Greetings, and welcome to the inTEST Corporation Q1 2022 Financial Results Conference Call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If you would like to ask a question, you may press star one on your telephone keypad. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Deborah Pawlowski, Investor Relations for inTEST. Thank you. Please go ahead.
Thanks, and good morning, everyone. We certainly appreciate your time today and your interest in inTEST Corporation. Here with me are Nick Grant, our President and CEO, and Duncan Gilmour, our Chief Financial Officer and Treasurer. You should have a copy of the Q1 2022 financial results, which we released this morning before markets opened. If not, you can access the release, as well as the slides that will accompany our conversation today, at our website, www.intest.com. After our formal presentation, we will be opening the line for Q&A. If you'll turn to slide 2 in the deck, I will first 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 with other documents filed with 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 reconciliation of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and in the slides. With that, if you will turn to slide 3, I will turn it over to Nick to begin. Nick?
Thank you, Deb, and good morning, everyone. Thanks for joining us this morning for our Q1 2022 earnings report. I would like to start by thanking the entire inTEST organization for their resiliency and never-ending desire to exceed customer expectations and deliver a solid start to the year. The Q1 played out as expected, with both top and bottom line results in line with our guidance despite Omicron supply chain constraints, transportation shortages, and continued inflationary pressures. We are advancing our five-point strategy and executing well. Revenue grew 23% year over year and 8% sequentially to $24.1 million, and was the result of continued demand of our innovative and differentiated solutions. The quarter was not without its challenges.
There was an estimated $1 million of product that was not able to ship due to supply chain constraints or logistic issues. As an example, we had a product on a ship that could not get into port in Baltimore in time. However, as we advanced through the quarter, we were able to improve our ability to deliver with bringing on more qualified suppliers, increasing inventory of raw materials, and driving greater efficiencies in our production processes. We are becoming experts at Whac-A-Mole to get product out the door to our customers. Acquisitions contributed $4 million in the quarter, primarily from demand in industrial, security, and other markets.
Organic growth of 3% reflected our growing presence in automotive electric vehicles and select industrial segments. We believe that our diversification efforts around targeted growth markets are working well. This is demonstrated by the strong sales of our leading test and process solutions to the automotive industry, including electric vehicles. In fact, in Q1, we saw our bookings and sales for automotive EV applications more than double from the prior year period. As we have been communicating, our diversification within Semi is also providing benefits.
We had sales of our innovative solutions for the front-end space, specifically in silicon carbide crystal growth applications, as well as sales of our thermal back-end solutions, both increased sequentially in the quarter, more than offsetting lower volume in our back-end electronic test solutions. For Semi sales to hold up that well is quite remarkable, given the atypical strength we saw during the H1 of 2021 for our back-end electronic test solutions. There were a few factors that impacted margins, both sequentially and from a year ago period. When comparing the year-over-year, the change in product mix was the primary reason for margin contraction.
This was mostly due to the significant volume from our back-end semiconductor test solutions during the H1 of 2021. Our custom-engineered solutions in this back-end test space generally tend to command our highest margins. From a sequential comparison, the initial contributions from the acquisitions had a drag on margins, as they were not where we expect they will be at the end of the year. Margins should improve as we drive productivity gains and as the investments we have made to grow revenue and realize operating leverage begin to pay off as we advance through the year. Integration of the three acquisitions that closed during the Q4 of 2021 is going as planned.
We are improving their systems and processes with more discipline and sophistication to enable greater scalability while investing in the sales organization across our enterprise to support our growth plans. We are building out our sales teams both domestically and in Europe. Recently, we opened our newest induction heating demonstration lab in conjunction with our channel partner in Mexico. History has shown we have a high success rate of converting prospects to customers when we demonstrate our technology solving their production challenges in our labs. Our strategy is to invest in more labs around the world to drive greater market penetration through customer conversion.
In parallel with these sales and marketing efforts, we continue to advance our new product innovation efforts that will further enhance our solutions offerings and help drive additional sales growth. As we tackle supply chain constraints, we are having to redirect our development engineers to qualify new suppliers and validate product specifications, which is somewhat slowing our new product development efforts. Last year, we defined our vision and mission and initiated our five-point strategy. As we announced at our recent Investor Day, we felt it was necessary to reorganize our structure after completing the three acquisitions we made at the end of last year to better execute our forward plans.
