on our diversification front, which is an important component of our five-point strategy and one that differentiates inTest from its competitors. As part of our strategy, we have made tremendous strides to strengthen our presence in key target growth markets outside of SEMI, as well as to diversify within SEMI with an eye towards the front end.
Nick Green: Throughout the year and across our organization strong talent has been added in sales engineering and manufacturing support roles to assist us on our transformational journey.
Nick Green: Turning to slide four I wanted to highlight the progress we've made on our diversification front.
Nick Green: Which is an important component of our five point strategy and one that separates <unk> from its past.
Nick Green: As part of our strategy, we have made tremendous strides to strengthen our presence in key target growth markets outside of semi as well as looking to diversify within semi with an eye towards the front end.
Richard N. Grant: Our efforts have resulted in increasing our non-semi-markets combined share of revenue from around 35% in 2021 up to 47% in 2023. And we accomplished this while also growing our semi-revenue by approximately 20% over the same time period. As I mentioned earlier, 2023 revenue increased despite the second half slowdown in 70 because of our growing presence in key target markets like defense, aero, industrial, security, life sciences, and the electric vehicle market. I'm quite pleased with the diversification progress we have made, which aligns with the strategy we laid out at our inaugural Investor Day back in 2022. With that, I will turn it over to Duncan to review the financials and outlook in more detail. Duncan, it is over to you.
Nick Green: Our efforts have resulted in increasing our non semi markets combined share of revenue from around 35% in 2021 up to 47% in 2023.
Nick Green: And we accomplished this while also growing our semi revenue by approximately 20% over the same timeframe.
Nick Green: As I mentioned earlier 2023 revenue increased despite the second half slowdown in semi because of our growing presence in key targeted markets like defense Aero Industrial security life Sciences, and the electric vehicle market.
Nick Green: I am quite pleased with the diversification progress we have made which is lines with the strategy, we laid out at our inaugural Investor day back in 2022.
Nick Green: With that let me turn it over to Duncan to review the financials and outlook in more detail.
Duncan: Duncan over to you.
Duncan Gilmour: Thank you. Before I review the results for the 4th quarter and 2023 as a whole, I want to touch on what caused the 3rd quarter restatements where we are now deferring $1.7 million of previously recognized Q3 revenue along with the associated costs. While we felt we had accounted for this correctly in our earlier Q3 report, subsequent consultation during the year-end audit process ultimately resulted in us reaching a different conclusion. I hope everyone is understanding. Let me give you some additional details.
Duncan: Thank you Nick.
Before I review the results for the fourth quarter and 2023 as a whole I wanted to touch on what caused the third quarter. These statements, where we are now deferring $1 7 million of previously recognized Q3 revenue along with the associated costs.
Duncan: While we felt we had to pay for this correctly and our early as Q3 report.
Duncan: Subsequent consultation during the year end audit process ultimately resulted in the switching a different conclusion.
Duncan: They help everyone's understanding let me give you some additional details.
Duncan Gilmour: As with most manufacturing companies, we have many carefully chosen and qualified suppliers for materials and components that we use in the building material for our product. During the year, we had a handful of suppliers notify us of their plans to discontinue some key materials or components that we use within a few customer systems. This is often referred to as a last-time buy notification or opportunity.
Duncan: As with most manufacturing companies, we have many carefully chosen and qualified suppliers for materials and components that we use in the bills of material for our products. During the year, we had a handful of suppliers notify us of their plans to discontinue some key materials or components that we use within a few customer systems.
Duncan: This is often referred to as a last time buy notification or opportunity.
Duncan Gilmour: We notified our customers in the event that they wanted to buy more of our systems that utilize these components. While not necessarily ready to commit to placing orders for additional systems at the time, a small number asked us to purchase on their behalf a certain amount of these obsolete components to ensure they would be able to order more of our systems in the future without the need for design changes due to changes within the detailed bills of material. We did this for them and were paid in full for these purchases, with full legal ownership and risk transferring to the customer.
Duncan: We notified our customers in the event they wanted to buy more of our systems that utilize these components.
While not necessarily ready to commit to placing orders for additional systems at the time, a small number of fiscal purchase exclusively on their behalf.
Duncan: And amounts of these obsolete and components to ensure they will be able to order more of our system in the future without the need for design changes due to changes within the detailed bills of material.
We did before them and were paid in full for these purchases with full legal ownership and risk transferring to the customers.
