Welcome to inTEST Corporation's 2017 Second Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today and a replay will be accessible at www.intest.com. I would now turn the call over turn the call over to inTEST's Investor Relations consultant, Laura Guerrant, please go ahead.

Thank you, operator, and thank you for joining us for inTEST's 2017 second quarter financial results conference call. Before we begin, please be aware that our press release was issued today with an error. The wires service issued the release without the reconciliation of GAAP to non-GAAP net earnings table. Instead, it was issued with duplicate condensed consolidated balance sheet data table. The correct release is in the process of being issued. If you need a copy of the corrected release, please contact me directly via email at lguerrant@guerrantir.com. With us today are Robert Matthiessen, inTEST's Chairman, President and CEO, Hugh Regan, Treasurer and Chief Financial Officer and Jim Pelrin, Executive Vice President and Chief Operating Officer. Bob will briefly review highlights from the second quarter as well as the current business trends, followed by an update on our recent acquisition of Ambrell by Jim. Hugh will then review inTEST's detailed financial results and discussed guidance for 2017 third quarter. We'll then have time for any questions. 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; our ability to integrate Ambrell corporation into our business successfully or operate Ambrell profitably; 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, 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. During today's call, we will make reference to non-GAAP financial measures. We have provided additional information concerning these non-GAAP measures including the reconciliation to the directly comparable GAAP measure in our press release, which is posted on the investor page of our website, www.intest.com. And with that, let me now turn the call over to Bob Matthiessen, please go ahead, Bob.

Thanks, Laura. I'd like to welcome everyone to our 2017 second quarter conference call. We are very pleased with our results for the quarter. We continue to see strong demand for our broad-based solutions. On the heels of an exceptionally strong first quarter, second quarter revenue increased 33% year-over-year, excluding the impact of Ambrell Corporation, which we acquired on May 24, 2017, and we mark the company's 31st consecutive quarter of profitability. It should be noted that these results include only five weeks post-acquisition contribution from Ambrell's operations during the quarter. Our Thermal segment, which is now composed of the combined business of inTEST Thermal solutions, or ITS, and Ambrell, delivered solid results during the quarter. ITS provides thermal products for test and development applications, while Ambrell provides thermal induction heating products for industrial manufacturing applications. We have strategically diversified this segment, resulting in new opportunities in industrial manufacturing through both OEM and end-user applications. This diversification complements our broad penetration into electronic test markets, broadening inTEST's footprint as a provider of highly-engineered Thermal Products, now for both test and industrial applications. Thermal segment bookings for the second quarter were a $8.8 million, which included $2.3 million in bookings for Ambrell, compared with first quarter bookings of $7.3 million. Q2 thermal segment revenues were $9.2 million, which included $2 million of revenues for Ambrell, compared with $7.8 million in the first quarter. Customers for Mil/Aero and telecom continued with strong orders in North America and telecom in Asia and our chiller systems remain strong with increased business over Q1. There was a slight decrease in Asia business due to the drop off in the semi market. Thermal segment highlights for the quarter, included a large Mil/Aero customers purchased variety of ThermoStreams cryoplates and chambers; a major supplier of military communication…

Thank you, Bob. I'd just like to reiterate the significance of our Ambrell acquisition. Ambrell's induction heating technology complements our current thermal technologies and establishes our position in industrial markets with a diverse customer base and the broad manufacturing space, including many emerging markets, consumer product packaging, fiber optics, automotives and other markets. In the coming quarters, we'll be sharing highlights from Ambrell detailing its important contributions to the Thermal segment and inTEST as a whole. Ambrell's outlook for Q3 and Q4 is upbeat with continued activity from OEM partners and major customers operating in a wide range of markets. And with that, I'll turn the call over to you Hugh to discuss our second quarter results in detail. Hugh?