We now have three reportable segments that align with our technology platforms of Electronic Test, Environmental Technologies, and Process Technologies. We believe this division structure enables us to increase efficiencies, broaden opportunities, better utilize our managers' talents, and leverage our strong customer relationships to accelerate growth and capture cost synergies. We also expect to be able to increase collaboration across the businesses, which will help to create broader customer solutions. Finally, with our new technology division structures, we believe we are well-positioned to build our forward vision of innovative test and process technology solutions and the platform to support our growth ambitions.
You can find the results by segment in our news release, as well as in the supplemental tables of our slide deck. We had orders of $25 million in the Q1 of 2022, a record backlog at quarter end, and demand has elevated as we advance into the Q2 . This provides us with the confidence to reaffirm our guidance for 2022 and establish Q2 revenue guidance of approximately $27 million-$29 million. With that, let me now turn it over to Duncan to review the financials in more detail. Duncan, over to you.
Thank you, Nick. Starting on slide 4, we provide some detail regarding our top line. As Nick indicated, revenue for the Q1 2022 was $24.1 million, a 23% increase over the same period last year, and at the midpoint of guidance. Compared with the prior year period, revenue growth of $4.5 million included $4 million from our Q4 acquisitions. This contributed to growth in life sciences, security and other markets, and is indicative of the company's strategy to diversify and expand with new customers and into new markets. Organic growth amounted to $0.5 million Or 3%, reflecting demand from the automotive market, in particular electric vehicles, as well as industrial markets.
Sales to the semi industry were relatively unchanged on a year-over-year comparison as growth in shipments to front-end semi customers offset the decline in sales to the traditional back-end semi markets, which were exceptionally strong in the prior year quarter. It is also important to note that the level of supply and logistic challenges in the Q1 was similar to our experience throughout the last couple of quarters, and we estimate supply chain and logistic constraints impacted Q1 2022 revenue by approximately $1 million, even as our teams continue to do an outstanding job working through the issues, finding alternative solutions, and aligning operations to best meet customer expectations.
Compared with the trailing Q4 of 2021, sales to the semi industry grew 9%, driven primarily by demand from back-end semi thermal applications. Life sciences, industrial, and defense aero markets also improved sequentially. The company's top five customers in the Q1 represented approximately 20% of revenue, and no single customer during the quarter accounted for 10% or more in revenue. Moving to slide 5. Our Q1 gross margin of 45.7% compares with 46.3% in the Q4 of 2021 and 48.7% a year ago.
The contraction from both prior periods reflected less favorable product mix, the impact of acquisitions, production inefficiencies driven by supply chain constraints, and delayed recovery of cost increases as pricing improvements tend to lag inflationary increases in component material and labor costs for pre-existing order commitments. As it specifically relates to mix, in the prior year quarter, back-end semi test was at an exceptionally strong level. The market was surging, and we believe we were capturing more market share.
As we have noted in the past, our back-end semi test business is the most lucrative in our product portfolio from a margin perspective. What is encouraging going forward for this segment is that the new leadership and focus has reignited our customer relationships. Sales to back-end semi were $11.1 million in the 2022 Q1 compared with $12 million last year. Front-end semi sales stepped up from $1.3 million in last year's Q1 to $2.3 million this year. The impact of our acquisitions is tied to them closing toward the tail end of 2021.
Inefficiencies from the early stages of integration are to be expected, and we anticipate improvement with more consistent go-forward quarterly performance. On an overall basis, we expect modest margin improvement through the rest of 2022, driven by improving contributions from acquisitions and increasing volumes. Slide 6 details our operating expenses and expectations going forward. Operating expenses were $10.2 million in the Q1 , representing 42.4% of revenue, compared to $10.1 million or 45% of revenue in the Q4 .
Q1 2022 operating expenses reflect the impact of a full quarter of costs associated with the company's Q4 acquisitions, and also include approximately $780,000 pre-tax intangible asset amortization expense. Intangible asset amortization expense was $522,000 in the Q4 , with a step up directly related to the acquisitions. We expect quarterly operating expenses for the balance of 2022 to be in the $10-$11.2 million range. We have annual merit pay increases that come in during the Q2 , and we expect growth-related investments to step up through the year and are reflected in this range.