Duncan Gilmour: However, in most cases, it was requested that these materials remain at our production facilities. And despite the fact that, one, it is not guaranteed that we will ever actually get future additional orders from these customers, and two, all future orders are subject to terms unknown at this time and would be for additional consideration, we have determined that the revenue from the pre-purchase and sale of these last-time buy components should more appropriately be deferred until there is certainty as to the ultimate customer use. As already mentioned, the impact on the third quarter was a defer After being tax affected, this reduced our previously reported net income in the third quarter by approximately $700,000. On a smoothly diluted basis, this reduced our third quarter EPS by 5 cents to 19 cents.
Duncan: However, in most cases will be requested to lead materials remain as our production facilities.
Duncan: And despite the fact that one which is not guaranteed that we will ever actually get future additional orders from these customers and to all future orders are subject to terms unknown at this time and will be for additional consideration we have determined that the revenue from the pre purchase and sale of the last time buy.
Duncan: Component should more appropriately differed until there is certainty as to the ultimate customer use for and physical.
Duncan: These materials components.
Duncan: Already mentioned the impact from the third quarter was a deferral of $1 7 million of revenue as well as the associated purchasing costs after being tax affected this reduced previously reported net income in the third quarter by approximately $700000.
Duncan: On a fully diluted basis this reduced our third quarter EPS by five points.
Duncan: 19.
Duncan Gilmour: The deferred revenue and costs are now on the balance sheet and will be released if and when future orders using these materials and components are fulfilled or when they are physically shipped to our customers. The restatement had no impact on our cash balance at the end of the third quarter as the related transactions were 100% paid for by our customers. [inaudible] Now, starting on slide 5, revenue for the full year was a record $123.3 million, up 6% or $6.5 million over the prior year's record. This $6.5 million revenue growth was driven by a $5.5 million increase in the defense aerospace market.
Duncan: The deferred revenue and costs are now on the balance sheet and will be released if and when the orders using these materials and components of the sales or when they are physically ship to our customers.
Duncan: The restatement has had no impact to our cash balance at the end of the third quarter as the related transactions, 100% paid for by our customers.
So with that.
None: Let's turn to the fourth quarter and full year review.
None: Starting on slide five revenue for the full year was a record $123 3 million up 6% or $6 5 million over the prior year's record.
$6 5 million revenue growth was driven by $5 5 million increase in the defense aerospace market.
Duncan Gilmour: 4.3 million increase in industrial and increases of 14% and 6% in security and life sciences, respectively. As Nick just touched on, the diversification of revenue more than offsets the $2.7 million decline in Senate. Fourth quarter revenue was down $4.5 million year-over-year and $3.1 million on a sequential basis. In both cases, this was primarily due to the softness in the semi-market, which was partially offset by increases in the industrial and auto-EV markets. Moving to slide six.
None: $4 3 million increase in industrial and increases of 14% and 6% with security and life Sciences, respectively.
None: As Nick just touched on the diversification of revenue more than offset the $2 7 million decline in semi.
None: Fourth quarter revenue was down $4 5 million year over year, and $3 1 million on a sequential basis.
None: Both cases this is primarily due to the softness in the semi market, which was partially offset by increases in industrial and <unk> markets.
None: Moving to slide six gross profit for the year increased 7% to $57 million gross margin expanded 50 basis points to 46, 2%, reflecting the impact of higher volume favorable mix and ongoing pricing and cost actions.
Duncan Gilmour: Gross profit for the year increased 7% to $57 million. Gross margin expanded 50 basis points to 46.2%, reflecting the impact of higher volume, favorable mix, and ongoing pricing and cost actions. For the fourth quarter, gross profit of $12.4 million was down $2.5 million compared with a year ago and $2 million sequentially. Margin contraction was related to product mix and lower volume.
For the fourth quarter gross profit of $12 4 million was down $2 5 million compared with a year ago and $2 million sequentially.
None: Margin contraction was related to product mix and lower volume.
Duncan Gilmour: As you can see on slide 7, our operating expenses for 2023 were up $3.8 million over 2022, driven primarily by $1.2 million of higher corporate development expenses. As a percent of sales, OPEX increased 110 basis points to 37.7%. For the fourth quarter, the modest year-over-year increase included approximately $400,000 of higher corporate development expenses. Turning to slide 8, you can see our bottom line and adjusted data results. For the quarter, net earnings were $1.5 million, or $0.12 per diluted share.
