Q1 2025 inTEST Corp Earnings Call
Operator: Greetings and welcome to the InTest Corporation First Quarter 2025 Financial Results. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.
Greetings and welcome to the <unk> Corporation first quarter 2025 financial results at this time, all participants alright in a listen only mode. A brief question and answer session will follow the formal presentation.
Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
What should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded it is now my pleasure to introduce your host Sean said at Investor relation with interest. Thank you you may begin good morning, everyone. We certainly appreciate your interest in Intest Corporation and thank you for sharing your time with us today.
Shawn Southard: It is now my pleasure to introduce your host, Shawn Southard, Investor Relation with inTest. Thank you. You may begin. Good morning, everyone. We certainly appreciate your interest in inTest Corporation, and thank you for sharing your time with us today.
Shawn Southard: 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 that went out this morning, as well as the slides that will accompany our conversation today. If not, you can find these documents on the investor relations section of our website intest.com.
Sean Said: Joining me on our call are Nick Grant, our President and Chief Executive Officer, and Duncan Gilmore, Our Chief Financial Officer and Treasurer.
Sean Said: You should have the earnings release that went out this morning, as well as the slides that will accompany our conversation today.
Sean Said: If not you can find these documents on the Investor Relations section of our website Intest Dot com.
Shawn Southard: Please turn to slide two as I review the Safe Harbor Statement. During this call, management may make some forward-looking statements about our current plans, beliefs, and expectations. These 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. 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. also as covered on slide three.
Sean Said: Please turn to slide two as that review the Safe Harbor statement.
Sean Said: During this call management may make some forward looking statements about our current plans beliefs and expectations. These 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.
Sean Said: 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.
Sean Said: These documents can be found on our website or at SEDAR.
Speaker Change: <unk> Dot Gov.
Sean Said: Also it is covered on slide three.
Shawn Southard: Management will refer to some non-GAAP financial measures. We believe these will be useful in evaluating our performance, however you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. You can find reconciliations of non-GATT measures with comparable GATT measures in the tables that accompany the day's release and slides.
Speaker Change: Management will refer to some non-GAAP financial measures.
Sean Said: We believe these will be useful in evaluating our performance.
However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP.
Sean Said: You can find reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides.
Shawn Southard: Now, please turn to slide 4.
Sean Said: Now please turn to slide four Nick I'll turn the call over to you.
Nick Grant: Nick, I'll turn the call over to you. Thank you, Shawn, and good morning, everyone. Thanks for joining us for our first quarter 2025 earnings call.
Nick: Thank you Sean and good morning, everyone. Thanks for joining us for our first quarter 2025 earnings call.
Nick Grant: Q1 will be remembered by most as a quarter of shifting tariff policies, macroeconomic turmoil, and market uncertainty. It has certainly created challenging times for global companies. In the quarter, inTest delivered $26.6 million in revenue with growth margins of 41.5%, while generating over $5 million in cash and reducing debt by more than $3 million to further strengthen our balance sheet. I would like to thank the entire inTest team for making that happen in a relatively difficult environment.
Speaker Change: Q1 will be remembered by most is a quarter of shifting tariff policies macro economic.
Nick: Thermal oil and market uncertainty.
Nick: It has certainly created challenging times for global companies.
Nick: In the quarter and tests delivered $26 6 million in revenue with gross margins of 41, 5%.
Nick: While generating over $5 million in cash and reducing debt by more than $3 million to further strengthen our balance sheet.
Nick: I would like to thank the entire intest team for making that happen in a relatively difficult environment.
Nick Grant: For the quarter, our sales were impacted by delays in customer spending driven by the uncertainty, as well as engineering challenges our team at our environmental technologies division experienced on some complex temperature chambers and chillers that we had expected would be resolved by quarter end. These engineering delays pushed approximately 1.5 million of shipments out of the quarter.
Nick: For the quarter, our sales were impacted by delays in customer spending driven by the uncertainty as well as engineering challenges our team at our environmental technologies Division experienced on some complex temperature chambers and Chillers that we had expected would be resolved by quarter end.
Nick: These engineering delays pushed approximately $1 5 million of shipments out of the quarter.
Nick Grant: On a year-over-year comparison, sales were primarily impacted by the headwinds and semi and continued weakness in industrial that we have been communicating for a few quarters now. Once again, we are benefiting from our efforts to diversify the company to help mitigate the cyclicality in SEMI. Sales to auto EV increased $2 million. Life Sciences increased $1 million. And other markets grew $1.3 million, which partially offset the year-over-year declines in semi and industrial.
Nick: On a year over year comparison.
Nick: Sales were primarily impacted by the headwinds in semi and continued weakness in industrial that we have been communicating for a few quarters now.
Nick: Once again, we are benefiting from our efforts to diversify the company to help mitigate the cyclicality in semi.
Sales to auto EV increased $2 million life Sciences increased $1 million in other markets grew $1.3 million, which partially offset the year over year declines in semi and industrial.
Nick Grant: Midway through the quarter, we took further steps to improve profitability. Given current market conditions, we have implemented tight cost controls, eliminated discretionary spending where appropriate, have restricted hiring, and are also leveraging government programs across our various sites that supplement employee wages during reduced work periods. Our goal is to remain flexible to respond quickly when market conditions improve.
Nick: Midway through the quarter, we took further steps to improve profitability.
Nick: Given current market conditions, we have implemented tight cost controls eliminated discretionary spending where appropriate have restricted hiring and are also leveraging government programs across our various sites that supplement employee wages during reduced work periods.
Nick: Our goal is to remain flexible to respond quickly when market conditions improve.
