inTEST - Earnings Call - Q2 2025

Executive Summary

• Q2 revenue was $28.13M, up 5.6% sequentially and down 17.2% year over year; gross margin expanded 110 bps q/q to 42.6% (up 200 bps y/y), while GAAP diluted EPS was -$0.04 and Adjusted EPS was $0.03.
• Versus S&P Global consensus, revenue slightly beat ($28.13M vs $28.00M*) and GAAP EPS modestly missed (-$0.04 vs -$0.03*); adjusted EPS of $0.03 outperformed the negative consensus baseline, reflecting cost controls and mix benefits.
• Orders improved 9.5% q/q to $27.8M and 6.0% y/y, driven by auto/EV and life sciences, while semi orders remained soft; backlog ended at $37.9M with roughly 50% expected to ship beyond Q3.
• Q3 guidance: revenue $28–$30M, gross margin similar to Q2, and OpEx $12.6–$13.1M (ex restructuring) — a slight sequential improvement versus Q2 OpEx; management continues to focus on cost reductions and “in-the-region for-the-region” manufacturing.
• Catalysts: continued auto/EV orders momentum (Alfamation record orders) and defense wins (new $2.6M thermal test systems order) vs lingering macro/tariff uncertainty and semi front-end weakness.

What Went Well and What Went Wrong

What Went Well

• Gross margin expanded to 42.6% (+110 bps q/q; +200 bps y/y) on higher volume, favorable mix and cost reductions; management narrowed operating loss to $(0.9)M and net loss to $(0.5)M.
• Orders strengthened: $27.8M (+9.5% q/q; +6.0% y/y), with notable momentum in auto/EV and life sciences; “Alfamation achieved its highest level of orders since joining InTest”.
• Debt reduction and liquidity: total debt down $1.7M q/q to $10.1M, cash $19.2M, and $40M of available facilities (delayed draw + revolver); covenant waiver arranged through Q1’26 to support flexibility.
• Quote: “recently introduced products continued to gain traction; we added new customers; and further expanded our channel network” — positioning for recovery while controlling costs.

What Went Wrong

• Year-over-year revenue fell 17.2% (auto/EV down $4.9M y/y; life sciences and defense/aero slightly lower), reflecting cautious capital spending and tariff/macro uncertainty.
• Semi orders slowed and remain soft; although back-end improved sequentially on revenue (+$1.2M q/q), front-end demand remains weak; semi orders fell q/q by $2.35M.
• Working capital usage and cash decline: cash decreased $2.8M q/q due to working capital investments (operations used $0.7M in Q2), despite sequential order improvement.

Transcript

Speaker 2

Greetings and welcome to the inTEST Corporation Second Quarter 2025 Financial Results Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Shawn Southard, Investor Relations for inTEST. Thank you. You may begin.

Speaker 5

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 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. 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. I'll turn it over to Nick. Nick, over to you.

Speaker 4

Thank you, Shawn, and good morning, everyone. Thanks for joining us for our Second Quarter 2025 Earnings Call. The second quarter played out pretty much as we expected. While the ongoing global economic and tariff uncertainties continued to drive customer hesitancy as it relates to moving forward with larger capital projects, we were able to deliver incremental improvement in the quarter. I want to take a moment and thank the entire inTEST team for staying focused and delivering results through these continuing challenges. We remain focused on driving innovation, market diversification, and geographic expansion to strengthen our position and preparation for market improvements. In the quarter, inTEST delivered just over $28 million in revenue, with gross margins above 42% and received orders of nearly $28 million, as our recently introduced products continued to gain traction while our sales teams added new customers and optimized our channel network.

Once again, our funnel of opportunities has increased to a new all-time high as customers recognize our innovative solutions are integral to their long-term capital plans. While overall semi-industrial markets remain sluggish, our teams are focused on capturing opportunities in other markets that are more active, like defense/aerospace. In the quarter, our Process Technologies Division benefited from a meaningful commercial space order. As you probably noted, we just announced a large defense order at our Environmental Technologies Division, which was a long time coming, for missile test systems to a prime defense contractor. Also, in the quarter, we saw order activity gaining traction in automotive/EV, which I'll touch on shortly. During these times of uncertainty, we continue to take actions to improve profitability, and we further reduced debt by $1.7 million. Year to date, we've reduced debt by nearly $5 million, bringing our total debt down to approximately $10 million.