None: As you can see on slide seven our operating expenses for 2023 were up $3 8 million over 2022, driven primarily by $1 2 million of higher corporate development expenses.
None: As a percent of sales Opex increased 110 basis points to 37, 7%.
None: For the fourth quarter, the modest year over year increase included approximately 400000 of higher corporate development expenses.
None: Turning to slide eight you can see our bottom line and adjusted EBITDA results.
For the quarter net earnings were $1 5 million or 12 cents per diluted share.
Duncan Gilmour: Adjusted Net Earnings were $1.9 million, or $0.16 per diluted share. Adjusted EBITDA for Q4 was $2.4 million, representing an 8.7% adjusted EBITDA margin. The full-year net earnings of $9.3 million benefited from interest on higher cash balances, which resulted in other income of $1.3 million.
None: Adjusted net earnings were $1 9 million or <unk> 16 per.
None: Diluted share adjusted.
None: Adjusted EBITDA for Q4 was $2 4 million, representing an eight 7% adjusted EBITDA margin.
None: For the full year net earnings of $9 3 million benefited from interest on higher cash balances, which resulted in other income of $1 3 million.
Duncan Gilmour: On a per diluted share basis, net earnings for 2023 were up 1% to $0.79 compared with $0.78 the prior year. Adjusted earnings per diluted share were $0.94 compared with $0.99 in 2022. Adjusted EBITDA for 2023 was $15.8 million, representing a 12.8% adjusted EBITDA margin. Slide 9 shows our capital structure and cash flow. We achieved strong operating cash generation in each quarter of the year, including $4.7 million in the fourth quarter, totaling $16.2 million for the year. Capital expenditures in the fourth quarter were $0.3 million, unchanged from the prior year, and $1.3 million for the full year, down from $1.4 million in 2022. Given our modest capital expenditure requirements, pre-cash flow for 2023 was $14.9 million, and cash and cash equivalents at the end of 2023 were $45.3 million, including the $19.2 million raised through our ATM equity offering in the second quarter. We paid down $4.1 million in debt during the year, including $1 million in the fourth quarter. Total debt at year-end was $12 million.
None: On a per diluted share basis.
None: Net earnings for 2023 were up 1% to 79.
None: Compared with 78 in the prior year.
None: Adjusted earnings per diluted share were <unk> 94.
None: Compared with 99 and 2022.
None: Adjusted EBITDA for 2023 was $15 8 million, representing a 12, 8% adjusted EBITDA margin.
None: Slide nine shows our capital structure and cash flow.
None: We achieved strong operating cash generation in each quarter of the year, including $4 7 million in the fourth quarter totaling $16 2 million for the year capital expenditures in the fourth quarter.
3 million unchanged from the prior year and $1 3 million for the full year down from $1 4 million in 2022.
None: Given our modest capital expenditure requirements.
None: Cash flow for 2023 was $14 9 million.
None: Cash and cash equivalents for the end of 2023 or $45 3 million, including the $19 2 million raised through our ATM equity offering in the second quarter we.
None: We paid down $4 1 million in debt during the year, including $1 million in the fourth quarter.
None: Total debt at year end was $12 million.
Duncan Gilmour: We ended 2023 with $85 million in liquidity, which included $45.3 million in cash and boring capacity of $30 million with our delayed growth terminal facility and another $10 million on our revolver. Our leverage ratio at the end of 2023 was about 0.8x. While we are talking about 2023, I should note that in the first quarter of 2024, we used about $19 million of cash for the previously announced acquisition of Alfa Romeo. Turning to slide 10, our fourth quarter orders of $27.5 million were down 12% year-over-year and up 2% versus the prior quarter. Both sequentially and year-over-year, we experienced strong demand in defense, aerospace, and industrial markets, as well as front-end training. Sequentially, orders from defense aerospace increased 70%, while industrial orders more than doubled. Many front-end orders were resilient in the fourth quarter, primarily supporting epitaxy applications. However, back-end orders declined further year over year and sequentially, but they began to show stabilization. Combined semi-orders, while down 10% year-over-year, improved sequentially by 3% to $13.3 million. Backlog at year end was $40.1 million, 14% lower than the prior year, and a decrease of 1% compared with the prior quarter.
None: We ended 2043 with $85 million in liquidity, which included the $45 3 million in cash and borrowing capacity of $30 million with our delayed draw term loan facility and another $10 million on our revolver our leverage ratio at the end of 2023 eight <unk> eight.
None: Thanks.