As we continue with our growth investment plans to support our five-point strategy, we are confident that we will continue to demonstrate improving operating leverage with volume and scale. On slide 7, you can see our bottom line and adjusted EBITDA results. Both GAAP and adjusted EPS were within our guided ranges. We had GAAP net earnings of $577,000 or $0.05 per diluted share for the Q1 , which compares with net earnings of $287,000 or $0.03 per diluted share for the Q4 of 2021. On an adjusted basis, EPS was $0.12 per share compared with $0.07 per share in the Q4 .
Adjusted EPS reflects tax-affected, acquired intangible amortization. On an after-tax basis, acquired intangible amortization amounted to $689,000 in the Q1 . We expect a similar amount of intangible amortization in the Q2 of 2022, with declining levels during the H2 . The effective tax rate for the quarter was 12% as we continue to benefit from tax credits related to high export sales and released a small valuation reserve on tax assets associated with some old foreign net operating losses. Adjusted EBITDA was $2.1 million for the Q1 , up 56% from the Q4 of 2021, reflecting higher bottom line profitability and the impact of acquisitions on Q1 2022 amortization and interest expense.
In our adjusted EBITDA calculation, we remove the impact of stock-based compensation. Stock-based compensation is a non-cash expense and as such does not impact our liquidity. Accordingly, we believe our adjusted EBITDA is a better performance measure to assess the strength of our cash generation ability than EBITDA alone. More detail on the calculation of adjusted EBITDA can be found under non-GAAP financial measures in our earnings release. Slide 8 shows our capital structure and cash flow. Cash and cash equivalents were $17.2 million compared with $21.2 million at the end of 2021. We used approximately $900,000 in cash to pay down debt in the quarter, reducing our balance to $19.2 million.
As a reminder, we had debt of $20.1 million at the end of 2021 as we established a term loan facility to finance two of our three acquisitions during the fourth Q4. We believe we are better leveraging our balance sheet than we had historically and have plenty of financial flexibility to continue executing on our five-point strategy for growth. Our liquidity stands at $32.2 million, which includes cash and approximately $15 million available on our revolver and term loan facilities. We used $2.7 million in cash during the Q1 . The Q1 typically consumes cash due to the timing of year-end bonus payments and cash taxes.
Capital expenditures during the Q1 were $335 thousand compared with $417 thousand in the fourth and $388 thousand in the year ago quarter. For 2022, we expect capital expenditures to be around 1%-2% of annual revenue. However, depending upon changes in market demand or manufacturing sales strategies, we may make purchases or investments as we deem necessary and appropriate. With that, I will now turn the call back over to Nick.
Thanks, Duncan. Slide nine highlights our orders and backlog performance. Overall, demand for our products and solutions remains solid with the Q1 book-to-bill of 1.04. While we will always welcome market tailwinds, our objective is to execute our five-point strategy to grow faster than our served markets. We continue to extend our reach in targeted growth markets while deepening customer relationships across these industries. In the Q1 , our businesses continued to add new customers with a focus on both end users and OEMs. Orders for the Q1 of $25.1 million were essentially flat with the year ago period, and were down from a record $30.5 million in the Q4 .
As we mentioned on our last call, the Q4 included a large approximately $10 million order for our front-end semi solutions. We are delivering against this order throughout 2022, primarily in the Q2, Q3, and Q4 , and the pipeline remains very active for more front-end semi orders for our induction heating solutions used in silicon carbide crystal growth applications. Our semi back-end orders were lower year-over-year as they compare with an atypically strong period of demand that occurred during the H1 of 2021, but still remain at an elevated level from historical rates.
Outside of semi, orders for the Q1 of 2022 reflected strong demand from the automotive industry, in particular for EV applications requiring inTEST induction heating technology and our newly acquired battery test solutions. Orders were up in life sciences as well, driven by demand for a variety of inTEST technology solutions, including digital imaging and induction heating. Demand increased from the defense aero industry for environmental technology solutions in the quarter. Our backlog at quarter end reached another record level at $35 million, approximately 63% of which is expected to convert to sales in the Q2 .
