Earnings call transcript: inTest Q1 2025 reports revenue miss, stock drops

InTest Corporation (INTT) reported a challenging first quarter of 2025, with earnings falling short of expectations and revenue declining compared to forecasts. The company posted an adjusted net loss of $1.4 million, or $0.11 per diluted share, missing the expected EPS of -$0.05. Revenue came in at $26.6 million, below the forecasted $28.06 million. Following these results, inTest's stock fell 9% in premarket trading, reflecting investor concerns over the company's performance. According to InvestingPro data reveals that three analysts have recently revised their earnings expectations downward for the upcoming period. InvestingPro subscribers have access to 7 additional key insights about INTT's future prospects and valuation metrics.

Executive Commentary

"Our opportunity funnel is at an historic peak, which provides optimism on what's on the other side," said Nick Grant, CEO. Duncan Gilmore, CFO, added, "We are confident in the long-term fundamentals of our business and in our market position."

Risks and Challenges

• Economic Uncertainty: Ongoing market conditions and tariff policies may impact customer spending.
• Supply Chain Issues: Engineering delays and potential disruptions could affect future shipments.
• Competitive Pressures: Maintaining a strong market position amidst increasing competition in key sectors.

Q&A

During the earnings call, analysts questioned the impact of mid-quarter order slowdowns and the company's strategies to mitigate these challenges. InTest highlighted its diversification strategy and robust customer pipeline as key factors in addressing cyclical market issues.

Full transcript - inTest Corporation (INTT) Q1 2025:

Conference Operator: Greetings and welcome to the Intest Corporation First Quarter twenty twenty five Financial Results. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sean Suthardt, Investor Relations with nTest.

Thank you. You may begin.

Sean Suthardt, Investor Relations, InTest Corporation: Good morning, everyone. 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 Gilmore, 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.

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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, 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 GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides. Now please turn to slide four.

Nick, I'll turn the call over to you.

Nick Grant, President and Chief Executive Officer, InTest Corporation: Thank you, Sean, and good morning, everyone. Thanks for joining us for our first quarter twenty twenty five earnings call. Q1 will be remembered by most as a quarter of shifting tariff policies, macro economic turmoil and market uncertainty. It has certainly created challenging times for global companies. In the quarter, NTEST delivered $26,600,000 in revenue with gross margins of 41.5, while generating over $5,000,000 in cash and reducing debt by more than $3,000,000 to further strengthen our balance sheet.

I would like to thank the entire nTest team for making that happen in a relatively difficult environment. 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 1,500,000 of shipments out of the quarter. On a year over year comparison, sales were primarily impacted by the headwinds in 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 2,000,000, life sciences increased 1,000,000 and other markets grew 1,300,000, which partially offset the year over year declines in semi and industrial. 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 was to remain flexible to respond quickly when market conditions improve. Encouragingly, we continue 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 1,500,000 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. 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. Please turn to slide five. 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. From the supply side, as shown on the chart, nearly three fourth of our material spend is not directly impacted by additional tariffs currently. Our U. S.

Businesses only purchased approximately 1,500,000 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 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.

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 products. On the revenue front, we have looked at where we may be impacted from our products being shipped into The US as well as where we may be effective with the reciprocal tariffs shipping products out of The US. As shown on the chart over half of our sales are either associated with products made in The US and sold to US 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.

Where we do have known exposure is on our shipments from Italy into The US, which last year amounted to approximately 6,000,000 in sales and are currently subject to the increased 10% baseline tariff in place. Our biggest exposure is on what we ship directly to China from The U. S, which amounted to approximately $14,000,000 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 strategies. We also expect to be more flexible on that front as we begin production in our facility in Malaysia later this year. The balance of our sales approximately 40,000,000 are to customers around the world from our US factories that could be subject to reciprocal tariffs at some point. Should they materialize?

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 addition of manufacturing in Malaysia. Let me now review orders and backlog on slide six. While sluggish first quarter orders increased 11 year over year. Demand in industrial grew 47% to 4,600,000 driven by a $1,500,000 order from a returning customer.

Auto EV demand increased 25% to 5,100,000, primarily from alpha nation. Safety and security and life sciences also reported year over year increases in orders. Sequentially orders were down 17% from a solid fourth quarter. Semi orders declined 6,000,000 as demand was tempered in our electronic test division. Defense, aero and life sciences also reported lower demand of one point eight million and one point one 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 2,100,000, auto EV grew 1,600,000 and safety and security also reported a sequential increase. Importantly, our funnel of opportunities is at an all time high as customers have CapEx spending plans, which call for our solutions. When the global trade environment settles down, allowing economic progress to continue, we believe we are in a good spot to benefit.