None: While we are talking about 2033 I should note in the first quarter of 2024, we used about $19 million of cash with the previously announced acquisition of our formation.
None: Turning to slide 10, our fourth quarter orders of $27 5 million were down 12% year over year and up 2% versus the prior quarter.
None: Credentialing and year over year, we experienced strong demand in defense aerospace and industrial markets as well as front end training.
None: Sequentially orders from defense Aerospace increased 70%, while industrial orders more than doubled.
None: Semi front end orders were resilient in the fourth quarter, primarily supporting epitaxy application backend.
None: Backend orders declined further year over year and sequentially, but began to show stabilization.
None: Buying semi orders down 10% year over year improved sequentially by 3% to $13 3 million.
None: Backlog at year end was $40 1 million, 14% lower than the prior year or down 1% compared with the prior quarter.
Duncan Gilmour: Approximately 45% of the backlog is expected to ship beyond the first quarter of 2020. Turn to slide 11 as we review our outlook for 2024. This first quarter has had a good number of moving parts as we come to the end of it here. Including just over two weeks of acquired operations from Alfa Nation, we are expecting revenue to be about $29 million with a gross margin of approximately 45 to 46 percent. First quarter operating expenses, including amortization, are expected to be approximately $13 million. This is somewhat elevated given corporate development expenses and the higher level of professional fees, both from the Alpha Nation acquisition as well as the restatement process. The intangible asset amortization after tax is expected to be approximately $0.5 million.
None: Ultimately, 45% of the backlog is expected to ship beyond the first quarter 2024.
Turning to slide 11, as we review our outlook for 2024.
None: This first quarter has had a good number of moving parts as we come to the end of the year, including just over two weeks of acquired operations from Autonation. We are expecting revenue to be about 29 million with gross margin of approximately 45% to 46%.
First quarter operating expenses, including amortization are expected to be approximately $13 million.
None: This is somewhat elevated given corporate development expenses and the higher level of professional fees both from the automation the acquisition as well as with the restatement process.
None: Intangible asset amortization after tax is expected to be approximately <unk> <unk>.
None: $5 million.
Duncan Gilmour: We expect our effective tax rate to be between 16% and 17%. We are expecting EPS for the first quarter to be about $0.06 per diluted share, while adjusted EPS should be approximately $0.10 per diluted share. As a reminder, we simply adjust for tax-affected amortization.
None: We expect our effective tax rate to be between 16% and 17%.
None: We are expecting EPS for the first quarter to be at a six cents per diluted share while adjusted EPS should be approximately <unk> 10 per diluted share.
None: As a reminder, we simply adjust for tax effected amortization expense.
Duncan Gilmour: For a full year outlook, with the addition of Affirmation, which we acquired on March 12th, we expect 2024 revenue to range from $145 to $155 million. The gross margin for 2024 is expected to be approximately 45-46%, with expected operating expenses of roughly $57-59 million. This includes tax-adjusted intangible asset amortization expense of approximately $3.5 million. However, the expected effective tax rate is higher given the jurisdictional impact of the acquisition and is expected to be about 18 to 20%.
None: For our full year outlook with the addition of automation, which we acquired on March 12, we expect 2020 for revenue to range from $145 million to $155 million.
None: Gross margin for 2024 is expected to be approximately 45% to 46% with expected operating expenses of roughly 57% to $59 million. This includes tax adjusted intangible asset amortization expense of approximately $3 5 million.
None: Our expected effective tax rate is higher given the jurisdictional impact of the acquisition and is expected to be about 18% to 20%.
Duncan Gilmour: For capital expenditures in 2024, we expect to run between 1 to 2% of sales. As usual, our guidance does not include the potential impact from any non-operating expenses such as corporate development that may occur from time to time, nor does it include the potential impact from any additional acquisitions we may make. With that, if you will turn to slide 12, I will now turn the call back over to Duncan. Thanks, Duncan. Slide 12 shows how well suited to our five-point strategy the acquisition of AlphaMation was. We view the business as an ideal fit for our electronic test division as it deepens our presence in key target markets such as auto EV and life sciences, further diversifies us into the consumer electronics space, extends our geographic reach with a sizable footprint in Europe, and broadens our portfolio of differentiated automated test solutions.
None: For capital expenditures in 2024, we expect to run between 1% to 2% of sales.
None: As usual our guidance does not include the potential impact from any non operating expenses such as corporate development that may occur from time to time, nor does it include the potential impact from any additional acquisitions, we may make with that if you'll turn to slide 12, I will now turn the call back over to Mick.
