Greetings, and welcome to the inTEST Corporation Fourth Quarter 2022 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Shawn Southard, Investor Relations for inTEST Corporation. Thank you. You may begin.

Thank you. Good morning, everyone. We appreciate you joining the call today and your interest in inTEST Corporation. Here with me are Nick Grant, our President and CEO; and Duncan Gilmore, our Chief Financial Officer and Treasurer. You should have a copy of the fourth quarter 2022 financial results, which we released earlier this morning. If not, you can access the release as well as the slides that will accompany our conversation on our website at ir.intest.com. After our presentation, we will open the lines for Q&A. If you turn to Slide 2, I'll review the Safe Harbor statement. You should be aware that we may make some forward-looking statements during the formal discussions as well as during the Q&A session. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and 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. During today's call, we will also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided a reconciliation of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides. With that, please turn to Slide 3, and I'll turn it over to Nick to begin. Nick?

Thank you, Shawn, and good morning, everyone. Thanks for joining us for our fourth quarter 2022 earnings call. I plan to provide some high-level remarks for you, then I'll hand it off to Duncan to speak to the specific results of the quarter and full year. Once he's finished, he'll hand it back to me to speak to our orders and backlog and our expectations and goals for 2023 and beyond. Then we'll take your questions, and I'll wrap up with a few closing remarks. Let me start by saying I'm extremely pleased with the results we were able to achieve in 2022. I want to acknowledge the outstanding efforts of our employees across the globe. Solid execution of our 5-Point Strategy by our results-driven team delivered record performance in 2022, including orders, backlog and revenue. Revenue and orders for the quarter and the year were also in line with our previously announced preliminary results. Our fourth quarter revenue surpassed $32 million, up 45%, and our full year revenue was approximately $117 million, up 38% versus the prior year. These results include a full year of the impact of the acquisitions we made in 2021 and integrated in 2022, including North Sciences, formerly Z-Sciences, and Videology, both acquired in October 2021, and Acculogic, which was acquired in December 2021. Going forward, these operations will be fully accounted for as part of our organic revenue. Our organic revenue grew a very healthy 28% in the fourth quarter and 17% for the full year. Fourth quarter orders of $31 million increased 3%, while our full year 2022 orders of $130 million increased 27% versus the prior year, with strong demand in semiconductor, automotive, including electric vehicles or EVs, defense/aerospace and life sciences. Additionally, our backlog at the end of the fourth quarter remained strong at $47 million. By expanding our addressable markets, building on our sales channels, building our talent and staffing and driving innovation with new products, we successfully expanded our geographic reach, widened our customer base and grew our target market offerings and positions. Further demonstrating the success of our strategy, we integrated the three acquisitions that added new technologies and deepened our presence in our target markets. Our goal with the 5-Point Strategy is to accelerate growth while diversifying the business. To remind everyone, the elements of our strategy are: global and market expansion, innovation and differentiation, service and support, talent and culture, and strategic acquisitions and partnerships. As a result of the investments and focus we've made in these areas to expand our customer base and increase channel partners, we were able to capture organic revenue growth across all markets last year. This growth was fueled both by end market demand for our highly-engineered technology solutions as well as the impact of the acquisitions. With that, let me turn it over to Duncan to review the financials in more detail. Duncan, over to you.