Backlog at March 31 was 38,200,000.0, which includes 5,800,000.0 from affirmation. Excluding affirmation backlog over the last five quarters has remained relatively stable between thirty and thirty three million. Backlog was 17,200,000.0 lower from the prior year period and down 1,300,000.0 sequentially as we bled down the sizable backlog we acquired with alpha nation. With that, let me turn it over to Duncan to review the financials and outlook in more detail. Duncan, over to you.

Duncan Gilmore, Chief Financial Officer and Treasurer, InTest Corporation: Thank you, Nick. Starting on slide seven, As Nick noted, revenue for the first quarter was $26,600,000 Revenue was down $3,200,000 compared with Q1 twenty twenty four as a 4,300,000.0 aggregate increase in sales to the auto EV, life sciences and other markets partially offset a $6,000,000 reduction in semi and $1,200,000 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 offset the $11,900,000 decline in sales related to lower semi, auto EV, defense, aero and safety security sales volume. Total revenue was sequentially down 10,000,000 Moving to Slide eight. First quarter gross profit of CAD 11,100,000.0 decreased CAD 2,000,000 on lower year over year sales volume and unfavorable mix.

Sequentially, gross profit declined $3,400,000 on the $10,000,000 of lower sales volume. Q1 twenty twenty five gross margin of 41.5% represents a two thirty 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 a four thirty basis point inventory step up charge. As you can see on Slide nine, operating expenses were up $1,300,000 year over year at $13,900,000 Q1 20 20 5 includes $300,000 in restructuring costs and $1,300,000 of incremental operating expenses related to Alphamation, which was acquired 03/12/2024. Sequentially, operating expenses increased 1,500,000.0 Fourth quarter of 20 20 4 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.

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. Turning to Slide 10, you can see our bottom line and adjusted EBITDA results.

For the quarter, net loss was 2,300,000.0 or a loss of $0.19 per diluted share. Adjusted net loss was $1,400,000 or a loss of $0.11 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 $5,500,000 of cash from operations. Capital expenditures in the fourth quarter were approximately 200,000 and the resultant free cash flow was $5,300,000 We have a total debt leverage ratio of 1.5x, even given the decline in EBITDA. Total debt was $11,800,000 at quarter end. During the quarter, we repaid approximately $3,200,000 of debt. Cash and equivalents at the end of the first quarter were 22,000,000 up 11% or $2,200,000 from the trailing quarter.

We have more than sufficient liquidity given our cash position and the $30,000,000 available with our delayed draw term loan and an incremental $10,000,000 available under our revolver. 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 $27,000,000 to $29,000,000 with gross margin of approximately 42% and operating expenses of $13,000,000 to $13,500,000 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.

Amortization 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. 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.

With that, if you'll turn to slide 13, I will now turn the call back over to Nick.

Nick Grant, President and Chief Executive Officer, InTest Corporation: 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. We will continue to work with customers to provide the solutions they need when they need them. Innovation is a core part of

: our

Nick Grant, President and Chief Executive Officer, InTest Corporation: strategy, and now our operating system. During the first quarter, new products represented sales of 4,500,000.0, which was approximately 17 percent of our total sales. As mentioned at our Investor Day last month, our Vision 02/1930 goal is to get this to 25% in the coming years, which we are well on our way towards. Our geographic expansion actions to build sales, engineering and manufacturing in Southeast Asia are progressing well. Specifically, plans to begin manufacturing in our new Malaysia facility during the second half of twenty twenty five are on schedule and we believe that this will enable us to better serve that region.

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. We are executing our Vision 02/1930 growth strategy, which focuses on driving innovation and further geographic expansion to create greater scale while increasing our focus on operational excellence. With that operator, let's open the lines for questions.

Conference Operator: Thank you. We will now conduct a question and answer session. Our Our first question comes from Jason Schmidt with Lake Street Capital. Please proceed.

Jason Schmidt, Analyst, Lake Street Capital: Yes, 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 March that with the reaffirmation of full year guidance, things seem to be on track. Just curious when things started to take a turn?

Nick Grant, President and Chief Executive Officer, InTest Corporation: Yes. Hi, Jason. Yes, I would say on the order front, we really started to see that customer kind of slow down book ship business slowdown in the mid quarter out there, which allowed us to kind of cushion 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 yes, no, I would say mid quarter is a slowdown in orders that we started to see.

The push outs 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. So the biggest miss was just late, I'd say performance from our engineering group up there that was unable to deliver.

Jason Schmidt, Analyst, Lake Street Capital: Got you. 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 that segment? Or are there other end markets that could be the swing factors?

Nick Grant, President and Chief Executive Officer, InTest Corporation: I would say semi and auto are the biggest potential swing factors here. And our pipeline is very healthy on a number of projects for both industries. So, yes, optimistic that customers get comfortable where tariffs are heading and they get and these things get kicked off. And yes, we're back on track here. As you know, last year we had three quarters of improving orders and so showing improving market conditions in semi, 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 will kick back off here.