Mick: Thanks Duncan.
Slide 12 shows how well suited to our five point strategy the acquisition of Alpha nationwide.
Mick: We view the business as an ideal fit for electronic test division as it deepens our presence in key target markets, such as auto and life Sciences further diversifies us into the consumer electronics space extends.
Mick: Extends our geographic reach with a sizable footprint in Europe, and broadens our portfolio of differentiated automated test solutions.
Duncan Gilmour: And if you turn to slide 13, you can see how the additional scale provided by the acquisition furthers our progress towards our 2025 revenue goal of $200 to $250 million. Assuming all goes to plan this year, 2024 revenue will be over 2.5 times what we achieved four years ago, while also continuing to deliver on our solid margin profile. Slide 14 shows the translation of revenue growth to strong earnings.
Mick: And if you'll turn to slide 13, you can see how the additional scale provided by the acquisition furthers our progress towards our 2025 revenue goal of $200 million to $250 million.
Mick: Assuming all goes to plan. This year 2020 for revenue will be over two five times, what we achieved four years ago, while also continuing to deliver on our solid margin profile.
Mick: Slide 14 shows the translation of revenue growth.
Mick: Strong earnings.
Richard N. Grant: Our goals are to maintain our top-tier margin profile, harvest the economies of scale, and leverage the diversity of our served markets. We are executing to plan, as noted on slide 15. Our five-point strategy is delivering results for shareholders. Our engineered solutions are valued by our customers, and we believe our diversification efforts are demonstrating results with our focus on key target market growth. I'm proud of the entire inTest team for delivering another solid quarter in the year as we continue on our journey to becoming a supplier of choice for innovative tests and process technology solutions. We remain very active in pursuing acquisition opportunities to enhance our product offerings, expand our global footprint, and deepen our presence in our targeted industries. And our balance sheet is in a solid position to support these efforts. With that, Operator, let's open the lines for questions. Thank you. If you would like to ask a question, please press star 1 on your telephone. Press Star 2 if you would like to remove your... First question.
Mick: Our goals are to maintain our top tier margin profile harvest the economies of scale and leverage the diversity of our served markets.
Mick: We are executing to plan as noted on slide 15, our five point strategy is delivering results for shareholders.
Mick: Our engineered solutions are valued by our customers and we believe our diversification efforts are demonstrating results.
Mick: With our focus on key target market growth.
Mick: I'm proud of the entire Intest team for delivering another solid quarter and the year as we continue on our journey to becoming a supplier of choice for innovative test and process technology solutions.
Mick: We remain very active in pursuing acquisition opportunities to enhance our product offerings expand our global footprint and deepen our presence in targeted industries and our balance sheet is in a solid position to support these efforts.
None: With that operator, let's open the lines for questions.
None: Thank you Sue we'd like to ask a question. Please press star one on your telephone keypad.
None: 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.
None: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star T is.
None: Our first question is from Jason Schmidt with Lake Street. Please proceed.
Unknown Caller: Hey guys, thanks for taking my questions. I know Q1 is almost over, but I'm just curious if you could just discuss what you've seen from an order pattern perspective. I know orders were up sequentially in Q4. Just curious if that trend has continued here in Q1. Hey, good morning, Jaeson.
Jaeson Allen Min Schmidt: Hey, guys. Thanks for taking my questions. I know Q1 is almost over but just curious if you could just discuss what you've seen from an order pattern perspective, I know orders were up sequentially. In Q4, just curious if that trend has continued here in Q1.
None: Hey, good morning, Jason.
Richard N. Grant: And thanks for the question here. You know, as we kind of anticipated the first half of the year was going to be slower, and then, with the second half kind of ramping up, as we see is our back in the saddle, and I would say things are kind of playing out in line with that perspective that we discussed. Okay, that's really helpful. And then on the semi market, I know you highlighted it's becoming a smaller piece of the pie, but just given the volatility in that Enberg and the market, I would be curious what you're seeing from a visibility perspective there and how you're thinking about trends in that market for the year. I'm sorry, Jaeson, were you talking about the?
None: Thanks for the question here.
As we.
None: No.
None: Hum.
None: Laid out before we kind of anticipated the first half of the year was going to be slower.
None: Then.
None: With a second half kind of ramp up as we see as our backend semi and I would say things are kind of playing out in line with with that perspective that we've discussed.