Thank you, Nick. Starting on Slide 4. Revenue for the fourth quarter 2022 was $32.4 million, up 45% or $10 million versus the same period last year and at the top end of our guidance range of $30 million to $32 million. This revenue growth of $10 million comprised $3.7 million of acquired revenue and $6.3 million of organic revenue, representing 28% year-over-year organic revenue growth. Independent of organic or acquired inorganic categories, we experienced strong demand across our offerings, contributing the growth in all our target markets. Silicon carbide growth applications along with test solutions for analog and mixed signal applications drove semi sales to $19.5 million, up 58% year-over-year. Demand for both our existing and acquired technologies grew in the defense/aero market, while our acquisitions were the main contributor to growth in the security, auto/EV and life sciences markets. And this broadening contribution is indicative of the company's strategy to diversify and expand revenue with new customers and from new markets. Moving to Slide 5. Gross margin of 46.2% in the quarter was very similar to the prior year Q4 period. Compared with the trailing quarter, gross margin improved 100 basis points, reflecting higher volume and beneficial shifts in product mix. Supply chain and logistics challenges are abating somewhat or more realistically are becoming a normalized part of our business. Our teams have continued to adapt admirably through these challenging times. As you can see on Slide 6, our operating expenses were relatively consistent with our trailing third quarter and down 110 basis points as a percentage of revenue, driven by operating leverage as the business scales. As a percentage of revenue, operating expenses declined more than 1,000 basis points from the prior-year period. Note that last year's fourth quarter included $1.3 million in transaction costs related to acquisitions and financing. The $0.9 million total increase over the prior-year period includes the incremental operating expenses from acquired businesses, which added approximately $1.9 million. We also invested in sales and marketing and engineering as we executed on our strategy to drive growth. Pre-tax intangible asset amortization was down $43,000 from the third quarter. Turning to Slide 7, you can see our bottom-line and adjusted EBITDA results. We had net earnings of $3.2 million or $0.30 per diluted share for the fourth quarter. On an adjusted basis, non-GAAP EPS was $0.34 per share compared with $0.28 per share in the third quarter. Adjusted EPS reflects adding back tax-affected acquired intangible amortization. On an after-tax basis, acquired intangible amortization amounted to $463,000 in the fourth quarter. We expect after-tax intangible amortization for the first quarter to decline slightly to approximately $450,000. Adjusted EBITDA, which excludes stock-based compensation, was $5.3 million, a nice improvement over both the prior year and trailing quarters. Slide 8 shows our capital structure and cash flow. After the $25 million increase in our term loan facility at the end of Q3, we ended the year with $30 million available under this facility. We also have the full $10 million available under our working capital revolver. We believe we are effectively leveraging the balance sheet to achieve our goals and have the financial flexibility to continue executing on our 5-Point Strategy for growth. We continue to balance that with our objective to maintain a total debt to adjusted EBITDA ratio under 2.5x. As you can see on the slide, our current leverage ratio is just 1x, giving us considerable flexibility to continue to pursue our acquisition strategy. Our cash and equivalents at the end of the fourth quarter were $13.4 million. We also have $1.1 million in restricted cash related to a prepayment on a customer order. As we did in the prior two quarters, we repaid $1 million of debt, bringing it down to $16.1 million. Note, the repayment of debt does not increase funding available under the terms of our term loan facility. While for the year, we used cash from operations to fund both growth and build inventory to address supply chain shortages, we have, in the last two quarters, been converting more earnings to cash and generated $2.3 million in cash from operations in the fourth quarter and $3.7 million in the second half of 2022. As we go forward, we expect we will continue to generate positive cash flow from operations. Capital expenditures during the year were $1.4 million, up from about $1 million in 2021. Our CapEx requirements continue to be planned at about 1% to 2% of revenue. With that, if you will turn to Slide 9, I will now turn the call back over to Nick.