Nick Grant: Encouragingly, we continued to gain traction with new products, added new customers, and further enhanced our channels to market. As I mentioned, revenue was negatively impacted when approximately 1.5 million of shipments at the end of the quarter were not fulfilled. Our team needed additional time due to the complexity of some products in order to ensure we met our high quality standards that our customers have come to expect. These products are expected to ship in the coming weeks.
Nick: Encouragingly, we continued to gain traction with new products added new customers and further enhanced our channels to market.
Nick: As I mentioned revenue was negatively impacted when the approximately $1 5 million of shipments at the end of the quarter were not fulfilled.
Nick: Our team needed additional time due to the complexity of some products in order to ensure we met our high quality standards that our customers have come to expect.
Nick: These products are expected to ship in the coming weeks.
Nick Grant: Clearly, market conditions remain tenuous and the full ramifications of global trade situation and resulting impact to demand are not yet fully understood. During these times, we will lean into our strengths. We have leading market positions with customers, strong presence in our target markets, industry-leading applications, and innovative new products. Therefore, we believe we are well positioned for when markets do recover.
Nick: Clearly market conditions remain tenuous in the full ramifications of global trade situation, and resulting impact demand are not yet fully understood.
Nick: During these times, we will lean into our strengths.
Nick: We have leading market positions with customers.
Nick: Long presence in our target markets industry, leading applications and innovative new products.
Nick: Therefore, we believe we are well positioned for when markets do recover.
Nick Grant: Please turn to slide 5. Regarding tariffs, while not immune to whatever the outcome may be, we believe we are fairly well insulated from direct impacts on our supply chain and sales. Our supply chain is mostly localized around our production sites, and our efforts to overcome the supply chain challenges post-COVID has allowed us to develop alternate suppliers when needed. In addition, our efforts to expand our presence globally positions us well in the long term for a in-the-region, for-the-region manufacturing strategy, which should provide a cushion for tariff shocks. We are assessing tariffs from two perspectives, from supply chain impact, as well as from a market competitiveness impact on sales.
Nick: Please turn to slide five.
Nick: Regarding tariffs, while not immune to whatever the outcome may be we believe we are fairly well insulated from direct impacts on our supply chain and sales.
Nick: Our supply chain is mostly localized around our production sites and our efforts to overcome the supply chain challenges post COVID-19 has allowed us to develop alternate suppliers where needed.
Nick: In addition, our efforts to expand our presence globally positions us well no long term for a in the region for the region manufacturing strategy, which should provide a cushion for tariffs shocks.
Nick: We are assessing tariffs from two perspectives from a supply chain impact as well as from a market competitiveness impact on sales.
Nick Grant: From the supply side, as shown on the chart, nearly three-fourths of our material spend is not directly impacted by additional tariffs currently. Our US businesses only purchased approximately 1.5 million of products directly from China last year, which was less than 3% of our total spend. Our teams have been working diligently to mitigate tariff impacts with these products through alternate supply sources. We do source approximately 20% of our spend with suppliers outside of the U.S., excluding China, which today is subject to the 10% tariff baseline increase. Some suppliers have passed these costs on to us, while others have not.
Nick: From the supply side as shown on the chart nearly three fourths of our material spend is not directly impacted by additional tariffs currently.
Nick: Our U S businesses only purchased approximately $1 5 million of products directly from China last year, which was less than 3% of our total spend.
Nick: Our teams have been working diligently to mitigate tariff impacts with these products through alternate supply sources.
Nick: We do source approximately 20% of our spin what suppliers outside of the U S. Excluding China, which today is subject to the 10% tariff baseline increase.
Nick: Some suppliers have pass these costs onto us while others have not.
Nick Grant: Our businesses have already implemented tariff surcharges on quotes or have raised prices as a result. Ultimately, we expect that any incremental costs we are unable to mitigate will be passed along to customers given the high value nature of our product.
Nick: Our businesses have already implemented tariffs surcharges on quotes or have raised prices as a result.
Nick: Ultimately, we expect that any incremental costs, we are unable to mitigate will be passed along to customers given the high badly nature of our products.
Nick Grant: On the revenue front, we have looked at where we may be impacted from our products being shipped into the U.S., as well as where we may be affected with the reciprocal tariffs shipping products out of the U.S. As shown on the chart, over half of our sales are either associated with products made in the U.S. and sold to U.S. customers, or our products sold to global customers from our international sites, which are not currently impacted by tariffs. With USMCA exemptions currently effective under the tariffs, our shipments from Canada into the US for the most part will not be impacted either.
Nick: On the revenue front, we have looked at where we may be impacted from our products being shipped into the U S as well.
Nick: Where we may be effective with the reciprocal tariffs shipping products out of the U S.
Nick: As shown on the chart over half of our sales are either associated with products made in the U S and sold the U S customers or our products sold the global customers from our international sites, which are not currently currently impacted by tariffs.
Nick: With U S. M C. A exemptions currently effective under the tariffs our shipments from Canada into the U S for the most part will not be impacted either.
Nick Grant: Where we do have known exposure is on our shipments from Italy into the US, which last year amounted to approximately 6 million sales and are currently subject to the increased 10% baseline tariff in place. Our biggest exposure is on what we shipped directly to China from the U.S., which amounted to approximately 14 million in sales last year. The vast majority of these sales are to large U.S. or European multinational companies who have global manufacturing strategies. We are working closely with these customers to support them on any changes they implement to their manufacturing strategy. We also expect to be more flexible on that front as we begin production in our facility in Malaysia later this year.
Nick: Where we do have known exposure is on our shipments from Italy into the U S, which last year amounted to approximately $6 million in sales and are currently subject to the increased 10% baseline tariff in place.
Nick: Our biggest exposure is on what we ship directly to China from the U S, which amounted to approximately $14 million in sales last year.
Nick: The vast majority of these sales are two large U S or European multinational companies, who have global manufacturing strategies.
