Welcome to inTEST Corporation’s 2020 Third Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. A replay will be accessible at www.intest.com. I will now turn the call over to inTEST’s Investor Relations Consultant, Laura Guerrant. Please go ahead, ma’am.

Thank you, Margate, and thank you for joining us for inTEST’s 2020 Third Quarter Financial Results Conference Call. With us today are Nick Grant, inTEST's President and CEO; and Hugh Regan, Treasurer, Chief Financial Officer Nick will briefly review the quarter’s highlights as well as current business trends. Hugh will then review inTEST’s detailed financial results for the quarter and discusses guidance for the 2020 fourth quarter. We’ll then have time for any questions. If you’ve not yet received a copy of today’s releases, they can be obtained on inTEST’s website, www.intest.com. In addition to our press release, we have issued supplemental information in advance of this call, which can be downloaded from our website on the Investor Relations page just mentioned. The supplemental information is offered to provide shareholders and analysts with additional time and detail for analyzing our results in advance of the company’s quarterly results conference call. Before we begin the formal remarks, the company’s attorneys advised 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. In addition to the factors mentioned in our press release, such risks and uncertainties include, but are not limited to, the impact of the COVID-19 pandemic on our business, liquidity, financial condition and results of operations including as a result of evolving public health requirements in response to the pandemic such as government-mandated facility closures, availability of employees, supply chain and distribution interruptions, customers' inability or refusal to accept product deliveries and the sufficiency…

Thank you, Laura. And welcome, everyone. Thanks for joining us for the third quarter 2020 financial results conference call. First of all, I hope all of you and your families are healthy and staying safe. I am particularly pleased to be speaking with you all today as this is my first financial results call as inTEST CEO. And I'd like to thank the entire inTEST team firm bracing me into the organization in August, and for delivering solid Q3 performance. Before we go into the detail of our normal quarterly results review, I'd like to provide you a brief update on our response to COVID-19 and how we're managing through it. We continue to closely monitor all regions in which we operate. To be sure that we are fully compliant with recommended local and national health safeguards. The safety protocols implemented across the organization are being followed, and have proven to be effective at protecting our employees, while allowing us to support our global customer base. I think our customers and employees alike are increasingly more confident with business in a COVID world. We've been allowed to return to some of our customers facilities on a limited basis. And this has resulted in service revenues picking up in the third quarter a change from what we saw in the second quarter where our service revenues declined given the limited ability and travel restrictions. For the third quarter service revenues exceeded $1.6 million, a 22% increase sequentially. And it appears that we are returning to pre-COVID levels. I'd like to extend my appreciation to the entire inTEST organization for how well they had responded to the pandemic. Obviously, we're not out of the woods yet, with cases rising globally. But I'm extremely proud of the resiliency the entire team has displayed.…

Thanks Nick. Our third quarter gross margin of 45% came in just below our guidance range and was down from 46% gross margin we reported for the second quarter, reflecting a higher level of component material costs, which grew from 33% in Q2 to 34.8% in Q3. The increasing component material cost was driven largely by product mix from higher shipments of chiller products, which Nick discussed earlier exceeding the $1 million mark this quarter. The increasing component material cost was partially offset by a more favorable absorption of our fixed production costs due to higher revenue levels. While the third quarter of manufacturing costs increased $56,000 or 2% due primarily to increase salary and benefit costs; they declined as a percentage of revenues from 18% in the second quarter to 17% in the third quarter. Selling expense decreased by 1% sequentially to $1.7 million for the third quarter, primarily driven by lower salary and benefit costs. Engineering and product development expense increased 8% sequentially to $1.3 million, primarily as a result of higher levels of spending on product development materials and increased patent legal costs. General and administrative expense increased 3% sequentially to $3 million, driven primarily by non recurring costs related to our recent CEO transition, which totaled $248,000 in the third quarter. This amount is net of a reversal of $117,000 in previously accrued stock based compensation. We accrued an income tax benefit of $25,000 in the third quarter, reflecting a negative 6% effective tax rate. This compares to a $13,000 income tax expense accrued in the second quarter, which reflected an effective tax rate of 7%. We expect that our effective tax rate in the fourth quarter will range between 25% and 26%. For the third quarter, we reported net earnings of $458,000 or $0.04 per…

[Operator Instructions] We can now take our first question from Jaeson Schmidt from Lake Street.

Hey, guys, thanks for taking my questions. Nick, just want to make sure I heard you correctly. That sort of the order momentum has been sustained here in Q4 so far. And just curious if you could sort of comment on what you're seeing from order patterns in October and November.

Yes, hi, Jaeson. And thanks for participating this morning. Yes, order patterns throughout Q3 we saw improving trend. And likewise, in our funnels and our opportunity funnels that we're pursuing. And those trends have continued through in October and into November here as well for us. So as I mentioned, I believe the world is dealing with COVID, figuring out a way to operate in this COVID world that we're in and things are improving that we fit across the board across most of our industries.