Thanks, Duncan. As previously mentioned, our fourth quarter orders were $31 million and increased 3% versus the prior year. This reflected increases across all end markets except in semi. Our orders to the semi market declined $6.6 million compared with last year's fourth quarter, but I'll remind you that last year's fourth quarter benefitted from a record approximately $10 million order for our induction heating solutions, serving silicon carbide crystal growth. Sequentially, our orders declined 4%, driven by the timing of orders for semi and automotive/EV markets. This was partially offset by increased orders for the life sciences, security and other markets. Our backlog at the end of the year was approximately $47 million, up 37% versus the prior year. Our backlog declined sequentially about 2% as supply chain constraints moderated, enabling us to increase shipments to better meet customer demand. Approximately 45% of the backlog is expected to ship beyond the first quarter of 2023. Now I'd like to speak to our outlook for the first quarter of 2023 and our full year 2023 expectations on Slide 10. As we enter 2023, we're excited about where we're headed. While the quarterly cadence of orders may be a bit lumpy, we are confident that we can achieve our revenue target, which represents high-single digit organic growth. In fact, this is despite the variability that we expect in our back-end semi market. Encouragingly, our customers in this space are indicating they continue to see positive secular growth trends over the long term. In addition, we continue to pursue strategic acquisitions and partnerships to expand our portfolio and better serve our target markets. We expect revenue for the first quarter of 2023 to be in the range of $30 million to $32 million, with a gross margin of approximately 45%. First quarter operating expenses, including amortization, should run between $11.1 million and $11.3 million. Intangible asset amortization is expected to be approximately $540,000 pre-tax or $450,000 after-tax. Given loan balances and current rates, our interest expense should be approximately $190,000 for the quarter. We anticipate first quarter 2023 EPS to be in the range of $0.21 to $0.26, while adjusted EPS should be in the range of $0.25 to $0.30. As a reminder, we simply adjust for tax-affected amortization expense. We expect our high-single digit growth this year to be driven by strong demand across nearly all technology offerings and the end markets. Customer demand for our products in the automotive/EV, defense/aerospace and life sciences industries has been strengthening where we have broadened our exposure through acquisitions. Additionally, demand for our front-end semi applications around silicon carbide crystal growth remains robust. We do expect our back-end semi to moderate in the second half of the year. Revenue from full year 2023 is expected to range from $125 million to $130 million. This does not include the potential impact from any additional acquisitions we may make. Our gross margin in 2023 is expected to be consistent with 2022, or about 45% to 46%. Operating expenses should be in the range of $44 million to $46 million. This includes intangible asset amortization expense of approximately $2.1 million for the full year. This translates to a tax-adjusted amortization expense of approximately $1.7 million for determining adjusted earnings. Our effective tax rate is expected to be similar to 2022 or approximately 16% to 17%. Finally, as Duncan mentioned, our capital expenditures for 2023 are expected to continue to run between 1% to 2% of sales. Slide 11 highlights our revenue growth goals for 2025 that were outlined during our 2022 Investor Day. This demonstrates the success we are having against our plan. Based on our 2023 revenue expectations of $125 million to $130 million, we will have grown the company at a greater than 30% CAGR since we implemented our 5-Point Strategy. We expect to continue to drive single high-digit organic growth, coupled with strategic acquisitions, enabling us to achieve our 2025 goal of between $200 million and $250 million in revenue. This includes targets for additional acquisitions we may make in between now and then. Acquisitions are an important element of our long-term strategy. We have an active pipeline of opportunities, and we have the flexibility with our capital structure that we believe will allow us to execute on our plan. If you'll turn to Slide 12, given our expectations for top-line growth, we believe we can drive meaningful earnings and cash generation as we scale. We believe our plan positions us to deliver divisional operating income of $40-plus million, adjusted EBITDA of approximately $30-plus million and improve our earnings power to approximately $20-plus million, all by 2025. Let me sum up on Slide 13. As I have noted, our 5-Point Strategy is delivering results for our shareholders. Our engineered solutions that enable our customers to improve productivity or create more effective solutions themselves are in high demand. Our growing sales force is reaching more prospects, and our new organization structure with the three technology-focused business segments has driven greater collaboration across the company. This, in turn, creates even more opportunities for growth. We believe we are unlocking the potential of inTEST through our 5-Point Strategy by driving discipline, accountability and process improvements throughout the company. These are certainly exciting times for us. With that operator, let's open the lines for questions.

Thank you. Thank you. Our first question comes from the line of Jaeson Schmidt with Lake Street Capital Markets. Please proceed with your question.

Hey, guys. Thanks for taking my questions, and congrats on a strong finish to the year and really strong outlook. I know in your prepared remarks, you mentioned that you expect growth across all your segments. Just curious if you could just let us know what end market you feel most confident on? And I guess relatedly, which end market do you think is the biggest risk?

Yes. Hi, Jason, and thanks for the comments there. I'm really pleased with the results last year. We do anticipate our technology divisions will drive growth in 2023 here, different product platforms serving different markets, with our innovation, should continue to create demand on that. So, as for which segments, we believe the automotive/EV will be a nice segment for us. And just remind, that does not include our silicon carbide crystal growth solutions. Those are in our semi segments. But we do believe front-end semi will be strong again in 2023 here. And our life science applications should also continue to grow. So, we're pretty excited. We believe we've got the right target markets we're going after. We've got the right products. And yes, we have the right teams in place.