Thank you, Jim. Second quarter 2017 end-user net revenues were $15.1 million, or 95% of net revenues, compared to $12.5 million, or 88% of net revenues in the first quarter. OEM net revenues were $762,000 or 5% of net revenues, down from $1.7 million or 12% for the first quarter. Net revenues from markets outside of the ATE market were $5.7 million or 36% of net revenues, compared with $3.7 million or 26% of net revenues in the first quarter. As noted earlier in this call, Ambrell net revenues for the second quarter were $2 million and our net revenues for markets outside of the ATE market, excluding Ambrell, were $3.7 million or 24% of net revenues. So clearly Ambrell does further diversify our served markets. We expect that revenues from markets outside of the ATE market will equal or exceed our ATE market revenues going forward. Our second quarter gross margin was $8.4 million or 53% as compared with $7.7 million or 55% in the first quarter. The reduction in gross margin was primarily the result of an increase in our fixed manufacturing costs and a less favorable absorption of these costs, partially offset by a decrease in our consolidated component material costs, which declined from 33.2% in the first quarter to 32.8% in the second quarter. Our manufacturing -- excuse me, our fixed manufacturing costs increased by $444,000 or 31% sequentially, and represented 12% of our net revenues in the second quarter compared to 10% in the first quarter. Ambrell's fixed manufacturing costs were $404,000, and excluding the impact of Ambrell, our fixed manufacturing costs would have only increased $40,000 or 3% sequentially, and would represent 9% of our net revenues for the second quarter. The increase in second quarter fixed manufacturing costs was primarily the result of…

[Operator Instructions] And your first question comes from the line of Tomer Cohen with Five Roads Capital.

Good afternoon. Congrats on another good quarter.

Thank you, Tomer.

I've got a couple of questions about Ambrell's business. Maybe we could just start by help me understand, who are the competitors that Ambrell faces off against?

Jim, would you like to respond to that?

Certainly Ambrell -- the induction heating market can be looked upon in two sectors. One is from 1 to 500-kilowatt products and the other is above 500-kilowatt products. Ambrell does not offer products above 500 kilowatts. Those are generally for heavy machinery, smelting and that type of thing. Instead, they are in the manufacturing process realm, which is 500 watts and below, and we view that market as being about a $400 million market and it's composed of about 20 -- 20 competitors of that, four or five of them are about double Ambrell's size. There's a couple that are equivalent and all the rest are $15 million or less in revenue. So Ambrell is -- it's a strange market in that there is not a single large dominant player. Now I might add that several of their competitors, like Ajax Tocco and Inductotherm are much larger companies. But if you look at only that induction heating component of their revenue, that's management's best guess.

Okay, that's helpful. And then maybe if you could help me to understand what are your competitive advantages? And how you differ from the rest of the market?

Well, the Ambrell specializes in their application engineering and they actually customize their products to suit whatever the application might be. They do a lot of work with Tier 1 automotive companies that are actually embedding Ambrell's product in their manufacturing process. They do a lot of work with integrators all of the major integrators that serve at several different industries, because Ambrell's application engineering and application labs, worldwide, are able to provide a customized solution that, not only provides the heating component, but also a fit for the manufacturing process.

And I saw that some of your revenues come from a large electric car manufacturer. Can you give me a rough sense of what percentage of revenues are for that manufacturer? Is it half the business, is it a much smaller amount? Can you give a rough sense?

It's a much smaller amount. It's very significant but it's much smaller and it's business that has occurred over a couple of years, and it seems to be occurring in the future as well. What's really significant is that the application to the electric car manufacturer is -- Ambrell is looking to proliferate that through all of the other electric car manufacturers that are emerging on the market place, because induction heating is really the way to go when you're joining parts, when you're joining metal parts. And that's the use in this particular case where each electric motor that drives each wheel, the axle is actually inserted into the motor by expanding it through induction heating very, very quickly and then inserting in the shaft and then allowing it to cool and it heat seals and heat -- and contracts around it. It's stronger than a weld, but most importantly, it's perfectly balanced. If you used mechanical connectors, you have a lot of welding, you have a lot of opportunity for imprecise balance. So this is something that Ambrell sees as an emerging market for them.

Yeah, and would you expect that as the electric car manufacturing grows, you would capture all that market? Are you the only induction manufacturer who can sell to that market or do you think you'll be one of many players there?

Well, I think that Ambrell has a strong leg up because they were the first in there. They have a -- their customer base is well respected, and so I think that they are in a very favorable position but it's hard for anybody to say that they're going to capture a market entirely, when you're talking about automotive manufacturing.

Yes, that makes sense. All right, I am going to -- I have more questions but I am going to hop in line. Let somebody else ask questions and I'll come back. Thank you.

