Laura Guerrant - Investor Relations Consultant Robert Matthiessen - President and CEO Hugh Regan - Treasurer and CFO Jim Pelrin - EVP

Welcome to inTEST Corporation's 2017 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today. A replay will be accessible at www.intest.com. I will now turn the call over to inTEST Investor Relations Consultant, Laura Guerrant, please go ahead.

Thank you, Stephanie and thank you for joining us for inTEST's 2017 first quarter financial results conference call. With us today are Robert Matthiessen, President and CEO; Hugh Regan, Treasurer and Chief Financial Officer; and Jim Pelrin, Executive Vice President. Mr. Matthiessen will briefly review highlights from the first quarter as well as current business trends. Mr. Regan will then review inTEST's detailed financial results and discuss guidance for the 2017 second quarter. We'll then have time for any questions. If you have not yet received a copy of today's release, a copy can be obtained on inTEST's website www.intest.com. Before we begin the formal remarks, the company's attorneys advise that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements do not convey historical information, but relate to predicted or potential future events that are based upon management's current expectations. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, changes in business conditions and the economy, changes in the demand for semiconductors, changes in the rates of and timing of capital expenditures by our customers, the success of our strategy to diversify our business by entering markets outside the semiconductor or ATE markets, progress of product development programs, increases in raw material and fabrication costs associated with our products, our ability to implement and execute the 2015 repurchase plan, and other risk factors set forth from time to time in the company's SEC filings including but not limited to, inTEST's periodic reports on Form 10-K and Form 10-Q. The company undertakes no obligation to update the information on today's conference call to reflect events or circumstances after the date hereof or to reflect the occurrence of anticipated or unanticipated events. And with that, let me now turn the call over to Bob Matthiessen. Please go ahead, Bob.

Thank you, Laura. Welcome everyone to our 2017 first quarter conference call. I'll review some of the highlights, our markets, and what we are seeing in our customer base and then Hugh will review the financial results in detail. Demand for our broad-based solutions was unexpectedly strong and solid Q1 financial results were across the board with Thermal Solutions and EMS products comprising 55% and 45% of net revenues respectively. We had a significant bookings quarter with numbers not seen for nearly a decade. Net revenues and gross margin increased sequentially and we delivered our 30th consecutive quarter of profitability. Our Thermal Solutions division was fueled by strong orders from telecom, semiconductor, and defense/aerospace customers in both North America and Asia. While solid advances in the automotive industry as well as demand for the Internet of Things, industrial products, and consumer electronics drove the EMS business. Our Thermal Solutions segment, which is our largest and most profitable division, continues to be a major contributor to our results. We have strategically diversified this segment resulting in new opportunities in industrial testing and a broadening of our end market penetration into electronics test applications in various growth markets including automotive, consumer electronics, military aerospace, energy, industrial, and telecommunications. In addition, new product offerings have opened industrial markets outside of test for both OEM and end user applications. Thermal Solutions business increased for both North America and Asia. Customers from mil/aero, telecom, and semi markets continue with strong orders in North America while the increase in Asia business was driven by continued strength in the semi market for our thermal equipment as well as our emerging chiller business. Thermal Solutions bookings for the first quarter were $7.3 million compared with fourth quarter bookings of $6.7 million. Q1 Thermal Solutions segment revenues were $7.8…

Thanks, Bob. First quarter 2017 end user net revenues were $12.5 million or 88% of net revenues compared to $9.6 million or 93% of net revenues in the fourth quarter. OEM net revenues were $1.7 million or 12% of net revenues, up from $692,000 or 7% for the fourth quarter. Net revenues from markets outside of semiconductor test were $3.7 million or 26% of net revenues compared with $4.3 million or 42% of net revenues in the fourth quarter. Our first quarter gross margin was $7.7 million or 55% as compared with $5.4 million or 53% in the fourth quarter. The improvement in the gross margin was primarily the result of a better absorption of our fixed manufacturing costs due to significantly higher revenues partially offset by an increase in our consolidated component material costs, which grew from 32.1% in the fourth quarter to 33.2% in the first quarter. While our fixed manufacturing cost declined from 13% of net revenues in the fourth quarter to 10% of net revenues in the first quarter, they increased in absolute terms by $166,000 or 13% to $1.5 million. The increase in first quarter manufacturing costs were the result of higher levels of facility cost as well as increased selling and benefit expense due to additional staff hired during the first quarter in response to increased manufacturing activity. While there were increases in the component material costs of both of our product segments, the increase in consolidated component material costs in the first quarter was primarily the result of an increase in the component material costs of our Thermal Solutions segment, which grew from 30.5% in the fourth quarter to 31.7% in the first quarter while our EMS product segment saw its component material cost increase from 35.0% to 35.1% sequentially. These increases were…

[Operator Instructions] There are no questions in queue. Go ahead, Laura.

Hugh, we have a question from the webcast.

Yes, I have it right here in front of me.

Actually, we got more than one. So let we make this one first and then we'll take the next one that you have. This question comes from Thomas Cook with Transco Partners and he was wondering if we can explain how the second quarter revenues estimate is less than first quarter bookings and he was asking if it means that these bookings will not translate to revenues until the second or third quarter, is there a likelihood they are canceled?

I'm happy to respond to that. While we had significant bookings in Q1 that came in at $15 million, the backlog at the end of the quarter was only $8.2 million, which means we booked and shipped approximately half of - we shipped approximately half of what we booked during the quarter. So, it's not uncommon for us to have bookings trending downward or upward relative to guidance, but at this point, we do project a slight decrease in the guidance range that we provided for Q2, 13 to 14 versus 13.5 to 14.5 [ph] but where bookings will come in at this point, we clearly anticipate bookings trending down slightly from where they were in Q1, but we don't provide a booking guidance number. Laura, I think I've responded to that question. Should we take the next one?

Yes, go ahead. Take the next one.

All right, and this came in from an investor who had previously spoken with us. I think you have mentioned once that some of the non-semi markets you serve are not really served markets, but are more like applications that you were selling to customers in various markets or I think it was something to that effect. Can you extrapolate or explain this further? Jim, would you mind responding to that question?

Certainly, much of our non-semi business is application driven. They're highly customized solutions for particular projects that customers have undertaken. It usually results in the sale of a single unit, sometimes a couple or 3 units, but very, very rarely is it more than that and there are no other customers for that same unit, each are individual and unique. So we view it more as applications within markets, not really as a true market. I think I've answered that question.

Yes, you did Jim. Thank you very much. Laura, that's it for questions that I had that were sent in advance of the call.

Stephanie, do we have any other questions that I don't see.

I have one comment on the previous question. I think one of the points was, have we seen any push outs and the answer is no, we haven't seen any push outs and that's not affecting revenues at all.

Thank you for that clarification, Jim. If there are no further questions, Bob, we'll turn the call back over to you.

Okay, thank you for your interest in inTEST. We look forward to seeing many of you at the LD Micro conference in Los Angeles on June 6 and the CEO Summit at SEMICON West on July 12 in San Francisco and to updating you on our progress when we report our second quarter results in August, good evening.

Thank you that does conclude today's conference call. You may now disconnect and have a wonderful day.