Our level of longer-term backlog is higher than historical trends as customers seek to secure production capacity and to cope with longer lead times. Slide 10 reaffirms our guidance for 2022 and provides Q2 expectations. Although we just have one quarter in the books, I'm pleased with how the year is shaping up. As a result of our solid start, we continue to expect revenue for 2022 to be in the range of $110 million-$115 million, with quarterly gross margins ranging between 46% and 49%. We also expect interest expense to run approximately $150,000 per quarter, and our effective tax rate to be between 15%-17% for the year.
As I mentioned earlier, for the Q2 of 2022, we expect revenue to be in the range of $27 million-$29 million. Q2 GAAP EPS should be in the range of $0.11-$0.16 cents per diluted share, while adjusted non-GAAP EPS is anticipated to be approximately $0.18-$0.23 cents per diluted share. The difference between GAAP and non-GAAP is tax-affected acquisition amortization expense. Our guidance is based on our current views with respect to operating and market conditions and customer forecasts, which are subject to change, as well as our expectations for the balance of the quarter and are subject to any strategic investments we may choose to make.
It also assumes supply chain challenges remain relatively consistent with what we've been seeing, with gradual improvement as we move through the H2 of the year. Actual results may differ materially as a result of, among other things, the factors described under forward-looking statements found in the materials that accompany this conference call, including the press release and the slides. Slide 11 highlights our longer-term aspirational goals that we delineated at our Investor Day in early March. With the talent we have in place and strong adherence to our five -point strategy for growth, we can see a path to essentially doubling the size of the company from what we expect to report in 2022. This path includes both organic and acquisitive growth expectations and would represent a very strong top-line CAGR.
Slide twelve shows the operating leverage we expect our business model to ultimately deliver that should drive cash generation and improved earnings power. Let me now summarize the key takeaways for inTEST on slide 13. A focused and energized workforce is in place to continue to drive growth as we diversify and expand our markets and our customer base. Executing our five-point strategy for growth is delivering results, and we'll see more secular growth trends across our addressable markets. Our M&A funnel development is ongoing. Our team continues to identify acquisition targets that we believe will bring differentiated and innovative technologies, provide complementary capabilities, or enable deeper and broader reach within our targeted markets and geographies.
To capitalize on future opportunities, we have in place a strong balance sheet and the financial flexibility to execute our growth plans. We are encouraged by the strong demand across our markets. Our solid Q1 results, along with the pace of Q2 orders thus far, gives us confidence in our 2022 outlook, even in the face of continuing supply chain challenges. We are optimistic about our healthy pipeline of projects as we skillfully manage our operations to meet customer needs. With that, operator, let's open the lines for questions.
Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star two 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 star key. Once again, that is star one to register a question at this time. The first question is coming from Jaeson Schmidt of Lake Street Capital Markets. Please go ahead.
Hey, guys. Thanks for taking my questions. Just want to start with the supply chain. Nick, I know you mentioned in your prepared remarks that you're baking in the assumption for some gradual improvement throughout the year. Curious if you're seeing signs of improvement now to give you that confidence, or if this is more just based on the worst has to be over because it's been so challenging.
Hey, good morning, Jaeson. Great question. I would say the improvement is really a result of the actions we're taking and our ability to, you know, qualify second sources, and, you know, provide alternate components, avenues for us here to be able to get our products to market. I wouldn't say things are improving in the marketplace as the frequency of supply challenges continue to occur weekly out there in that, but the teams are getting better at it. That's really what's driving the confidence in the H2 . Duncan, would you wanna add anything?
Yeah, I would agree that we aren't necessarily seeing improvement. The situation is pretty much the same that we've been seeing the last few quarters. You know, the impact I would say on our numbers I think we talked about roughly $1 million kind of impact, a little bit higher than we've seen in prior quarters, really due to the additional impact of the acquisitions. You know, our acquisitions certainly were also impacted by the supply chain challenges that our legacy businesses have been, you know, dealing with for a number of quarters now.
You know, as Nick has indicated, you know, the teams are, you know, certainly getting familiar with managing through that. We do assume some modest improvement, you know, in the H2 . There isn't a change there. We're not seeing that yet. The situation is much the same as of right now.
Okay. That's really helpful color. Kinda just sticking with the supply chain topic, really impressive to see you guys reaffirm that gross margin outlook for the year, just given all the challenges out there. Does that also bake in some potential friction of qualifying new suppliers?