Thank you, Tomer.

[Operator Instructions] We have a follow-up question from Tomer Cohen with Five Roads Capital.

Looks like, I don't have to wait long.

No, you don't Tomer. Keep going.

So I'm just curious, the management of Ambrell, they had a lot of equity in the business before you bought them. And I'm curious, did you buyout their equity or did that roll over? How did that work?

We actually -- we purchased all of the equity of Ambrell Corporation, so we bought out management and that was determined in advance. In other words, we wanted to own a 100% of the company. We do plan to clearly incentivize some key players in management with restricted stock awards but we did purchase all of the equity.

I see. And did that management team have to commit to stay with you for a certain period? Or are you worried about turnover the management now that you acquired them?

They did not -- for instance, they're not bound to us with employment, other than the CEO is bound to us with an employment agreement. His direct reports are not. It's a very strong team. They seem to be very focused and driven and we're putting incentives in place to make sure to keep them there. So I think the situation is being well handled but the only one who's tied up for a period of time is the CEO.

Let me also add that they were owned by APEG and they all knew what that meant. They were looking forward to being acquired and they very much have welcomed inTEST with open arms.

Yes, [indiscernible]. And that actually touches on another question I had, can you say anything publicly about why Graylog [ph] wanted to sell Ambrell? Was it just, there holding period was up and they needed to return money to investors or was there something else there?

Well it was actually -- it's Graycliff is the name of the private equity firm, and they were about 2.5 years into a plan, four to five year hold. We had approached them about the opportunity as we were looking at -- across the industry and many industries for opportunities. And we began a dialogue with them and were able to convince them that it was appropriate for them to sell the business prior to their planned execution. So it's not an auction situation. We find, we do better where we approach companies that are not in play and speak with them about joining inTEST.

Yes, that makes sense, okay. And then I guess the last set of questions have to do with Alan Hold's passing. I was sorry to see that. I'm just curious, how much work do you need to replace the value he was bringing to the Board and how much was he able to do before he passed away?

Hey, Tomer, this is Bob Matthiessen. Since I'm replacing him, I guess I should answer it. Alan was actually on a path of retirement when he passed away. We had gradually been moving the things he'd been doing onto my plate and we were almost there. So it really has no impact on us from that direction.

Okay, well. Lot of great things happening at the company and things probably have worked.

We appreciate your thoughts and comments. Thank you, Tomer.

And your next question comes from the line of George Melas with MKH Management.

Good afternoon, guys. Congratulations.

Hey, George.

Quick question on the non-ATE inTEST business. Can you give us a little bit of color by vertical? Yes, that's basically it.

Sure. For the quarter-ended June 30, non-ATE revenues were $5.7 million and the largest market -- there's split really between two large markets which are telecom, wholly driven by the optical transceiver business and that represented just about $2.2 million and then another $2.2 million in the industrial market, which is basically the Ambrell business that we acquired during the quarter and that will remind people that it is only five weeks of business as opposed to a full quarter and we also had strength during the quarter in the automotive sector as well as the mil/aero sector both of which were right around $0.5 million mark.

Okay, great. That's it for me. Congratulations again.

Thank you, George.

Mr. Regan, were there any questions that were submitted in advance. If there were please go ahead and address those now.

Sure, thank you, Operator. The one other question that we did receive that we'll speak to right now is what you expect to pay for the earn-out related to Ambrell. And we have established a liability on our books relative to Ambrell and that liability that was established, was $2.3 million. I would expect we'll pay more than that because that's the present valued rate. We can pay up to $18 million. I think when we closed the deal APEG was very optimistic that Ambrell would hit certain targets. While if it hits those targets, we'll be thrilled to pay the $18 million. My gut says to me the answer lies probably somewhere in the middle, and my expectation is that we'll pay probably somewhere between $5 million and $9 million at the end of the day. That's it for questions, operator?

That does conclude our question-and-answer session. I would now like to turn the call back over to Mr. Matthiessen for any closing remarks or final statements.

Thank you, operator, and thank you for your interest in inTEST. We look forward to seeing many of you at the investor conferences we'll be attending in September. And to updating you on our progress when we report our third quarter results in November. Good evening.

Ladies and gentlemen, that does conclude our call. We thank you for participation and that, that you please disconnect your lines.