inTEST Corporation 2026 Q2 Earnings Call

Please go ahead. Good morning, everyone, thank you for joining us.

With me on the call are Rich Rogoff, President and Chief Executive Officer, and Duncan Gilmour, Chief Financial Officer and Treasurer. The earnings press release was issued this morning, as well as the slides that management will use during today's call. Both can be found in the Investor Relations section of the intest.com website. Please turn to slide two for a review of the safe harbor statement. During this call, management may make some forward-looking statements about their 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 the intest website or at sec.gov. As covered in slide three, management will refer to some non-GAAP financial measures. We believe these will be useful in evaluating the company's 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. Before management begins today's discussion on slide four of the presentation, please note that certain first quarter 2026 comparisons in their prepared remarks reflect inTEST's revised Q1 results. As the company announced on July 31, management revised Q1 cost of revenues, gross profits, gross margin, income tax expense, net earnings, and earnings per share, together with their related non-GAAP measures.

Q1 revenue and operating expenses were not affected by the revision. Q1 2026 financials provided as part of this presentation have been revised accordingly. With that, I would now like to turn the call over to our first speaker, Rich Rogoff, President and CEO. Please go ahead, Rich. Thank you, Sanjay.

Good morning, everyone, and thank you for joining us. On today's call, I will start with an overview of our second quarter performance. Duncan will walk you through the Q2 financial results, after which I will discuss end market dynamics that support our raised revenue guidance for the year and then open the call to Q&A. We are reporting Q2 results that are in line with our pre-announcement, with revenue of $35 million, gross margin of approximately 41%, and operating expenses of $13.9 million. Demand across inTEST divisions remained healthy in Q2, with revenue up approximately 26% year-over-year. Q2 also marks our third consecutive quarter of sequential revenue growth and our second consecutive quarter of year-over-year growth above 25%.

The strength we saw was broad, led by strong project delivery in Auto/EV and a semiconductor funnel that continued to build towards the second half. The diversity we have built continues to broaden our revenue base, which gives us confidence in our raised full-year top-line guidance. As disclosed in our pre-announcement on July 31st, our second quarter margin reflected an unfavorable mix of high-revenue, low-margin projects at Alfamation, alongside a shortfall of higher contribution revenue that shifted to the third quarter. Turning to orders and backlog on slide five, Q2 orders were $28.9 million, down 9% sequentially, following three consecutive quarters above $30 million, and up 4% year-over-year. Semi was a standout. Orders here increased 56% sequentially, our strongest semi order intake in six quarters, and grew 64% year-over-year.

The semi wave that we referenced in our Q1 call is now converting into orders. In Auto/EV, orders declined 67% sequentially after four quarters of strong order flow. Funnel activity in this end market remains healthy. In defense aerospace, orders declined 28% sequentially, reflecting non-reoccurring orders that drove strong Q1 and increased 70% year-over-year on higher DoD procurement. Turning to backlog at quarter end, backlog was $45.4 million, a sequential decrease of 12%, reflecting normalization off an elevated peak in Auto/EV projects. This also represents a year-over-year increase of 20%. Approximately 45% of the backlog is expected to ship beyond the third quarter. With that, I will turn it over to Duncan to take you through the financial detail, beginning on slide six.

Duncan? Thank you, Rich. Starting on slide six, on a sequential basis, revenue in Q2 increased $1.4 million, or 4%, from $33.9 million in Q1 to $35.3 million.

The net increase was driven almost entirely by Auto/EV, which increased by $6 million on the shipment of high-revenue, lower-margin Alfamation automotive projects from backlog. Industrial contributed $1.1 million. Partially offsetting these gains was a $2.1 million decline in defense aerospace, following a particularly strong first quarter, as well as decreases of $1.6 million in life sciences and $1.4 million in semi. Compared to Q2 2025, revenues increased $7.2 million, or 26%, from $28.1 million. The increase over the prior year period reflects the continued gradual recovery in the capital spending environment and continued penetration of non-semi-correlated end markets. Non-semi markets accounted for approximately 74% of Q2 revenue.

Sales in Auto/EV increased $7.6 million, followed by life sciences and industrial at approximately $0.6 million each. Partially offsetting these gains was a $1.1 million decline in semi. Turning to slide seven, second quarter gross profit was $14.3 million, and gross margin was 40.5%. Compared to revised Q1 results, gross margin declined 280 basis points sequentially, reflecting a shift in revenue mix towards high-revenue, lower-margin Auto/EV shipments. For the same reason, gross margin declined 210 basis points from 42.6% in the prior year period. Moving on to slide eight, operating expenses for the second quarter were $13.9 million, a decrease of $0.5 million sequentially. The sequential decrease was due primarily to approximately $0.7 million in non-recurring restructuring costs associated with the CEO transition that we recorded in Q1 and did not recur in the second quarter.

On a year-over-year basis, we generated $7.2 million of incremental revenue while absorbing only $1 million of incremental operating expenses, which resulted in a reduction in operating expenses as a percentage of revenue to 39.5%. Turning to slides nine and 10 that collectively measure our profitability. On slide nine, for Q2, net income was $0.5 million, representing a net margin of 1.3%. Adjusted EBITDA was $2.2 million, representing an adjusted EBITDA margin of 6.2%, and up approximately 73% from $1.3 million in Q2 of 2025. On slide 10, net income was $0.04 per diluted share. Adjusted EPS, which adds back tax affected acquired intangible amortization and restructuring charges, was $0.09 per diluted share. Our Q2 results include a discrete income tax benefit of approximately $0.02 per diluted share that is driven by stock option exercises during the quarter.

This benefit is specific to the second quarter, but we continue to expect a full year effective tax rate of approximately 18%. Slide 11 shows our capital structure and cash flow. We ended the second quarter with cash and cash equivalents of $22.1 million, an increase of $6.4 million from the end of Q1. During the second quarter, we generated $6.3 million of cash from operating activities and received $2.9 million in proceeds from stock option exercises. These inflows were partially offset by $2.3 million of net debt repayments, including a $1 million reduction in term debt, and by $0.4 million of capital expenditures. By June 30th, 2026, we had approximately $62 million in total liquidity.

In addition to $22.1 million of cash and equivalents, we have $40 million of available borrowing capacity under our delayed draw term loan and revolving credit facilities, which we have extended through August 28th, 2026. Total debt was $6.2 million, and our leverage ratio was 0.8x trailing 12 months adjusted EBITDA. Turning to slide 12 and our financial guidance for the year. We are introducing guidance for Q3 and are reiterating the outlook we provided on July 31st. For Q3, we project revenue of $33 million-$35 million, gross margin of approximately 44%, operating expenses of $13.8 million-$14.2 million, and amortization of $0.5 million. For the full year, we now expect revenue of $135 million-$140 million. At the midpoint, this represents growth of approximately 21% over 2025's $113.8 million.