Please turn to slide five. We remain committed to our Vision 2030 strategic goal of driving innovation and geographic expansion to create greater scale. That can be seen in the progress we're making building out our Malaysia facility. We announced this expansion at the end of 2023, and when the building was completed, we focused on adding engineering and supply chain talent to address our immediate bottlenecks. The build-out of the manufacturing space was recently completed, and we remain on schedule to begin manufacturing first article products in this new facility during the second half of this year, with production slated to ramp up in 2026. Our in-the-region, for-the-region approach will enable us to better serve customers in the area, capitalize on a lower-cost supply chain, and capture logistics improvements that we expect will enhance our market competitiveness and drive growth.

In addition, it will provide a lever we can use to better insulate us from potential tariff impacts. We believe the addition of manufacturing in Malaysia, along with our expanded manufacturing footprint in Europe with AlphaMation, positions us well to support the global needs of our customers. Let me now review orders and backlog on slide six. Orders for the quarter of nearly $28 million grew 10% sequentially, reflecting strength in several markets. Demand in automotive/EV increased 40% to $7.1 million. Life sciences more than doubled to $2.9 million. Safety security grew 74% to $1.2 million, while defense/aerospace, industrial, and other markets also improved. Semiconductor manufacturing continued to remain weak, with a decrease in orders of 24% sequentially. The $2 million increase in automotive/EV demand was driven by wins with key Tier 1 suppliers at our AlphaMation business for OEM 2027 model year program starts.

In addition, AlphaMation made good progress diversifying their automotive exposure with a key win in the life sciences space, resulting in that business achieving its highest level of orders since joining inTEST. The improved demand over the trailing quarter across all markets except semiconductor manufacturing reinforces that our ongoing diversification efforts are effective while the semiconductor market remains sluggish. Year-over-year orders were up 6%. Automotive/EV demand grew $2.3 million, life sciences grew $1.8 million, industrial rose $1.2 million, and safety security increased $1 million. These increases were partially offset as semiconductor manufacturing orders declined $3.7 million and other markets declined $1 million. Defense/aerospace was essentially unchanged at $2.5 million. Backlog at June 30th was $37.9 million, essentially flat over the last two quarters. Backlog was $9.8 million lower from the prior year period, which at the time reflected the large backlog we acquired with AlphaMation.

With that, let me turn it over to Duncan to review the financials and outlook with you in more detail. Duncan, over to you.

Speaker 1

Thank you, Nick. Starting on slide seven, as Nick noted, revenue for the second quarter was $28.1 million. Sequentially, sales to semi increased 13% to $10.2 million. Industrial improved 25% to $3.8 million. Defense/aerospace increased 27% to $3.6 million, and safety/security grew 59% to $0.9 million. This growth more than outpaced the combined decline of $1.6 million across life sciences, automotive/EV, and other markets. Compared with Q2 2024, revenue was down $5.9 million, driven by a $4.9 million decline in automotive/EV sales and slight declines in life sciences, defense/aerospace, and other markets. This was partially offset by increases in industrial, safety/security, and semi, where the increase in backend sales outpaced the decline in frontend. Moving to slide eight, second quarter gross profit of $12 million increased $0.9 million sequentially on higher sales volume, ongoing cost actions, and the execution of tariff mitigation tactics.

Compared to the prior year period, it decreased $1.8 million due to reduced volume. Q2 2025 gross margin of 42.6% improved 110 basis points sequentially, driven by improved volume and ongoing cost reductions. Compared with the prior year period, the 200 basis point improvement reflects a more favorable product mix combined with the impact of cost reduction efforts. As you can see on slide nine, our operating expenses of $12.9 million also reflect recent cost reduction efforts with a sequential decrease of $1 million, including the recently announced leadership transition. Year-over-year operating expenses decreased $0.6 million. 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, we further reduced headcount during Q2 and employed austerity measures versus our budgeted 2025 spend. Turning to slide 10, you can see our bottom line and adjusted EBITDA results. For the quarter, net loss was $0.5 million, or a loss of $0.04 per diluted share. Adjusted net earnings was $0.4 million, or a gain of $0.03 per diluted share. Adjusted EPS reflects adding back acquired intangible amortization charges and restructuring costs. Adjusted EBITDA for Q2 was $1.3 million. Slide 11 shows our capital structure and cash flow. In the first half of 2025, we reduced debt by $4.9 million, including the $1.7 million we paid down in the second quarter. Total debt was $10.1 million at quarter end. We have a total debt leverage ratio of 1.4X.