Yeah, no, absolutely. That assumes, you know, the activities that we've been seeing on that supply side with, you know, as we switch those suppliers has a usually a cost impact on that. So that's baked in. But the volume that we're picking up as we grow through the year here, you know, is driving improvements there. Plus, we laid out in the press release a number of cost activities that we're driving with, you know, dedicated sales for production, supporting the silicon crystal growth technology in our induction heating facility. You know, we've recently consolidated our Videology North America into our Mansfield Environmental Technologies facility up there. So we are taking some actions to try to contain the cost side of things there as well.
Okay. Got it. Just the last one from me, and I'll jump back into queue. Semi revenue was up nicely sequentially. Just curious how you're thinking about the end market, just given the historical cyclicality that has plagued that industry. How far does visibility extend in that space for you guys?
Yeah, you know, semi is still, as we said, you know, at elevated levels, not at the historical highs we saw at the beginning of last year. As we've highlighted, we do have the benefits of being at different parts of semi, very front end, as well as back in Electronic Test and back in lab test, if you will. We're seeing, you know, the different pieces, the dynamics kinda all play out where one might offset another, but still at a healthy level. As you know, lead times for products have gotten out there pretty far. It gives us really good visibility of the projects that are coming in the second, Q3 out there that you know we feel confident that you know semi is gonna maintain at a healthy level for us.
Yeah, I mean, I would just add is I think, you know, we commented on, I mean, nice to see semi growing sequentially, as you point out. The dynamics within semi, certainly interesting. Our traditional back-end Electronic Test piece of the business, you know, as projected, you know, has moderated, you know, a little bit, but we've been able to offset that with the activity on the front-end side in particular, as well as some of the back-end lab activity. I think that just kinda demonstrates, you know, a little bit more diversity even within the semi space.
I'd also add, it's great to see that our non-semi businesses, you know, all kinda demonstrating kinda growth, which just proves the, you know, additional resiliency that, you know, we think we're kinda bringing to the table by virtue of the acquisitions in particular, and the additional markets that we're now playing in.
Okay. Appreciate that color. Congrats on the strong results and the outlook, guys.
Thanks, Jaeson.
Thank you. The next question is coming from Robert Marcin of Penn Capital. Please go ahead.
Good morning, guys. Thanks for taking my questions. Congratulations on the solid start. Hopefully, there's sequential improvement the rest of the year. Can you guys give us an update on the improvements in organic revenue growth for both the Ambrell and the semi businesses that Nick talked about when he first arrived? The commentary then was low-hanging fruit for, significant market share gains, geographical gains, more sales efforts. Do you feel that the organic revenue growth of both of those businesses today are positioned to be higher than they would have been a year or two ago? Thank you.
Yeah. Hey, good morning, Robert, and thanks. Appreciate the questions. Relative to the you know, low-hanging fruit comments that I made when I came on board, you know, the specific in semi, you know, I'm really pleased with the work our teams have done there to go, I would say more from a farming mode to the hunting mode and establishing key account programs, going after customers that we typically did not have in the past. Likewise, for increasing our portfolio through product innovation, an area that also was kind of starved in the past. That work has really opened up new customers, new applications for us and I believe positions us well from where we were before I joined out there.
On the induction heating side, and which also pertains to Videology, our image capture, so our whole process technology space there. It's all about lead generation, and we've been investing in, you know, MarCom and direct sales and channel partner programs and OEM programs to really just drive qualified leads. And now with our efforts to expand our labs to help drive higher conversion of customers when we do demonstrate our technology solutions. You know, we feel really good about the organic growth that we're gonna see in the core businesses as well as the acquisitions and the investments we're making there.
Okay. The organic revenue growth is a key component of our 2025 target. At some point, you know, it needs to show up in the numbers in a significant double-digit way, and I don't think we've seen that yet from what I believe the markets themselves have been doing. Looking forward to seeing that. Regarding M&A activity, do you think this year could include another deal or so, or do you really wanna get these three acquisitions completely humming before you'll, you know, bite off another acquisition transaction? Thank you.
Yeah. On the M&A front, as I mentioned, our funnel strength is quite healthy. Our funnel strength is. We shared a little more details at our Investor Day, but our activity remains strong and, I've mentioned it in the past, our objective really is to do at a greater frequency, the inorganic growth path at inTEST here with a goal of completing one deal annually, at least. Last year we were successful with the three. But I do believe, if our activity continues and we're successful here, we could see another one later this year.