Nick: We are working closely with these customers to support them on any changes they implemented their manufacturing strategies.
Brian: We also expect to be more flexible on that Brian as we began production at our facility in Malaysia later this year.
Nick Grant: The balance of our sales, approximately $40 million. are to customers around the world from our U.S. factories that could be subject to reciprocal tariffs at some point should they materialize.
Brian: The balance of our sales approximately $40 million.
Brian: Our customers around the world from our U S factories that could be subject to reciprocal tariffs at some point should they materialize.
Nick Grant: We are optimistic that trade deals will be worked out to prevent this from happening and, depending on the deals, could even result in us being more competitive in certain parts of the world. Thinking longer term, we believe we are well positioned to support our customers globally with a sizable manufacturing footprint in Europe. and the edition of Manufacturing in Malaysia.
Brian: We are optimistic that trade deals will be worked out to prevent this from happening and depending on the deals could even resulted in us being more competitive in certain parts of the world.
Brian: Thinking longer term, we believe we are well positioned to support our customers globally with a sizable manufacturing footprint in Europe.
Brian: And the addition of manufacturing in Malaysia.
Nick Grant: Let me now review orders and backlog on slide six. While sluggish, first quarter orders increased 11% year over year. Demand and industrial grew 47% to $4.6 million, driven by a $1.5 million order from a returning customer. Auto EV demand increased 25% to 5.1 million primarily from alfamation. Safety and Security and Life Sciences also reported year-over-year increases in orders.
Brian: Let me now review orders and backlog on slide six.
Speaker Change: Wow Foggage first quarter orders increased 11% year over year.
Speaker Change: Demand in industrial grew 47% to $4 6 million driven by a 1.5 million dollar order from a returning customer.
Speaker Change: Auto EV demand increased 25% to $5 1 million primarily from al formation.
Speaker Change: Safety and security and life Sciences also reported year over year increases in orders.
Nick Grant: Sequentially, orders were down 17% from a solid fourth quarter. Simi orders declined $6 million as demand was tempered in our electronic test division. Defense Aero and Life Sciences also reported lower demand of $1.8 million and $1.1 million, respectively. Although Defense Aero demand is down, our pipeline is robust, while this market tends to be lumpy from quarter to quarter. Currently, our next generation solutions are performing well in test with our defense customers. To help partially offset those declines, industrial orders increased $2.1 million, auto EV grew $1.6 million, and safety and security also reported a sequential increase.
Speaker Change: Sequentially orders were down 17% from a solid fourth quarter.
Speaker Change: Semi orders declined $6 million as demand was tempered in our electronic test division.
Speaker Change: Defense Aero and life Sciences also reported lower demand of $1 8 million and $1 1 million respectively.
Although defense Aero demand is down our pipeline is robust while this market tends to be lumpy from quarter to quarter.
Speaker Change: Currently our next generation solutions are performing well in tests with our defense customers.
Speaker Change: To help partially offset those declines industrial orders increased $2 1 million, how do we be grew $1 6 million and safety and security also reported a sequential increase.
Nick Grant: Importantly, our funnel of opportunities is at an all time high, as customers have CapEx spending plans which call for our solution. When the global trade environment settles down, allowing economic progress to continue, we believe we are in a good spot to benefit.
Speaker Change: Importantly, our funnel of opportunities is that an all time high as customers have capex spending plans, which call for our solutions.
Speaker Change: When the global trade environment settles down, allowing economic progress did continue we believe we are in a good spot to benefit.
Nick Grant: Backlog at March 31st was $38.2 million, which includes $5.8 million from alfamation. Excluding alphamation, backlog over the last five quarters has remained relatively stable between 30 and 33 million. Backlog was $17.2 million lower from the prior year period and down $1.3 million sequentially as we bled down the sizable backlog we acquired with AlphaMation.
Speaker Change: Backlog at March 31 was $38 2 million, which includes $5 8 million for malformation.
Speaker Change: Excluding affirmation backlog over the last five quarters has remained relatively stable between 30 and $33 million.
Speaker Change: Backlog was $17 2 million lower from the prior year period, and down 1.3 million sequentially as we blend down the sizeable black backlog, we acquired with Alpha nation.
Duncan Gilmour: With that, let me turn it over to Duncan to review the financials and outlook in more detail. Duncan, over to you. Thank you, Nick. Starting on slide 7, as Nick noted, revenue for the first quarter was $26.6 million. Revenue was down $3.2 million compared with Q1 2024 as a $4.3 million aggregate increase in sales to the auto, EV, life sciences and other markets partially offset a $6 million reduction in SEMI and $1.2 million decline in the industrial market. Sequentially, while sales to industrial, life sciences and other markets increased in the first quarter compared with the trailing fourth quarter, it was not enough to offset the $11.9 million decline in sales related to lower semi, auto EV, defence aero and safety security sales volume.
Speaker Change: With that let me turn it over to Duncan to review the financials and outlook in more detail.
Duncan: Duncan over to you.
Duncan: Thank you Nick.
Duncan: Starting on slide seven as Nick noted revenue for the first quarter was 26.6 million Rev.
Duncan: Revenue was down $3 2 million compared with Q1 2024 is a $4 3 million aggregate increase in sales to the auto EV life Sciences, and other markets, partially offset a 6 million reduction in semi and 1.2 million decline in the industrial market.
Duncan: Sequentially, while sales to industrial life Sciences, and other markets increased in the first quarter compared with the trailing fourth quarter. It was not enough to offset the 11.9 million decline in sales related to lower Sammy.
Duncan: Auto EV defense Aero and safety security sales volume.