Okay, that's helpful. And then you highlighted the EV market and that opportunity. Just curious if you could comment on why you're seeing so much success and why you guys tend to win designs there.

There were -- we got in early that I can tell, we partnered with the major in the EV space. And from that we've developed solutions that are robust for their production of their motors, their steering columns and various other applications. So, we've proven that we've got the right products and the ability to deliver the products to meet their growing needs, and others across the industry are seeing this as well. So we see this as an opportunity to continue to dig deeper and with new applications, as well as the broad across the industry with new entrants and new customers in this space. I mean, the dynamics in the EV market are -- should be positive for years and years to come. So we see this as a key focus area for us.

Okay, and the last one for me and I'll jump back into queue. Are you seeing any component or supply constraints? And I guess relately with all the moving parts of the facility moves? Are you expecting any sort of correction in Q4? And is that accounted for within your Q4 guidance?

Yes, a good question. As for supply chain challenges and that -- the team's done a great job in Q2 when COVID hit and all the challenges came at them. Now they're really making sure we had a robust supply of our components to be able to continue to deliver solutions for customers. So right now we aren't having any supply chain challenges and we have baked in the move the consolidation into New Jersey in our Q4 guidance.

We can now take our next question from Theodore O’Neill from Litchfield Hills Research. TheodoreO’Neill: Thank you, and congratulations on a good quarter. Nick, you covered enough stuff here this morning that we could spend hours on the phone. But I did want to talk -- ask about the product development idea here that you'll move to more standard platform. I know in the semiconductor side of the business, it's notoriously customized equipment for those customers. And I'm wondering how are you thinking about, what you can put in place to standardize some of that?

Yes, no, I think we've got a really good start in this area. As I mentioned, O'Neill, and as you commented there, you can see that I like to dive into the applications and the customers that get as close as I can to this. And we've launched our automated LS series manipulators, a few years back, and been gaining traction, I would say, at a slow pace relative to market adoption, and targeted customer focus. But we've got now enough success with that, and our recently launched the intelligent document system, where you combine the two together, that really provides accuracy that can't be achieved by the manual approaches in the past, so customers are seeing the benefits of the improved accuracy, as well as reduced footprint in it, which is extremely beneficial for their facilities on the space required for us. So, yes, this is this is really starting to take off, and it's doing more of that type platform where we've got base models, and as you say, notorious for customization. We've got to try to have late stage customization and leverage as much components, standard components as possible there. So, yes, the EMS team has been challenged to look across their broader portfolio and how and develop an approach more applicable in this area. TheodoreO’Neill: Okay, and in following up on the EV question, do you -- are the customers in the EV space, is that -- do you have to work with each individual EV maker or is there some integrator that you're to work with?

Yes, many of them work through integrators. So we're in with both; we trying to get ourselves established with the end users, EV makers to -- their R&D teams are qualifying the operations and processes and that and so we're working very closely with them to get our tools specified. And then, obviously, a lot of sales go through the integrators that are building the plants and operations and the lines that they're establishing in that. So it's a two prong approach.

We can now take our next question from Peter Wright from Intro-act.

Great, thank you for taking my questions. And Nick, congratulations on strong first quarter showing. My first question, Nick, for you is where do you see and you had touched on lot of these but framing it up, where do you see the lowest hanging fruit in the kind of the perspective of deeper versus broader? So deeper, you discussed your service model, obviously having some easier comps, maybe with COVID. But how much room is there really to improve that business? Also highlighting kind of the solution provider comment suggesting there's a lot more to do with your existing customers, making them bigger, maybe if you think of it or help us quantify kind of average customer size, where it can go versus maybe broader. And one of the things you suggested was filling some of the sales coverage gaps, just helping us understand where the lowest hanging fruit is, and what to be paying attention to most immediately. And then Hugh, my question for you is your guidance suggests just at the midpoint, about $0.02 accretion on similar sales. And I'm trying to see if you can help me understand where that might be coming from? I'm assuming that all of it is from the restructuring. If there are other things there that are already yielding positive operating performance benefits, then I have one follow up after that.