None: Okay. That's really helpful. And then on the semi market I know you highlighted it's becoming a smaller piece of the pie, but just given the volatility in that Edinburgh and market would be curious what youre seeing from a visibility perspective, there and how youre thinking about trends in that market for the <unk>.
None: Year.
None: I'm, sorry, Jason when you're talking about the.
Unknown Caller: Semi-market or the automotive cutout on my end? Oh, I'm sorry, the semi-market. The SEMI back-end market. Now, again, we saw, you know, I'd say the stabilization with Q3 orders, Q4 orders back in SEMI, you know, relatively stabilizing there. And we think that will continue with what our customers and others are saying that the back-end SEMI space will expect to see more of a CapEx investment in the second half. So, we still feel that that's the right trajectory that we've laid out. And we're marching towards here. Front-end SEMI, we highlighted in the call notes here that, you know, remain resilient in Q4, these more so geared toward the epitaxy application.
None: Semi market are the automotive cut out on my end.
None: I'm sorry.
None: Market.
None: Just any back end market now and again.
None: All of them.
None: I'd say the stabilization with Q3 orders Q4 orders back in assuming relatively.
None: Stabilizing there and we think that will continue with.
None: But our customers and others are saying that backend semi space will anticipate to see more of a capex investment in the second half so.
None: We still feel.
None: But thats the right trajectory that we've laid out and we're marching towards here.
None: Front end semi.
None: We highlighted in.
None: The call notes here that remained resilient in Q4.
None: These more so geared towards the epitaxy application.
Richard N. Grant: And, you know, I would say we have quite a bit of activity on that front as well. With the timing of orders, we'll determine whether or not, you know, we see in Q1 or Q2 whether to continue on that, but still active on the front-end side of SEMI out there. And, yeah, you know, what I mentioned and what we've highlighted is, you know, the diversification that we've provided throughout our efforts to expand in other markets has really positioned us well. So, we're very, very pleased with that. I got it.
None: And.
None: I would say.
None: Quite a bit of activity on that front as well as the timing of orders will determine whether or not we see in the Q1 or Q2 for continuing on that but still active on the front end side of semi.
None: Out there and yes.
None: What I mentioned and what we've highlighted this.
None: Vacation that we've provided throughout the <unk>.
None: Our efforts to expand in other markets it really positions us well. So we're very very pleased with that.
Unknown Caller: And then just the last one for me, and I'll jump back into Q. I know you highlighted sort of all the bullet points on the alfamation acquisition a couple weeks ago, but when you look at your outlook for the year, does that assume that you can sort of hit the ground running with alfamation, or are you expecting any sort of just general friction out of the gate as things get integrated here?
None: Got it and then just a last one from me and I'll jump back into queue. I know you highlighted sort of all the bullet points on the automation acquisition, a couple of weeks ago, but when you look at your outlook for the year does that assume that you can sort of hit the ground running with Autonation, where are you expecting any sort of just general.
None: All friction out of the gate as things get integrated here.
Richard N. Grant: Yeah, you know, it takes time to drive the synergies together that we've kind of identified. What we do have, though, is a nice backlog coming in with SEMI, I mean, with Alfamation there. So, you know, I feel execution is the focus as we integrate the business and then try to build the groundwork around these synergies that we see from the sales side, which should should help us continue to accelerate the growth going forward there. But, you know, we do anticipate. That, you know, that business is going to continue to tick along as it has, as we laid out there. Okay, perfect. I appreciate the call, you guys. Thanks a lot.
None: Yes.
None: It takes time.
None: Drive the synergies together that we've kind of identified.
None: But we do have though is a nice backlog coming in with semi with automation there. So.
None: I feel it's execution is our focus as we integrate the business and then try to.
None: Build the groundwork around these synergies that we see from the sales side, which then should should help us continue to accelerate the growth going going forward there, but we do anticipate.
None: That.
None: That business is going to continue to tick along as it has which we laid out there.
None: Okay perfect I appreciate the color guys. Thanks a lot.
Operator: Thanks, Jaeson. As a reminder to press 1 on your telephone keypad if you would like to ask a question, our next question is from Ted Jackson. Thank you. Good morning, 810.
None: Thanks, Jason.
None: As a reminder, this star one on your telephone keypad. If you would like to ask a question. Our next question is from Ted Jackson with Northland Securities. Please proceed.
Edward Randolph Jackson: Thank you good morning.
Edward Randolph Jackson: Hey, Ted.