Cash and equivalents at the end of the second quarter were $19.2 million, down $2.8 million from the end of the first quarter. On August 5, 2025, we entered into a covenant waiver agreement with our U.S.-based lender through the first quarter of 2026 in exchange for pledging cash equal to U.S. debt outstanding. At June 30, 2025, we held $5.9 million of U.S.-based debt. Regardless, we have more than sufficient liquidity given our net cash position. Turning to slide 12, as Nick mentioned, given the continued uncertainty resulting from the global trade environment, we are focusing our guidance on the forward quarter only where we have better visibility. For the third quarter, revenue is forecasted to be $28 to $30 million, with gross margins similar to Q2 2025 and operating expenses of $12.6 to $13.1 million, excluding approximately $100,000 of restructuring expenses.

Amortization and interest expense are projected to be consistent with Q2. 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 continue to be 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 continue to 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 will turn to slide 13, I will now turn the call back over to Nick.

Speaker 5

Thanks, Duncan. With it continually changing trade conditions, companies around the world are adjusting to new market dynamics impacting pricing, supply chains, manufacturing decisions, and more, which is driving many customers to remain hesitant to invest in capital projects. As they remain cautious, we continue to make progress on our Vision 2030 growth strategy and are encouraged by wins across several markets where our diversification has proven effective, our innovative new products are gaining traction, and our geographic reach extends continuously further. During the second quarter, new products represented sales of $6 million, which was just over 20% of our total sales. One of our Vision 2030 goals is to get this vitality metric to 25% in the coming years, and we're pleased with the solid progress we are making.

As we have stated, the opportunity pipeline across the organization has reached a new all-time high, maintaining optimism about a pending increase in capital spending. In the meantime, we are managing costs while positioning us to be ready to capture the growth when it comes. We have a healthy balance sheet and, as Duncan noted, believe we have sufficient liquidity to manage whatever challenges the future may hold. While visibility remains limited amid the persistently weak market conditions for capital investment, most notably in the digital analog semiconductor manufacturing industry, we expect to deliver modest quarter-over-quarter improvement throughout 2025. With that, operator, let's open the lines for questions.

Speaker 2

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * keys. One moment, please, while we pull for questions. The first question is from Jaeson Schmidt from Lake Street Capital. Please go ahead.

Speaker 0

Yes, thanks for taking my questions. I just want to start with today's announcement on that defense order. Is this a brand new customer for you guys? I guess relatedly, why did you win?

Speaker 4

Hey, good morning, Jaeson. Yep, this customer is an existing customer of ours. We actually delivered three systems back at the end of Q4 of 2024. This is a follow-on from the prototype units that were delivered. We have a longstanding relationship with this customer, did a number of the first-generation test systems, and now they're ramping up next-gen systems as well as volumes.

Speaker 0

Gotcha. Understanding sort of the dynamics you laid out for the outlook, just curious if you could comment on how customer order patterns have been so far for the first six weeks of this quarter.

Speaker 4

Yeah, we're really pleased with the order pattern we're seeing. Typically, as we've talked about in the past, the first month is softer, and it continues to improve throughout the quarter. We've had a really solid start over the first few weeks here of the quarter. We're encouraged, we continue to see the automotive industry investing for their 2027 model year programs. The defense space remains very active, and of course, this order helps in that. Very encouraged by the start here in Q3.

Speaker 0

Okay, that's good to hear. Just the last one from me, I'll jump back into Q. Can you remind us what the capacity will be in the Malaysian facility? I know it will vary by given sort of product mix, but at a high level, how should we think about capacity?

Speaker 4

Good question there. The guys have all kind of identified some products that they will start making out of there, and of course, we'll ramp up more over time to better support that region. We anticipate that facility to be able to do $10 million, $15 million for us over time here out of the support of the Asian market.