Duncan Gilmour: Total revenue was sequentially down $10 million. Moving to slide eight. First quarter gross profit of $11.1 million, decreased $2 million on lower year-over-year sales volume, an unfavourable mix. Sequentially, gross profit declined $3.4 million on the $10 million of lower sales volume. Q125 gross margin of 41.5% represents a 230 basis point tightening compared with the prior year period, primarily due to lower fixed cost absorption and less favorable mix. On a sequential basis, gross margin improved 180 basis points as the trailing fourth quarter had been negatively impacted by 430 basis point inventory step up charge. As you can see on slide 9, operating expenses were up 1.3 million year over year at $13.9 million.
Duncan: Total revenue was sequentially down $10 million.
Duncan: Moving to slide eight.
Duncan: First quarter gross profit of 11.1 million decreased $2 million on lower year over year sales volume and unfavorable mix sequentially gross profit declined $3 4 million on the $10 million of lower sales volume.
Q1, 25 gross margin of 41.5% represents a 230 basis point tightening compared with the prior year period, primarily due to lower fixed cost absorption and less favorable mix.
Duncan: On a sequential basis gross margin improved 180 basis points as the trailing fourth quarter had been negatively impacted by a 430 basis point inventory step up charge.
Duncan: As you can see on slide nine.
Duncan: Operating expenses were up 1.3 million year over year at 13.9 million Q1, 'twenty. Five includes 300000 in restructuring costs and $1 3 million of incremental operating expenses related to Alpha nation, which was acquired March 12 2020.
Duncan Gilmour: Q1 2025 includes $300,000 in restructuring costs and $1.3 million of incremental operating expenses related to Alfamation, which was acquired March 12, 2024. Sequentially, operating expenses increased $1.5 million. both quarter of 2024 benefited from an 800,000 amortization credit while Q1 spending included typically higher first quarter benefit costs as well as the aforementioned 300,000 restructuring charge.
Duncan: Sure.
Duncan: Sequentially operating expenses increased $1.5 million.
Duncan: The fourth quarter of 2020 full benefited from an 800000 amortization credit while Q1 spending included typically higher first quarter benefit costs as well as the aforementioned 300000 restructuring charge.
Duncan Gilmour: We continue to implement a series of cost-saving actions to improve our long-term profitability. The previously announced consolidation of our Videology Netherlands facility, which we estimate will translate into annualized savings of approximately 500,000 beginning in 2026, remains on track. In addition, as Nick mentioned, we further reduced headcount during Q1 and employed austerity measures versus our budgeted 2025 spend. As a result of these ongoing initiatives, we expect Q2 operating expenses, excluding restructuring costs, to run approximately $300,000 below Q1.
Duncan: We continue to implement a series of cost saving actions to improve our long term profitability.
Duncan: The previously announced consolidation of our video allergy, Netherlands facility, which we estimate will translate into annualized savings of approximately 500000, beginning in 'twenty 'twenty six remains on track. In addition, as Nick mentioned, we further reduced head count during Q1 unemployed austerity measures.
Duncan: Versus our budgeted 2025 spend.
Duncan: As a result of these ongoing initiatives, we expect Q2 operating expenses, excluding restructuring costs to run approximately 300000 below Q1.
Duncan Gilmour: Turning to slide 10, you can see our bottom line and adjusted EBITDA results. For the quarter, net loss was 2.3 million, or a loss of 19 cents per diluted share. adjusted net loss was 1.4 million or a loss of 11 cents per diluted share Adjusted EPS reflects adding back acquired intangible amortization charges and restructuring costs. Adjusted EBITDA for Q1 was negative 900,000. Slide 11 shows our capital structure and cash flow. We continue to demonstrate the inherent cash generation strength of the business. During the quarter, we generated 5.5 million of cash from operations. Capital expenditures in the fourth quarter were approximately $200,000 and the resultant free cash flow was $5.3 million.
Duncan: Turning to slide 10, you can see our bottom line and adjusted EBITDA results.
Duncan: It caused our net loss was $2 3 million or a loss of <unk> 19 cents per diluted share.
Duncan: Adjusted net loss was $1 4 million or a loss of 11 cents per diluted share.
Duncan: Adjusted EPS reflects adding back acquired intangible amortization charges and restructuring costs.
Duncan: Adjusted EBITDA for Q1 was negative 900000.
Duncan: Slide 11 shows our capital structure and cash flow.
Duncan: We continue to demonstrate the inherent cash generation strength of the business during the quarter, we generated $5 5 million of cash from operations.
Duncan: Capital expenditures in the fourth quarter were approximately 200000 and the resultant free cash flow was $5 3 million.
Duncan Gilmour: We have a total debt leverage ratio of 1.5x, even given the decline in EBITDA. Total debt was $11.8 million a quarter. During the quarter, we repaid approximately 3.2 million of debt. Cash and equivalents at the end of the first quarter were 22 million, up 11%, or 2.2 million from the trailing quarter. We have more than sufficient liquidity given our cash position and the $30 million available with our delayed draw term loan and an incremental $10 million available under our revolver.
Duncan: We have a total debt leverage ratio of 1.5 X even given the decline in EBITDA.
Duncan: Total debt was $11 8 million a quarter right.
Duncan: During the quarter, we repaid approximately $3 2 million of debt.
Duncan: Cash and equivalents at the end of the first quarter with $22 million up 11% or $2 2 million from the trailing quarter.
Duncan: We have more than sufficient liquidity, given our cash position and the 30 million available with our delayed draw term loan and an incremental $10 million available under our revolver.
Duncan Gilmour: Turning to slide 12, as Nick mentioned, given the significant uncertainty resulting from the global trade environment that makes the second half less predictable, and while we believe our plans can deliver the inability to understand the domino effect the tariffs could generate, we are focusing our guidance on the forward quarter where we have more clear visibility. For the second quarter, revenue is forecasted to be 27 to 29 million with gross margin of approximately 42% and operating expenses of 13 to 13.5 million, excluding approximately 200,000 of restructuring expenses. This guidance reflects the slowing receipt of orders and customer shipment delays we are seeing due to tariff and the resultant general economic uncertainty.