Okay. That's helpful. And then, just as a follow-up. Your comments on the semi market or expectation for the semi market to moderate in the second half. I was just curious if that is sort of what your customers are telling you that they will need sort of this digestion period, or if you guys are just kind of being a bit more conservative just given the momentum you expect here in the first half?

Yes, I believe it's more about being cautious. We are closely collaborating with our customers regarding the timing of when these capital expenditure projects will actually receive funding. Currently, there's still some uncertainty about whether there may be delays of a quarter or two. Therefore, we prefer not to make any commitments that we aren't certain we can fulfill.

Okay. That makes sense. Thanks a lot, guys.

Great. Thanks, Jason.

Thank you. Our next question comes from the line of Ted Jackson with Northland Securities. Please proceed with your question.

Thank you very much. Congratulations on the quarter and the year. I have two questions. First, you've done a great job highlighting some details already, but could you provide a description of the growth drivers for the verticals that haven't been discussed as much? Let's focus on defense. You’ve covered the semiconductor and auto/EV sectors well. What are the key macro drivers in each of these areas? Additionally, which specific products benefit from those drivers? My second question pertains to your M&A strategy, which is a significant aspect of your growth. Can you share some insights into the current activity there? How full is your pipeline, and what markets or segments are you targeting for growth through acquisitions? Thank you.

Sure. Thanks, Ted. I appreciate the questions. Regarding market segments, we believe that front-end semiconductor demand will remain strong in 2023 and beyond. For back-end semiconductors, we noted a decline from the historical highs of 2021 to 2022, and we expect that trend to continue this year. However, the growth in front-end semiconductors should more than compensate for the slowdown in the back-end, overall indicating growth in the semiconductor sector. In the automotive and electric vehicle space, we are driving innovation with our battery test solutions, which we believe will generate strong demand this year. We are also experiencing good demand for our chillers from various traditional players in the auto and EV market. Moving to life sciences, we are progressing well with our two acquired businesses, including North Sciences, which focuses on ultra-low temperature freezers and refrigerators to support the medical cold chain. We are gaining traction in this market, which we expect to be a significant growth driver for us this year. Additionally, our new camera product from Videology, the SCAiLX, launched at the end of Q4, is ramping up for full production by the end of Q1 and presents promising benefits for applications in the life sciences sector. We anticipate it will also generate strong demand. In the defense and aerospace markets, after a slow period at the end of 2021 and early in 2022, we began to see demand pick up in the latter half of 2022, and we expect this trend to continue into 2023. As for our M&A strategy, our teams are actively pursuing opportunities. We adopt a bottom-up approach, with each of our three technology divisions targeting companies and building relationships to demonstrate the advantages of joining inTEST. While the timing of any potential deals depends on reaching agreements with sellers and completing due diligence, we are committed to remaining active in this area as it is a crucial element of our growth strategy moving forward.

Well, thanks very much. Again, good quarter and really nice detailed answer. I really appreciate. Bye-bye.

Sure, Ted. Thanks for the question.

Thank you. Our next question comes from the line of Peter Wright with Intro-act. Please proceed with your question.

Great. I'd like to add my congratulations guys on a wonderful record quarter, and thank you for taking my questions.

Thanks, Peter.

My first question is on visibility and looking at your order backlog. You did mention lumpiness. I'm hoping you can help us understand in light of just such stable backlog over the last several quarters, what is driving lumpiness maybe on a forward-looking basis? Is there any attitude of customers that might be entering signs of reluctance? Or is it just size? If you could help us understand that? And then, my second question is, looking at your guidance, there's clear signs of efficiencies projected forward. So, if I look at kind of a 9%-ish revenue growth number and your OpEx only growing 3% taken the midpoints, that's very good efficiencies going forward. If you could help us understand what some of those efficiencies are, that would be helpful.