Jason Schmidt, Analyst, Lake Street Capital: Okay. That makes sense. And then just the last one for me and I'll jump back into queue. With all the cost cutting initiatives and sort of rightsizing the model today, how should we think about sort of the breakeven quarterly revenue level now with this new cost structure?

Duncan Gilmore, Chief Financial Officer and Treasurer, InTest Corporation: Let me take that Jason. So, I mean, you can see where we landed in Q1 '20 '6 point '6 percent 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 expect revenue that $27,000,000 to $29,000,000 range taking some cost out. 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. So I think you can calibrate it from there. We're bringing that point down. I think I've talked in the past about 30,000,000 plus or minus is a typical kind of break point.

And I'd say we're bringing that down a hair, again, if you look at the numbers that we're projecting.

Nick Grant, President and Chief Executive Officer, InTest Corporation: Okay, perfect. Thanks a lot, guys.

: Thanks, Jason.

Conference Operator: The next question comes from Dick Ryan with Oak Ridge Financial. Please proceed.

Dick Ryan, Analyst, Oak Ridge Financial: Thank you. Hey, Nick, I appreciate the details on the tariff discussion. I think that helps a lot. 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 $1,500,000 order from a returning customer. And 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, President and Chief Executive Officer, InTest Corporation: Yes. Good morning, Dick. And yes, I really wanted to make sure we tried to frame up that tariff exposure out there for us. And so glad you appreciated that. Regarding industrial, that $1,500,000 order is in our industrial numbers.

It's really more so utility space. These and when in fact at Investor Day, we kind of highlighted the utility poles that the induction heating systems to support these utility poles that get manufactured and distributed all around The U. S. 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.

Dick Ryan, Analyst, Oak Ridge Financial: Okay, how do they utilize the induction heating? Guess I'm not clear on that.

Nick Grant, President and Chief Executive Officer, InTest Corporation: 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.

Dick Ryan, Analyst, Oak Ridge Financial: Okay. Appreciate that. Say on your engineering delays, was that on some new product introductions or existing products? And was it for new or existing customers?

Nick Grant, President and Chief Executive Officer, InTest Corporation: So these were new products. As we've communicated, 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 yes, we anticipate these all of that all those units will have shipped in the next couple of weeks here. So issues resolved and products on the way to the customers.

Dick Ryan, Analyst, Oak Ridge Financial: Okay. I appreciate that. 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?

Duncan Gilmore, Chief Financial Officer and Treasurer, InTest Corporation: Yes. 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, sales teams across our businesses we're looking at. As Nick has said, I think it's the highest the company has seen in its history. I don't think we're going to throw particular numbers out there, but we do feel good about how robust that is looking.

Dick Ryan, Analyst, Oak Ridge Financial: All right. Appreciate that. Thank you.

Nick Grant, President and Chief Executive Officer, InTest Corporation: Thanks, Dick.

Conference Operator: The next question comes from Ted Jackson with Northland Securities. Please proceed.

: Hey guys, good morning.

Nick Grant, President and Chief Executive Officer, InTest Corporation: Hey, good morning, Ted.

: Excuse me. I actually don't have any questions. Every one of them got checked off in the last few rounds. But 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 of, you know, some RAD requirements, you, provided some additional disclosure with regards to segment data.

So, I guess my question is, is that one is can we get, maybe, the last year of that segment data disclosure? So, if we could do a little more restructuring of our models and then number two is, is there any chance that you have the same with regards to the restructuring of how you're reporting your balance sheet and your cash flow so I can get my model for me. Thanks.

Duncan Gilmore, Chief Financial Officer and Treasurer, InTest Corporation: Yes. I mean, 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 has 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 to help you out.

As I said, obviously we'll fill out as the year progresses. But let me just take that under consideration Ted in terms of what we can share.

: I'm just trying to, I've got to add all those things like those statements all linked together and they flow. So it just will be helpful for me to be able to kind of re tie my, you know, if I'm gonna restructure it to retie my cash flow, that's all. But no other questions with regards to the operations. So, you you did a real nice job in presentation. And again, I commend you for the effort around the tariffs.

I've been on dozens of calls this week, and that was actually one of the better breakdowns I've seen from any of the companies that I've been on. Thanks.

Nick Grant, President and Chief Executive Officer, InTest Corporation: Great. Thank you, Ted, sorry.

Conference Operator: Thank you. At this time, I would like to turn the floor back to Nick Grant for closing remarks.

Nick Grant, President and Chief Executive Officer, InTest Corporation: Thank you, Latonia. 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 25. I hope some of you can join us.

Thanks again for participating today and have a nice day.

Conference Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.

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