Speaker Change: Turning to slide 12, as Nick mentioned, given the significant uncertainty, resulting from the global trade environment that makes the second half less predictable and while we believe our plans can deliver the inability to understand the domino effect. The tariffs could generate we are focusing our guidance on the forward quarter.
Duncan: Do we have more clear visibility.
Duncan: For the second quarter revenue is forecasted to be 27 to 29 million with gross margin of approximately 42% and operating expenses of 13 to 13.5 million, excluding approximately 200000 of restructuring expenses. This.
Duncan: Guidance reflects the slowing receipts of orders and customer shipment delays, we are seeing due to tariffs and the resultant general economic uncertainty.
Duncan Gilmour: Amortisation and interest expense are projected to be consistent with Q1. As usual, our guidance does not include the potential impact from any non-operating expenses, such as corporate development and incremental restructuring that may occur, nor does it include the potential impact from any additional acquisitions we may make.
Duncan: Amortization and interest expense are projected to be consistent with Q1.
Duncan: As usual our guidance does not include the potential impact from any nonoperating expenses, such as corporate development and incremental restructuring that may occur nor does it include the potential impact from any additional acquisitions, we may make.
Duncan Gilmour: To reiterate, we are confident in the long-term fundamentals of our business and in our market position. Our customer pipeline is at the highest level in the history of our company. While we expect sequential improvement in top line and profitability through the year, our visibility into the timing of orders and shipments remains limited at this point.
Duncan: To reiterate we are confident in the long term fundamentals of our business and in our market position our customer pipeline is at the highest level in the history of our company.
Duncan: While we expect sequential improvement in top line and profitability through the year, our visibility into the timing of orders and shipments remains limited at this point.
Nick Grant: With that, if you will turn to slide 13, I will now turn the call back over to Nick.
Duncan: With that if you'll turn to slide 13, I will now turn the call back over to Nick.
Nick Grant: Thanks, Duncan. As we have discussed, geopolitical tensions and trade policy volatility, driven primarily by the uncertainty surrounding tariffs, have combined to create a challenging backdrop. During these uncertain times, we are leaning into our strengths. We have built a strong foundation on which we are benefiting from our market diversification, innovation and investment in regional manufacturing facilities. We continue to manage costs while remaining sufficiently agile to address our increasing funnels of opportunities. As we have noted, our opportunity funnel is at an historic peak, which provides optimism on what's on the other side. However, given the turmoil associated with tariffs and the uncertainty that it creates, customers are currently reevaluating the timing of their capital projects and shipment delivery schedules.
Nick: Thanks Duncan.
Speaker Change: As we have discussed geopolitical tensions and trade policy volatility driven primarily by the uncertainty surrounding tariffs.
Nick: We have combined to create a challenging backdrop.
Nick: During these uncertain times, we are leaning into our strengths. We have built a strong foundation on which we are benefiting from our market diversification innovation and investment in regional manufacturing facilities.
Nick: We continue to manage cost while remaining sufficiently agile to address our increasing funnels of opportunities.
Nick: As we have noted our opportunity funnel is at an historic peak, which provides optimism on what's on the other side.
Nick: However, given the turmoil associated with tariffs and the uncertainty that it creates customers are currently reevaluating the timing of their capital projects and shipment delivery schedules. We will continue to work with customers to provide the solutions they need when they need them.
Nick Grant: We will continue to work with customers to provide the solutions they need when they need them. Innovation is a core part of our strategy and now our operating system. During the first quarter, new products represented sales of $4.5 million, which was approximately 17% of our total sales. As mentioned at our Investor Day last month, our Vision 2030 goal is to get this to 25% in the coming years, which we are well on our way toward. Our geographic expansion actions to build sales, engineering, and manufacturing in Southeast Asia are progressing well. Specifically, plans to begin manufacturing in our new Malaysian facility during the second half of 2025 are on schedule, and we believe that this will enable us to better serve that region.
Nick: Innovation is a core part of our strategy and now our operating system.
Nick: During the first quarter, new products represented sales of $4 5 million, which was approximately 17% up our total sales.
Nick: As mentioned at our Investor Day last month.
Nick: Our vision 2030 goal is to get this to 25% in the coming years, which.
Nick: Which we are well on our way towards.
Nick: Our geographic expansion actions to build sales engineering and manufacturing in southeast Asia are progressing well.
Nick: Specifically plans to begin manufacturing in our new Malaysian facility. During the second half of 2025 are on schedule and we believe that this will enable us to better serve that region.
Nick Grant: The in-the-region, for-the-region approach is expected to reduce costs from both the supply chain and logistics perspective and should improve our market competitiveness. We have a healthy balance sheet and believe we have sufficient liquidity to manage whatever challenges the future may hold. Regardless of market conditions, we remain confident in our plans for long term growth.
Nick: The in the region for the region approach is expected to reduce costs from both the supply chain and logistics perspective, and should improve our market competitiveness.
Nick: We have a healthy balance sheet and believe we have sufficient liquidity to manage whatever challenges the future may hold.
Nick: Regardless of market conditions, we remain confident in our plans for long term growth.
Nick Grant: We are executing our Vision 2030 growth strategy, which focuses on driving innovation and further geographic expansion to create greater scale while increasing our focus on operational excellence.
Nick: We are executing our vision 2030 growth strategy, which focuses on driving innovation and further geographic expansion to create greater scale, while increasing our focus on operational excellence.
Operator: With that, operator, let's open the lines for questions. Thank you.