Unknown Caller: So Duncan, I've got a quick question for you on, you know, we've put, you know, there's like a million three deferred revenue on the balance sheet now that'll be, you know, burned off over time. Can you, is there a timeline you can put around that? I mean, is that something we should see happening over, you know, the next... 12 months to years, and, you know, is there something that we should be doing with the modeling? Yeah, I think that the deferred revenue is probably closer to about two million in terms of what's on there.
Edward Randolph Jackson: So Duncan just a quick question for you on.
Edward Randolph Jackson: We've put.
Edward Randolph Jackson: Is that a million three of deferred revenue on the balance sheet now that will be burned off over time.
Edward Randolph Jackson: Can you is there a timeline you can put around that I mean is that something we should see happening over the next.
Edward Randolph Jackson: 12 months two years.
Edward Randolph Jackson: Is there anything that we should be doing some modeling.
Yes, I think that the deferred revenue is probably closer to about $2 million in terms of what's on there and we're talking about we're estimating that.
Duncan Gilmour: And we're talking about, we're estimating that, you know, just over a kind of two years kind of time frame, about 40% or so, you know, within 12 months and the rest kind of after that, you know, as indicated in the, in the prepared statement. You know, that gets released as and when we receive future orders from customers, or there's clarity from the customer that they just want to receive the raw materials and components, etc. So our best estimate at the moment is that kind of 40%, 12 months, 60% kind of beyond is the way we're looking at it. Okay.
Edward Randolph Jackson: Just over two years kind of timeframe are at 40% or so within 12 months and the rest kind of after that.
Edward Randolph Jackson: Indicated in the prepared statements.
Edward Randolph Jackson: <unk>.
Edward Randolph Jackson: That gets released as and when we receive future.
Edward Randolph Jackson: Future orders from customers or there is clarity from the customer they just want to receive the <unk>.
Edward Randolph Jackson: The raw materials and components et cetera, So our best estimate at the moment is that kind of 40% 12 months, 60% kind of beyond is the way we're looking at it.
Edward Randolph Jackson: Okay.
Unknown Caller: And then we had a nice discussion with you all about the semi-market, which was very informative. But can we talk a bit about industrials and what's driving your business there? I mean, it's actually, you know, just, I mean, simply put, it's performed well, you know, kind of throughout the past two years, you know, from, you know, a reported level as well as an ordering level.
Edward Randolph Jackson: And then we had a nice discussion from you all with regards to the semi market, which was very informative, but can we talk a bit about industrials on what's driving your business there.
None: Actually just I.
None: I mean simply put it's performed well.
It kind of throughout the past two years.
None: Our reported levels all also on ordering level.
Richard N. Grant: What's driving that growth and how do you, and what do you see as the same drivers that drive growth going forward? Yeah, well, we're serving the industrial market across all of our businesses, outside of the EMS business there. So, you know, we do have a lot of products with which we focused on targeted applications that we believe are the right growth avenues, and it has delivered for us there. And then our innovation of new products that we continue to launch and bring to market is opening up additional opportunities in that industrial space. So yeah, it's not like we're a one-trick pony in that race in the industrials.
None: Whats driving that growth and how do you and what do you see it will be the same drivers that drive growth going forward.
Yes.
None: Yeah, well, we're serving the industrial across all of our businesses.
None: Outside of the.
None: The EMS business there.
None: We do have a lot of products.
None: That.
None: Where we focused on targeted applications that we believe are the right.
None: Both avenues and it has delivered for US there and then our innovation of the.
None: New products that we continue to launch and bring the market is opening up additional opportunities.
None: In that industrial space so.
None: Yes.
None: It's not like we are.
None: <unk>.
None: Trick Pony in that race and then the industrial is recovering at a multiple fronts. So we will have success in some some areas one quarter in other areas. The other but overall collectively we're moving the needle on that industrial is as you pointed out.
Richard N. Grant: We're covering it on multiple fronts. So we'll have success in some areas, one quarter, and other areas the next. But overall, collectively, we're moving the needle on that industrials, as you point out. If you move away from your kind of products, which it's nice to have diversity in terms of the products you're selling into the industrial segment, are there particular industrial markets that are more important to you than others? We love you. You know, we we we.
None: If you move away from kind of your products, which it's nice to have a diversity in terms of the products are selling into the industrial segment are there particular industrial markets that are more important than others.
None: I mean, let me.
None: Yes.