Speaker 0

Okay, really helpful. Thanks a lot, guys.

Speaker 2

The next question is from Dick Ryan from Oak Ridge Financial. Please go ahead.

Speaker 3

Thank you. Nick, on the, you know, coming out of Q1, you had those environmental challenges that kind of pushed some business. You had these strong defense orders coming in for the division. Were those engineering challenges related to the defense side, or were they something else? Where do you stand with those issues?

Speaker 4

Yeah, no, the engineering challenges from Q1 were predominantly more industrial applications. I think a little bit on the defense, but the majority of those all shipped shortly after the end of the quarter and by mid-quarter. Yeah, engineering challenges, you know, not, you know, an issue this quarter here, as we do have a new leader at that location, and he's working to improve the coordination of the engineering efforts there.

Speaker 3

Okay, that's good to hear. Yeah, on the semi side, you had a couple of comments towards the end on the backend business. Any glimpse into 2026? What could happen on the frontend side of the business, or is that still, you know, maybe a mid-year sort of thing?

Speaker 4

Yeah, our team stays very active with the players in that space on next-generation products and their kind of locations, new locations, and where things they're working on, looking at, you know, costing, potentially improvements, etc., on the design side of things. We're working closely with all of them. As for timing, it clearly looks like it's a 2026, you know, kind of a rebound. Whether it's first half, second half, yet to be determined. I think it'll slowly come back, but with ramping throughout 2026, and especially if we continue to see the automotive industry improving.

Speaker 3

Okay. Now, one last one. I mean, AlphaMation, obviously, it's good to see the auto business and wins there, but on life sciences, can you provide some color what they're providing to the life sciences and kind of the outlook you might have there? Is that kind of a one-off sort of win, or is there some continuation there that you might be expecting?

Speaker 4

Yeah, no, the team is absolutely looking to drive further diversification. The wins that they saw here were kind of follow-on on some medical device electronics in the medical space there. There's a strong pipeline of continued follow-on orders with this particular customer, but they are focused on other applications. Their technology really lends itself nicely for this space as well from an electronic test perspective. Yeah, we're focused on capturing the automotive as it comes back here, but also driving diversification.

Speaker 3

Great. I appreciate that, and good job on a solid quarter here in Outlook. Appreciate it, Nick. Thanks.

Speaker 4

Thanks. Yeah, thanks, Dick.

Speaker 2

As a reminder, to ask a question, please press *1. The next question is from Ted Jackson from Northland Securities. Please go ahead.

Speaker 6

Thanks. Good morning.

Speaker 4

Hey, Ted. How you doing?

Speaker 6

I'm pretty good for a busy day. You know, it's peak reporting season, but you know what? I'm up to the challenge.

Speaker 4

I wanted to start out. The book-to-bill was about one, and you've been basically knocking around one the last two quarters. To me, that tells me that you've kind of come back where you've got a pretty decent handle around your business in terms of the near term. When you think about getting growth back in the business, we would expect to see that book-to-bill start trending up above that one. For those of us that sit on the outside, are there things that we should be looking for that would be kind of leading indicators to say, "Hey, the order activity is really just picking up"? Could you kind of describe that a bit? Just give us a little some guideposts, maybe. That would be my first question.

Speaker 6

Yeah, we tried to provide a little bit, you know, kind of baseline for you here with, you know, kind of the new products. These are certainly positioning us well to create demand out there, win some new accounts. We had a really strong quarter there from, in Q2, $2 million or a little less than $2 million improvement over Q1 with new products. The more traction we gain will help drive the orders, push that orders above one on a book-to-bill basis there. With the pipeline being at an all-time high and continuing to grow each quarter, it gives us extreme confidence that, as soon as these customers get comfortable with the market dynamics and ready to kick off these CapEx projects, it's going to generate good order demands for quarters to come here. Duncan, any thoughts from your side?