Yes, sure. So, I'll touch on the orders and lumpiness, and then I'll let Duncan speak a little bit to the guidance and the leverage there in that. So, relative to the lumpiness that we see really, Peter, is this kind of a shift that we've noticed from customers placing longer lead time blanket orders, if you will, that will lay out deliveries over multiple quarters out there, and due to the size of those orders when these come in, it really can create a very lumpy pattern in the order timing category there in that. We mentioned the large $10 million order we got at the end of 2021, which was making a bit of a comparison tough in Q4 of 2022 there. But throughout '22, our largest order was $3 million, and we do anticipate that we'll see three or more size orders that can really skew numbers depending on timing out there. So that's really what's driving the comment around lumpiness. It's just this marketplace has kind of driven customer behavior to try to lock-in pricing, secure supply, overall, longer lead times. Duncan?

Yes. I would also add that's why our quarter-over-quarter order numbers, for example, are never going to be as stable or smooth, if you will, as we're going to see in terms of revenue. So, I think part of what we're trying to convey is just the fact that there is going to be that quarter-to-quarter lumpiness because of that dynamic. On the efficiency point, I mean, I think you kind of captured it, to some extent, your question, Peter, it's really all about growing our expenses at a slower rate than we're growing the top-line. And over the long term, that's exactly what we're trying to do. So, I think, as you pointed out, high-single digit kind of top-line growth, just lower mid-single digit kind of expense growth, that helps drive our efficiency, improve profitability. Obviously, there's mix shifts and things like that going on within the business as well that can kind of change things with respect to profitability metrics, but it's really as simple as that, quite honestly.

That's wonderful. If I could ask a follow-up? Could you help us understand what the free cash flow was for the year? The purpose of this question is to gain insight into your earnings potential for your 2025 guidance. Looking at the lower end, even with a conservative 10% margin, you're looking at $20 million of net income. If you need to acquire about $50 million of sales to reach that, I'm trying to understand how much of it you can fund from operations, cash generation, and how much will affect the existing share count. Ultimately, what do you predict the earnings power per share will be in 2025?

Yes. So, let me kind of unpack that a little bit. First on free cash flow, as I think we outlined in our materials, for the full year, free cash flow was negative $2.8 million, but it's important to understand that the second half of the year, our cash from operations of $3.7 million, which translates to free cash flow of just over $3 million in the second half. In the first half of the year, we did use a lot of cash in terms of building inventory, building the balance sheet given the growth that we've seen, backlog increasing from $25 million to $30 million in the back end of 2021 up into close to $50 million, closing out 2022. But I think the second half of the year is indicative of what we see kind of moving forward as we've made that investment in the balance sheet, so to speak. With that cash from operations, we'll continue to pay down debt, as we've done this year. We've taken our debt down by $4 million during the year. We'll continue to kind of do that. We have our term loan facility available to us, which we talked about. We expanded that facility. We have $30 million available there to us to use for acquisitions kind of moving forward. We've talked about, from a leverage perspective, not wanting to be more than 2.5x from a borrowing perspective. We were sitting at 1x at the end of the year with $16 million of debt, $16 million of trailing 12-months kind of EBITDA. As we pay down debt, obviously, the debt number will come down. We'll continue to drive the business kind of forward in terms of the cash generation metric, so our borrowing capacity will kind of increase. Depending on the size of any acquisition, I mean, obviously, look to use debt to the extent we can, but we have other options available to us, capital markets whatever, raising equity. So, I think it's a shifting equation depending on what we're looking at, but hopefully that gives you some a little bit of flavor from a balance sheet perspective of where we are and where we think we're heading.

That's wonderful. Thank you, guys.

Thanks, Peter.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Grant for final comments.

Thank you, Melissa. I want to reiterate that I'm exceptionally proud of our global team who delivered these outstanding results for 2022. We are driving a culture of openness, collaboration and accountability at inTEST, which we believe enabled us to deliver on our commitments to our customers throughout the year. We are making great progress towards our vision to be the supplier of choice for innovative test and process technology solutions globally. Please note on Slide 14 that we will be presenting at the Sidoti Small Cap Conference on March 23; at the Inaugural EF Hutton Global Conference on May 10; and the Stifel Cross Sector Insight Conference on June 6. We hope to see you all at these events. We really appreciate you taking the time to joining us on our call today and for your interest in inTEST. Thank you all, and have a great day.

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