Speaker Change: With that operator, let's open the lines for questions.
Operator: We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star 1 at this time.
Speaker Change: Thank you we will now conduct a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line has been a question in Q.
Speaker Change: You May press star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys once again Thats star one at this time, one moment, while we poll for our first question.
Operator: One moment while we poll for our first question.
Jaeson Schmidt: Our first question comes from Jaeson Schmidt with the Lake Street Capital. Please proceed. Hey guys, thanks for taking my questions. Understanding sort of the dynamics in Q1 with that order pushout, but just curious when things started to change? And when did visibility get a little cloudier in the second half? Just given that it sounded at your endless day at the end of March that with the reaffirmation of full year guidance, things seem to be on track. Just curious when things started to take a turn?
Operator: Our first question comes from Jason Smith with Lake Street Capital. Please proceed.
Jason Smith: Hey, guys. Thanks for taking my questions understanding sort of the dynamics in Q1 with that order push out, but just curious when things started to change and when did visibility get a little cloudier in the second half just given that it sounded at your analyst day at the end of March that we.
Jason Smith: With their reaffirmation of full year guidance things seem to be on track just curious when things started to take a turn.
Nick Grant: For more information visit www.FEMA.gov Yeah, hi, Jason. Yeah, I would say on the order front, we really started to see that Customer kind of slow down book ship business slow down in the mid mid quarter out there, which allowed us to kind of cushioned our guidance to what we thought was achievable in the 27 to 29, and we would have been right in that guidance had we not had these engineering challenges that fell out of the quarter here. But yeah, no, I would say mid-quarters, the slowdown and orders that we started to see, the pushouts we had known about relatively mid-quarter as well, when they delayed and pushed into the second half of the year on from a number of our larger customers there.
Speaker Change: Yeah, Hi, Jason Yeah, I would say on the order front, we really started to see that.
Speaker Change: Customer kind of slow down book ship business slow down in the mid mid quarter out there, which allowed us to kind of.
Speaker Change: Our guidance to what we thought was achievable in that 27 to 29.
Speaker Change: And we and we would've been right in that guidance had we not had these engineering challenges.
Speaker Change: That fell out of the quarter here.
Speaker Change: But yeah, no I would say mid quarters a slowdown in.
Speaker Change: And orders that we started to see the push outs, we had known about relatively.
Speaker Change: Mid quarter as well when they delayed and pushed into the second half of the year on from a number of our larger customers. There. So the biggest miss was just late.
Jaeson Schmidt: So the biggest miss was just late. That's a performance from our engineering group up there that was unable to deliver. Gotcha, that's helpful.
Speaker Change: I'd say performance from our engineering group up there that was unable to deliver.
Speaker Change: Gotcha, that's helpful and then no you're not guiding for the full year anymore, but when we think about the potential swing factor either positive or negative is it primarily the semi space just given your exposure there and the volatility of volatility of that segment.
Nick Grant: And then no, you're not guiding for the full year anymore. But when we think about the potential swing factor, either positive or negative, is it primarily the semi space just given your exposure there in the volatility of volatility of that segment? Or are there other end markets that could be the swing factor? You know, I would say Simi and Otto are the biggest potential swing factors here. And our pipeline is very healthy on a number of projects for both industries. So, yeah, optimistic that, you know, customers get comfortable where tariffs are heading and, you know, and these things get kicked off.
Speaker Change: Or are there other end markets that could be the swing factor.
Speaker Change: You know I would say semi.
Speaker Change: Semi and auto one of the biggest a potential swing factors here and our pipeline is very healthy on a number of projects for both industries. So I'm.
Speaker Change: Optimistic that a.
Speaker Change: Customers get comfortable where.
Speaker Change: Tariffs are heading in.
Speaker Change: And these things get kicked off in yeah.
Nick Grant: And, yeah, we're back on track here. As you know, last year we had three quarters of improving orders and showing improving market conditions in Simi, particularly in the back end. Our front end had been paused and still slow today, but the back end was recovering and we anticipate that'll kick back off here. Okay, that makes sense.
Speaker Change: Back on track here as you know last year, we had three quarters of improving orders in some showing improving market conditions in semi.
Speaker Change: Particularly in the back end or front end had been paused and still slow today, but the Bakken was recovering and we anticipate that it'll pick back off here.
Speaker Change: Okay that makes sense and then just the last one from me and I'll jump back into queue with all the cost cutting initiatives and sort of right sizing. The model today, how should we think about sort of the break even quarterly revenue level now with this new cost structure.
Jaeson Schmidt: And then just the last one for me, and I'll jump back into Q, with all the cost cutting initiatives and sort of right sizing the model today, how should we think about sort of the break even quarterly revenue level now with this new cost structure?
Duncan Gilmour: Here, let me let me take that, Jaeson. So I mean, you can see where we landed in Q1 26.6 of revenue, and you can see the bottom line there. Revenue contribution of the business is strong. We are, as we talked about, looking to reduce spending. Hopefully temporarily, we do see the year improving. through Q3, Q4, as we indicate, even though we're just pointing to Q2. But we are being careful with our spending. We do, if you look at the Q2 numbers we've thrown out there, we do Expecting a revenue that 27 to 29 million range taking some cost though, you know, if you do the math on that, then It's getting closer to breakeven, but not quite if you just take the midpoint of some of those numbers.
Sean Said: Yeah, Let me, let me say that Jason So I mean, you can see where we landed in Q1 'twenty six six of revenue and you can see the bottom line their revenue contribution of the business is strong.
Speaker Change: We are as we talked about looking to reduce spending.
Speaker Change: Hopefully temporarily we do see the year improving.
Speaker Change: Through Q3, Q4, as we indicated even though where wood.