Stock market acting the way it has, the valuations are coming down, so don't let your acquisition candidates forget that.
No, absolutely right. They, you know, and hopefully you can see from the deals we did, we've been pretty prudent about getting good multiples and finding companies that we believe we can drive tremendous value being part of inTEST. Yeah, no, that we won't lose sight of that.
Yeah. That you have. I mentioned your acquisition price to sales ratios to another CFO recently and he said, quote, "You got them for free." End quote. Anyways.
Yeah.
He was very impressed.
Yeah.
I told him he's not working hard enough because they haven't done that. Anyway.
We can assure you we're working hard here.
Finally, any updates on the opportunities in the service businesses that we're trying to expand over the next year or two?
Yeah. We're making some progress on the service front there. In the Q1 , we landed a few master supply agreements with some customers that have a larger installed base. They don't really show up in the numbers immediately. As you know, these are multi-year contracts and we bleed those in as they go on. The teams are focused on driving service growth, driving greater customer satisfaction with after sales support. You know, I do believe also our acquisition of Acculogic and their test programming services business that they have provides us an opportunity to do more on the service front that other parts of the company can leverage. Duncan, any other comments on service you wanna add?
No, no. I think you captured it there. Certainly seeing some nice initial wins there, but you know, still plenty of opportunity.
All right. Thank you. Then one final one, just quickly, not for you. Are your customers' factories expansion plans on schedule? Do the fabs that have been announced seem to be on schedule? I'm hearing that there's not insignificant delays in the factories, the build-out to the fabs.
Yeah, as you know, we're more on the back-end test side of things, but what we hear is, you know, that progress is continuing on the front-end space, which will eventually drive more back-end demand as these get established in that. Obviously, COVID lockdowns in China, everything has kinda extended lead times on things, but yeah, it's not like anyone's pulling the plug, they're just delaying things weeks or what have you out there. We feel good about what semi holds for us in the future here, and really excited about our, you know, this shift from silicon to silicon carbide is really creating some nice opportunities for us on the front end.
Thank you.
Thanks, Robert.
Once again, that is star one to register a question at this time. The next question is coming from Peter Wright of Intro-act. Please go ahead.
Great. Good morning, guys. Thank you for taking my question. Congratulations on the amazing transformation and execution, you know, Nick, since you've built the team around you, to do what you've done.
Thanks, Peter. Yeah, no, excited about the how the year's shaping up and where the company's heading.
I have a couple questions for you, one near term, one long term, and then, Duncan, I have a couple for you as well. Nick, on kind of the short term, you know, you're looking for 20% half-on-half growth embedded in your guidance. What do you think the primary drivers of that are, and maybe the risks as well, that we should be aware of, because that's very aggressive, you know, guidance for the year, so congratulations to that. Then longer term, the second question is, you know, looking at your five-point strategy, you know, you're looking to double organically to the organic question. If you were to break it down kind of breadth, number of customer depth, penetrating each customer deeper in the service business, how would you rank kind of the importance of those three things: breadth, depth, and service?
Well, maybe I'll let Duncan address the first part of that, and then I'll comment on the five-point strategy.
The first part being in terms of the year, and, yeah, I mean, looking at the year, you know, I think as we talked about in the, you know, initial remarks, I mean, demand, the demand side, you know, has been strong, continues to be strong. Our backlog is at record levels. You know, so we certainly have, you know, we have the backlog there to, you know, give us a fair degree of confidence with respect to, you know, the next kind of quarter or so. So the demand picture that the teams are seeing out there is also strong. You know, that top line is the biggest kind of driver, you know, obviously of the, you know, of the growth. You know, I think it's as simple as that really, Peter, in terms of you know, the short term.
Great. Then on the five-point strategy, you know, breadth, depth, and service are all key parts of our strategy. I hesitant to say one's more important than the other. You know, we wanna obviously expand our customer base, which we're doing, to reach more customers. We're getting a larger share of our customers' wallets as we go deeper in them. The teams are actively working both fronts there. Then as we commented, our service activities and programs are growing and will, which will drive greater customer satisfaction to retain customers as we go forward here. I don't wanna miss out on, you know, leave out innovation and talent.
You know, both are also critical pieces of our five-point strategy, and really pleased about the progress we're making on those fronts as well. Yeah, it is a, you know, a multi-pronged strategy with each piece being, you know, I would say equally important to us.