Richard N. Grant: Well, I was going to say where we saw some traction last year in that space was with our green initiative and our induction heating solutions, which went more into the power utility space and into some small gas applications where induction heating was, you know, preferred versus torch flame use out there in that. So, and it's a much greener, greener solution for customers out there. So, we continue to see that, and we've got a nice pipeline of new ones around the green initiative that we have there. So, that's a, You know, one example, one product that's working well, but again, these products, like induction heating solutions, cameras, chillers, can be used in a wide variety of applications out there, and we're certainly going after as many as we can find.
None: Well I was going to say, where we saw some traction last year in that space was.
None: Our dream initiative in our induction heating solutions.
None: Which went more into the.
None: Power utility space and to some.
None: Some oil and gas applications, where induction heating.
None: Preferred versus towards claim use out there and that so and this is a much greener and greener.
None: Solution for customers out there. So we continue to see that got a nice pipeline of new new ones around the Green initiative that we have there so that's.
None: One example, one product that's working well, but again.
None: These products like no induction heating solutions cameras chillers.
None: It can be used in a wide variety of applications.
None: Out there and we're certainly going after as many as we can find.
Unknown Caller: Okay, and then I'll step out of line for this question. But I'm just kind of looking at the different verticals and then markets on the order side, the security business. The orders were, you know, I mean, they fell off a cliff. And I'm kind of curious as to, you know, what's going on within the security business? You know, you know, what was the reason for the big drop in the fourth quarter?
None: Okay, and then I'll step out a lineup for this question, but I'm just kind of sticking into.
None: The different verticals and end markets on the order side, the security business, the orders, where it fell off a cliff and I'm kind of curious as to.
None: Whats going on within the security business.
None: What was the.
None: The reason for the big drop in the fourth quarter and how can we think about that in 2024.
Richard N. Grant: And how should we think about that in 2024? Yeah, it's all timing. You know, these are identification cameras, traffic management cameras, and, you know, the order. The customers will place a large order at any given time for multiple quarters, you know, three, four quarters out, and, well, depending on when those hit, it'll move the needles. But because they're small numbers still, and so you don't read into too much of things cratering.
None: Yes, that's all timing.
None: These are identification cameras traffic management cameras and.
None: The order.
None: The customers will place a large order.
None: At any given time for multiple.
None: Quarters.
None: Three four quarters out and depending on when those hit it.
None: Move the needles, but because they are small numbers still and so you don't read into too much of things Cratering is just more of a timing on orders are out there.
Unknown Caller: It's just more of a timing issue on orders that are out there. Would you expect to see the business, I mean, I don't know, I mean, you had a really good year in 22 and this year was clearly down a bit from that. I mean, do you expect that business to grow in fiscal 24 from fiscal 23?
None: Would you expect to see the business I mean, I don't know.
None: You had a really good year in 'twenty, two and this year was clearly down a bit from that I mean, do you expect that business to grow in 'twenty four from fiscal 'twenty three.
Richard N. Grant: Oh, absolutely. We continue to pursue opportunities and launch new cameras, you know, in this space. And yeah, we would expect to continue to drive growth across that vertical.
None: Oh, absolutely we continue to pursue opportunities launch new cameras.
None: In this space and yes, we would expect.
None: Continue to drive growth across that vertical.
Unknown Caller: Okay, thanks. I'll stop by the line. Sure. Thanks, Ted. We have reached the end of our question and answer session. I would like to turn the call back over to Nick Grant for closing.
None: Okay.
None: Thanks, I'll step out of line.
None: Sure. Thanks Ted.
None: We have reached the end of <unk>.
None: <unk> and answer session I would like to turn the call back over to Nick for closing remarks.
Richard N. Grant: Thank you, Sherry. Before we close, I would like to once again express my sincere gratitude to our global team as they continue to deliver outstanding results. And finally, we will be participating in the LD Micro 2024 Invitational Conference in New York on April 9th. We hope to connect with some of you there. We appreciate you taking the time to join us on our call today and for your interest in inTest. Thank you all and have a great day. Thank you. This will conclude today's conference. You may disconnect your lines at this time, for you
Nick Green: Thank you Sherry before we close I would like to once again express my sincere gratitude to our global team as they continue to deliver outstanding results.
Nick Green: And finally, we will be participating in the LD micro 2024 Invitational.
Nick Green: Conference in New York on April nine.
None: We hope to connect with some of you there.
None: We appreciate you taking the time to join us on our call today and for your interest in Intest.
None: You all and have a great day.
None: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.