Speaker Change: We're just pointing to Q2, but.
Speaker Change: But we are being careful with our spending.
Speaker Change: We do if you look at the Q2 numbers, we've thrown out there we do.
Speaker Change: Expect revenue that $27 million to $29 million range, taking some cost out.
Speaker Change: You do the math on that then.
Speaker Change: It's getting closer to breakeven, but not but not quite if you just take the midpoint of some of those numbers.
Duncan Gilmour: So I think you can calibrate it from there. We're bringing that point down.
Speaker Change: So I think you can calibrate it from there we're bringing that point, then I think I've talked in the past abate.
Duncan Gilmour: I think I've talked in the past about. 30 million plus or minus is a typical kind of break point. And I'd say we're bringing that down a hair. If you again, if you look at the numbers that we're we're projecting.
Speaker Change: 30 million plus or minuses as is the typical kind of breakpoint.
And I'd say, we're bringing that down a hair.
Again, if you look at the numbers that where we're projecting.
Jaeson Schmidt: Okay, perfect. Thanks a lot, guys. Thanks, Jaeson.
Speaker Change: Okay perfect. Thanks, a lot guys.
Jason Smith: Thanks, Jason.
Dick Ryan: The next question comes from Dick Ryan with Oak Ridge Financial. Please proceed. Thank you. Hey, Nick, I appreciate the details on the the tariff discussion. I think that helps a lot.
Speaker Change: The next question comes from <expletive> Ryan with Oak Ridge Financial Please proceed.
Ryan: Thank you.
Speaker Change: Nick I appreciate the details on the the tariff discussion and I think that helps a lot.
Dick Ryan: So I want to focus on the industrial. I'm trying to square that circle. You had a nice quarter for industrial and then you mentioned a 1.5 million dollar order from a returning customer and if I think that was an induction heating and if that's so what industry segment is that and what brought them back to you?
Speaker Change: Wanted to focus on the industrials.
I'm trying to square that circle, you had a nice.
Speaker Change: Quarter for industrial and then you mentioned, a 1.5 million dollar order from a returning customer.
Speaker Change: I think that was an induction heating and if that's so what industry segment is that and what brought them back to you.
Nick Grant: Yeah, hey, good morning, Dick. And yeah, really wanted to make sure we tried to frame up that tariff exposure out there for us. And so glad you appreciated that. You know, regarding industrial, that $1.5 million order is in our industrial numbers. It's really more so utility space. These, in fact, at Investor Day, we kind of highlighted the utility poles that the induction heating systems to support these utility poles that are manufactured and distributed all around the US and around the globe or what have you. That customer came back and expanded their capacity at a new site and placed that larger order for additional induction heating systems out there.
Speaker Change: Yeah, Hey, good morning, <expletive> and and Yeah really wanted to make sure we tried to frame up that tariff exposure out there for us and.
Speaker Change: So glad you appreciate is that regarding industrial that 1.5 million dollar order is in our industrial numbers, it's really more so utility space. These and went back at Investor day, we kind of highlighted.
Speaker Change: Utility Poles.
Speaker Change: The induction heating systems to support these utility poles.
Speaker Change: That is manufactured and distributed all around the U S and around the globe what have you.
Speaker Change: Customer came back and expanded their capacity.
Speaker Change: The new site.
Speaker Change: And placed that larger order for additional induction heating systems out there.
Nick Grant: Okay, how do they utilize the induction heating? I guess I'm not clear on Yeah, so these large utility poles, steel poles, they'll heat the poles to precondition the welds for the base of these poles out there. So these are kind of like a pretreatment around the utility poles, which provides improved quality as well as increased yields for that specific customer. Okay, okay. Appreciate that.
Speaker Change: Okay, and how do they utilize the induction heating a way I guess I'm not clear on that.
Speaker Change: Yes, so that these large utility poles steel poles, they'll they'll heat the polls to precondition the welds for the base.
Speaker Change: Of these polls.
Speaker Change: Out there so he's he's are kind of like a pre treatment around the utility poles.
Speaker Change: Which provides you know.
Improved quality as well as our increased yield support for that.
Speaker Change: That specific customer.
Speaker Change: Okay.
Nick Grant: Say on your engineering delays, is that was that on some new product introductions, or existing products? And, and was it for new or existing customers? So these were new products. As we've communicated, you know, we take on challenges that others struggle with and what have you, and these are pretty complex chillers and chambers. Some existing customers, some new customers out there, and multiple systems got delayed out of the quarter, largely because the engineers were working on a couple that were more challenging and didn't get a chance to finish the work on the others. So they slipped out of the quarter there, but yeah, we anticipate these, all of that, all those units will have shipped in the next couple weeks here.
Speaker Change: I appreciate that say on your engineering delays is that was that and some new product introductions.
Speaker Change: Or existing products and and was it for new or existing customers.
Speaker Change: So these were new products and as we've communicated we.
Speaker Change: Take on the challenges that others struggle with or what have you and these are pretty complex chillers and chambers.
Speaker Change: Some existing customers some new customers out there and multiple systems got delayed out of the quarter largely because of the engineers were working on a couple that were more challenging and didn't get a chance to finish the work on the others.
Speaker Change: So they slipped out.
Speaker Change: Of the quarter, there, but yeah. We anticipate these all of that all of those units will have shipped in the next couple of weeks here, so issues resolved and end products on the way to the customers.
Nick Grant: So issues resolved and products on the way to the customer. Okay, I appreciate that.
Speaker Change: Okay.
Duncan Gilmour: And Duncan, you mentioned the customer pipeline at record levels or near record levels. Is there any way to quantify that to give us a sense of how big is big? Yeah, I mean, we typically don't project order numbers, funnel numbers, what we're really pointing to there is our opportunity funnel, looking at the quote activity, looking at the opportunities across our businesses. As Nick has said, I think it's, you know, the highest the company has seen in its history.