This is Deb. I just wanna throw in here too, just for clarification. I think I heard you say double organically, and that is not the goal. That doubling includes acquisitions.
Correct. Yeah. Did not catch that. Yeah, you know, our doubling of the business includes, you know, a certain amount of acquisitions by 2025, which we discussed.
That's fantastic. A couple other clarifications, just an easy one on the guidance, the 10.9-11.2, great job on the G&A, bringing that down almost 10% quarter-over-quarter. My question is that guidance an average of all four quarters or guidance kind of going forward from here?
I would say it reflects the next three quarters, and I would look at it as it steps up very slightly, Q2 through Q4. There's a bigger step up Q1- Q2 because of, for example, merit increases being a bit of a component of that. That range I would expect to step up Q2, Q3 through Q4.
With the investments we're making.
Primarily-
To drive growth there. I mean, it's, you know, on top of the merit, we plan and, you know, as we bring resources on, to get more sales coverage, improve our marketing to, drive more, engineering development, et cetera, et cetera. You know, that's also a piece of what's driving it in the outer quarters.
It's selling. There's really no growth in the fixed portion, G&A. $5-ish a quarter is a good number on the G&A side.
Not dramatically, no.
Two-ish.
Right. As Nick indicates-
Yeah.
You know, we'll continue to make, you know, modest headcount investments in selling, you know, engineering, you know, areas like that where you know, we need to do that in order to continue to the growth trajectory.
Fantastic. Very last question, free cash flow in 2022, any thoughts there?
I would expect. Cash was obviously weak in Q1, you know, given the timing of bonus payments, certain tax payments, things like that. You know, I'd expect us to be generating cash throughout the rest of the year. You know, we haven't kind of thrown a cash number out there, but, you know, I would expect, you know, looking at our adjusted EBITDA as a kind of a liquidity measure, and the general kind of cash cycle that you see from the business, that cash will start growing again through the rest of the year. Even with the, you know, we are paying down debt at around $1 million a quarter. But I would expect to see our cash balances grow, as we get to the end of the year. Absolutely. Wonderful. Thank you, guys.
Thanks, Peter.
Thank you. Once again, that is star one to ask a question at this time. Thank you. Our next question is coming from George Melas of MKH Management. Please go ahead.
Good morning, gentlemen. Good job on a good start to the year. Also thank you very much for the new reporting vision into the company. I think it's gonna help us understand the business a lot better, so very much appreciate that.
Hey, good morning, George. Thanks a lot. Yeah, no, we're pleased to be able to share, you know, a bit more visibility because, you know, this is really how we're running the business, so I think it's important that you guys see that.
That's great. Yeah. You guys noted that the acquisition contributed roughly $4 million in revenue during the quarter. Is there a way to give us some sense of what they contributed to the gross margin and also to the income? Did they contribute to this divisional operating income or were they a slight distractor from that and you expect some improvement during the rest of the year?
Yeah. I mean, let me give you a little bit of color on that. Yeah, I think we talked about the acquisitions being accretive to the year as a whole. And certainly we, you know, we believe that to be the case. You know, I would say in Q1 at $4 million, which is about $16 million annualized. I mean, that's kind of below the kind of run rate that we're ultimately expecting to see from the acquisitions. If you look at it that way and work through the mechanics there, you know, I would say that they certainly were a little bit dilutive to margins in Q1 and I think, again, we kind of alluded to that in the prepared remarks and in the release there.
Yes, they were a drag. You know, as we said, we do expect that to you know resolve, and we do anticipate them ultimately being accretive, by the end of the year.
Great. Thank you very much.
Thanks, George.
Thank you. At this time, I'd like to turn the floor back over to Mr. Grant for closing comments.
Thank you, Donna. Before we wrap up, I want to reinforce that the inTEST team is the secret to our success, and I thank all of our team members for supporting and driving our transformation. You can note on slide 14 that we will be presenting at the Sidoti Micro-Cap Virtual Conference next Wednesday. That presentation will also be webcast. We are also presenting at the Stifel Cross Sector Insight Conference on June 8th, so perhaps we'll see some of you there. In the meantime, we appreciate you joining us today on our call and for your interest in inTEST. Thank you, and stay safe.
Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.