Great. Well, let me first start and I'll turn it over to Hugh to address your second half of the question there. So some of the low hanging fruit, I would say you touched on certain scenario that I am a big believer in only it secures your entrance into the customer, but it drives higher margins for us. I mean, it's a key enabler of customer satisfaction. So, today, we -- service revenues are roughly 8% to 10% of our total revenue there. And the opportunity to do more at this area are plentiful, and what with the businesses to better provide the service coverage, not only from a feed on the street perspective, but also in our offerings on the thus warranty agreement, or service agreements, and ongoing maintenance and care of the products and how we're approaching that. So more to come in service as we finalized our strategic plan there. The other areas we've got, obviously, some gaps from sales coverage globally, that we've got to improve on, I touched on our US centric approach. And so we're looking at exploring where our biggest market opportunities are, and where we would benefit by having a presence rather direct through a partner, and working to fill those gaps. The other areas there are being more competitive in these local markets, and that may be areas that we would consider doing some late customization or assembly in regions where we're not doing any assembly today. So a lot of areas to focus on and grow for our businesses there as we try to drive more globalization and better serve customers. Hugh, o you want to touch on the comments, the question relative to the gaps that he just forecast.

Happy to do that, Nick. Peter. Yes, we're -- you're correct. We are seeing a slight improvement in operating profitability quarter-over-quarter and that's really due primarily to expense, stronger expense control across the organization. Slightly better margin profile, but just marginally slightly better margin profile. So it really has to do with better expense management across the board.

Wonderful. And then my last follow up if I could is piggybacking on one of the other questions on the order pickup. If you were to characterize kind of the pickup in bookings do you think that some of it is more of catch up from below COVID low? Or do you see this as fresh demand and then in any color there would be helpful?

Yes, I think it's a combination. Obviously, we're getting some tailwinds with our current customers as they get more comfortable in this COVID world. But clearly, as I tried to highlight in my commentary there that we're focusing on expanding wider and to new customers and driving more diversification for us in areas that we are not today. So it's a combination that's going to fuel that growth for us going forward.

We can now take our next question from Dick Ryan from Colliers.

Thank you. So, Nick, one of the challenges you mentioned you're pretty heavy US centric in manufacturing is the implication that you're going to be offshoring some manufacturing over time? And if so, how do you get that accomplished? Is that organic and/or acquisitive? And maybe that might tie into a question of what are your -- what's your thoughts on M&A activity here? Are you pretty focused internally? Or there are some areas of acquisitions that you might still be looking at?

Yes, good question, Dick. So as the CEO, it's my job to ensure we're not missing out on global growth opportunities, and we've got to make sure we're positioned properly to be successful in that. And today, I see it very challenging approach we're taking. So I do believe we need to have a presence in certain large markets around the globe, where we can further penetrate and better serve customers there. And what we're at this point in stage, we're defining whether that's organic or inorganic, how we would fill those gaps, but we're obviously looking at all avenues.

Okay, other than that, I mean, when you look at acquisition opportunities, would it be on the industrial side or on the semi side?

I see opportunities for both industrial and semi; I think we've got some really strong products and customer relationships, but we can better serve these customers with broader portfolios in both parts of our business, from thermal as well as the EMS segment there.

Thank you. Laura, I'll now turn the call over to you to address any questions that were submitted in advance. Thank you.

Thank you, Margate. The first question came in is there a role for inTEST associated with cold chain challenges in the delivery of a vaccine for COVID-19? Can inTEST help keep the vaccine at very low temperature once closer to the point of vaccine delivery through your Thermonics-chillers? Is this an area that interests can add value to?

Yes, thanks, Laura. And obviously, the vaccine activity is ever changing had some good news from Pfizer this morning on that, but as you correctly pointed out, ultra cold transportation, storage and transportation is critical. It looks like for these vaccines, and it's an area that we're exploring with our chillers. As you all probably know, we do very cold, ultra cold, extremely well. And so we're exploring this, but it's simply too early to know with any clarity how we'll play or where we play.

Okay, thanks very much. And the second question that came in is what is your China exposure?

Yes, so business to date for China is roughly 8% of our top line, and which is down 200 basis points year-over-year which is largely driven we believe to the tariffs and our approach to this market on how we're trying to serve it from a US perspective. So it's not huge exposure for us, but it is 8% of our top line, and we believe we can do better there. Now, we did receive like everyone else in the industry notification from the Department of Commerce, for shipments going to SMIC and SMEC here in Q4, and that will require us to apply for a license and we are proceeding to do so. So we can continue to ship these customers. Now SMIC, just a comment, SMIC and SMEC are really account for less than 1% of our business today. So not much risk there.

Okay, perfect. So there are no further questions. So next, I'll turn the call back over to you for closing remarks.

All right. Thanks, Laura. And thank you everyone for your interest in inTEST this morning. We appreciate your listening in. If you have further questions, don't hesitate to call me, Hugh or Laura. And we look forward to seeing you all at the -- and participating on the online virtual conferences Laura mentioned earlier. And look forward to updating you on our progress and when we report the results on the fourth quarter. So stay tuned, stay healthy and stay safe. Thanks, everyone.

Thank you. That concludes today's conference. Thank you for your participation, ladies and gentlemen. You may now disconnect.