Speaker Change: Appreciate that and Duncan you mentioned the customer pipeline at record levels are near record levels. So any way to quantify that to give us a sense of how big is big.
Speaker Change: Yeah, I mean, we typically don't project order numbers funnel numbers, what we're really pointing to there is our opportunity funnel looking at the quote activity looking at the.
Speaker Change: The opportunities.
Speaker Change: Across our businesses and looking at it as Nick has said I think it's the highest the company has hedged.
Speaker Change: As seen in its history.
Speaker Change: <unk>.
Dick Ryan: I don't think we're going to throw particular numbers out there, but we do feel good about how robust that is looking. All right. I appreciate that. Thank you. Thanks, Dick. Once again, to ask a question at star one on your telephone keypad at this time.
Speaker Change: I don't think we're going to throw a particular numbers out there, but we do feel good about how robust that is looking.
Speaker Change: Alright, I appreciate that thank you.
Speaker Change: Thanks, Nick.
Speaker Change: Once again to ask a question Thats Star one on your telephone keypad at this time. The next question comes from Ted Jackson with Northland Securities. Please proceed.
Ted Jackson: The next question comes from Ted Jackson with Northland Securities. Please proceed.
Ted Jackson: Okay, guys, good morning. Hey, good morning, Ted. Excuse me. I actually don't have any questions. Every one of mine got checked off in the last few rounds. But, you know, you did actually in your financials, you made some restructuring with regards to the balance sheet and the cash flow. And then I know because it's, you know, some reg requirements, you provided some additional disclosure with regards to segments.
Ted Jackson: Hey, guys good morning.
Ted Jackson: Hey, good morning, Ted.
Ted Jackson: Excuse me.
Speaker Change: I actually don't have any questions every one of them I got checked off in the last few rounds.
Speaker Change: But you know you did actually in your financials, you made some restructuring with regards to the balance sheet and the cash flow and then I know because its you know some rising requirements you provided some additional disclosure.
Speaker Change: <unk> segment.
Duncan Gilmour: I guess my question is, is that one is, can we get maybe the last year? segment data disclosure, so we can do a little more structural. Number two is, is there any chance that restructuring of how you're reporting. Yeah, I mean, obviously, those numbers will fill in as the year progresses. I think you're talking about we collapsed a couple of categories in the cash flow, the balance sheet as presented there, just tidying up some of the reporting. that will fill out as the year progresses. Let me take that away. Maybe we can provide what that looks like.
Speaker Change: So I guess my question is is it one is can we get maybe in the last year.
Speaker Change: Segment data disclosures, we can do a little more restructuring of our models.
Speaker Change: Number two is getting is there any chance that you.
Speaker Change: Same with regards to the.
Speaker Change: The structuring of how you're reporting your balance sheet your cash.
Speaker Change: I get my model for me.
Speaker Change: That's right.
Speaker Change: So.
Speaker Change: Thanks.
Speaker Change: Yeah, I mean, obviously those numbers are fill in as the year progresses, I think you're talking about even collapsed a couple of categories in the cash flow. The balance sheet is presented there just tidying up some of the poor thing.
Speaker Change: That will fill out as the year progressed CS let me take that away, maybe we can provide what that looks like.
Ted Jackson: to help you. As I said, obviously, we'll fill out as the year progresses. But let me just take that into consideration, Ted, in terms of What we can share, you know, I'm just trying to I got it. I've got it. I have all those things like those statements all linked together and they flow. So it just will be helpful for me to be able to, you know, kind of, you know, retime. I, you know, if I'm going to restructure it to retime, I can. Um, but no other questions with regards to the operation. So I think, you know, you did a real nice job with presentation.
Speaker Change: To help you as I said, obviously it will fill out as the year progressed. These but let me just take under consideration set in terms of.
Speaker Change: What we can share I'm, just trying to I got it I got it.
Speaker Change: All of those things like those statements all linked together and they flow. So it will be helpful for me to be able to kind of re.
Speaker Change: Re time by.
Speaker Change: Climate or restructure it to every time the cash flow.
Speaker Change: That's all.
Speaker Change: But no other questions with regards to the operations.
Ted Jackson: And again, I commend you for the The effort around the tariffs, I've been on dozens of calls this week, and that was actually one of the better breakdowns. Great. Thank you, Dick. Oh, Ted, sorry. Thank you.
Speaker Change: Nice job on the presentation again, I commend you for the year.
Speaker Change: Yeah effort around the tariffs I think dozens of calls this week and that was actually one of the better breakdowns I've seen so many of the companies.
Speaker Change: Thanks.
Speaker Change: Great. Thank you.
Speaker Change: Oh, sorry.
Yes.
Nick Grant: At this time, I would like to turn the floor back to Nick Grant for closing remarks. Thank you, LaTonya. We appreciate you joining us today. Thank you for your time. And we welcome the opportunity to answer any further questions you may have.
Speaker Change: Thank you at this time I would like to turn the floor back to Nick for closing remarks.
Thank you Latanya. We appreciate you joining us today. Thank you for your time and we welcome the opportunity to answer any further questions. You may have on slide 14. Please note that in addition to the details regarding the replay of this call we will be participating in the Northland growth conference virtually on June.
Nick Grant: On slide 14, please note that in addition to the details regarding the replay of this call, we will be participating in the Northland Growth Conference virtually on June 25. I hope some of you can join us. Thanks again for participating today and have a nice day. Thank you.
Speaker Change: 25th I hope somebody you can join us.
Speaker Change: Thanks, again for participating today and have a nice day.
Speaker Change: Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Operator: This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
Speaker Change: [music].
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