Speaker 1

I think we've seen some of it. The announcement on the defense/aerospace order as an example. Also seeing the AlphaMation activity, both automotive/EV and life sciences, you're in that case picking up. Those are all positive signs. The frontend world is not moving really right now in terms of customers actually placing orders, although as Nick indicated, there's plenty of discussion, plenty of ongoing dialogue. It's just a case of capital investment kicking off again for another cycle down the road, but likely out into 2026. That'd be another space to keep an eye on. The backend, the backend semi was a little softer as we indicated this quarter. I think seeing that out in the marketplace across other analog mixed signal test type players.

We expect to see that continue to pick back up as hopefully the global economy stabilizes, there's a little bit more certainty, and people start to know where to place their bets from a capital investment perspective.

Speaker 6

On the defense order, I probably already know the answer. I was just given kind of what your orders were for the quarter. Did that order happen in the third quarter, and hence, we would see a pickup in terms of, all else being equal, the defense/aerospace orders line when you report your third quarter?

Speaker 4

Yes, it was a Q3 order that came in.

Speaker 6

Okay. A question for both of you on OpEx. Honestly, great expense control. I think it was lower than I expected it to be. Duncan, you talked about some headcount reduction and austerity measures. Can you kind of walk through what you're doing in terms of bringing those costs down and how much of that savings is permanent in nature and how much of it will turn around once we kind of get to a more normalized market where growth returns? I have one more after this.

Speaker 1

Yeah, I mean, a lot of it is, so I mentioned headcounts. We have been reducing headcount steadily over really the last number of quarters as volumes have dropped. Direct labor, some of the operational overheads, headcount has dropped. Year over year, we're probably down around 50 heads across the global organization. Q2 versus Q1, probably around 15 heads, with a lot of those in direct labor, overhead type positions. We've been adding slowly where we've seen attrition. We obviously will continue to replace positions that are needed. Discretionary spending areas like travel, marketing spend, trade shows, things like that, we have been tampering down, holding back on. We would expect to continue to invest in those spaces and increase that as activity levels dictate. To answer the second part of your question, some of that will come back as we see volumes pick back up.

A couple of the other things we referenced, the Videology operational restructuring, those savings kick in in 2026. That's a longer-term initiative that we're driving. We also did have in Q2, we did announce a small executive restructuring. We reduced our executive headcount by one with Rich Rogoff, who was in a dedicated M&A role, moving into the Environmental Technologies leadership role, which led to a net headcount reduction across the executive team of one. These are all examples of things that we've been doing. I'd say more skewed towards the temporary than the permanent, but we're very focused, as you can see, on spend control as we see the top lines a little softer.

Speaker 6

Okay. My last question, just touching back over to the Malaysian operations as you ramp that up, kind of a give and take. How much of the, as you ramp up manufacturing of product in there, how much of your, I don't know, you call it revenue or however you want to think of it, volume is going to be transferred from existing facilities in there? What will the net of that be with regards to margin as you basically take absorption down, if you would, in some areas and then improve it, obviously, in Malaysia? When you talk about getting that to $10 or $15 million in revenue, when do you see that happening?

Speaker 4

Yeah. We're focused on really driving growth out of that facility by better serving customers in the region, allowing us to be more competitive from a price position with a better supply chain cost base and lower labor cost on that. It's not like we're going to be shifting a whole bunch of operations out of the U.S. over there. We will support some customers that have facilities in those regions out of that site. We also anticipate this regionalization effort for bringing more activity back to the U.S. It'll give us the capacity to keep our existing facilities leveraged out there. It's about a growth story, better competitiveness in the region, and getting aggressive after the competition to drive the top line. As for timing, it'll be a ramp-up.

The group's laid out kind of a five-year plan here that will move to those kind of numbers over during that timeframe. Obviously, things can change in two, three years down the road. As I mentioned in the opening statements, if we need to do something from a tariff kind of lever that we could pull to better serve customers and minimize our costs going up as a result of tariffs, we have that lever to pull as well down the road.

Speaker 6

It was a nice solid quarter, and I appreciate the good guidance. I know things will turn around, and you guys are pulling all the levers you can, it sounds like. Thanks for the time.

Speaker 4

Thanks, Ted.

Speaker 2

There are no further questions at this time. I would like to turn the floor back over to Nick Grant for closing comments.

Speaker 4

Thank you, Sashi. 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 several upcoming conferences later this month and next. Thanks again for participating today, and have a great day.

Speaker 2

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.