Good morning, everybody, and welcome to the Southwest Ideas Conference hosted by Three Part Advisors. Up next, we have inTEST Corporation, traded under the New York Stock Exchange on symbol INTT. On behalf of the company, we have Nick Grant, President and CEO, and Duncan Gilmour, CFO. Nick, take it away.
Thank you, and good morning, everyone. I'm Nick Grant, President and CEO of inTEST, and pleased to be with you this morning to talk about the company and the journey that we're on. With me today is Duncan Gilmour, our CFO, and he'll go into more of the details on the financials and the outlook that we've laid out for 2024 here. We will be mentioning some forward-looking statements, as well as referencing non-GAAP financial measures. Disclaimers around those can be found in the documents and on the website, and I mentioned the journey that we're on here at inTEST. I joined back in 2020 and been brought in to really help transform inTEST, a company that's been around for over 40 years, started in the early 1980s, serving back in semi-test, and over time have grown through some acquisitions.
But went public in 1997 and really was looking to, the board was looking to find someone that could take it to the next level. And something I've been doing throughout my career, 17 years at Emerson Electric, five years at AMETEK, and almost four years at ABB. So when I came on board, we set out a plan to be the supplier of choice for our customers around innovative test and process technology solutions. And we laid out our strategy, our five-point growth strategy. And really what differentiates inTEST from others in this space is our know-how, our expertise, and our ability to solve problems that others can't. We are roughly $122 million on a trailing 12-month basis, and we've restructured the company around three technology divisions a couple of years ago, which we'll go into more detail on.
The transformation we're driving is really shifting inTEST to more of diversified markets with long-term secular trends. We've made some really great strides in this area, both through organic growth and targeted spaces outside of semi, as well as some acquisitions that we've added. Working to increase our SAM out there as we enter these new markets, as well as bring in new companies. The new structure I talked about around three technology divisions, allowing us to focus on leveraging technologies within the businesses that are within that division, as well as some cross-sharing across the divisions as well. And then a strategic focus on acquisitions made some really nice progress with the most recent deal being completed in March of this year, which I'll touch on as well. When I came on board inTEST, it really is a strong foundation for growth.
That's what attracted me to it: good technology, good customer base, and a global business out there. We've diversified in some attractive markets. Semi is still our largest market, but automotive industrial areas, we've made some nice inroads, as well as defense and aero. You can see our market splits by region on the right-hand side. We are primarily manufacturing in North America and Europe today, but have sales and service around the globe. The five-point strategy that we've been driving to deliver growth is really nothing revolutionary here, but it is exactly what this company needed. It was run very conservative, given the semi-cycles, the exposure that it had. We wanted to really expand our footprint globally and into target markets, making investments where we had gaps, upgrading our channels to markets, and targeting these adjacent spaces.
Driving innovation and technical differentiation, this is where we excel, instilling new product roadmaps that deliver robust new products and staying ahead of the competition out there, while still allowing us to capture the late-stage customization, but doing more standardization around platforms and sub-assemblies to drive cost out. Service and support, another area we're focused on driving growth here, making some inroads here more around our service offerings, expanding those to better serve our customers, keeping their equipment optimized in their plants, and optimizing yields. More to do here as we want to focus on trying to develop some more recurring revenue streams as we look at some software development areas around our products.
And talent and culture, an area that I've spent a lot of focus on over the last four years, really moving this conservative company to a performance-driven, results-oriented business, one that bringing in some external talent to leverage best practices from around the industries versus what was just being done in the company, and a focus on succession planning so we can develop the talent within the organization. And our last strategy is strategic partnerships. And since joining in 2020, we've completed three acquisitions of businesses, as well as one product line that we've added to our portfolio, and really bringing in new technology, complementary technology, and a wider customer base that we can sell our products across. The most recent acquisition was a company called Alphamation in March of this year. It's headquartered in Milan, Italy. They are primarily an automotive electronics test company.
Their products are used primarily in the infotainment space, as well as onboard computing systems, lighting on the cars. And they also do some consumer electronics and life sciences as a market we think we can expand further with our broader portfolio here. Great company, great technology. And the owner was looking for an exit strategy. He was in his mid-60s and no succession plan in place out there. So we were able to circumvent any kind of sale process, talk to the owner, convince him that being part of our electronic test division, leveraging Alphamation and our EMS business is a win-win for both of us. And he's on board and agreed to stay on three years during the transition as we integrate the business into the company here. So real excited to have that business part of inTEST here.
It really does fit across our five strategies here. It expands our footprint in Europe. It gives us our largest manufacturing location in Europe, an area that we want to do more in. It also brings new technology, new engineering know-how and expertise, good expertise around automation that we can leverage across our other businesses. Expands and diversifies us into auto, EV, as well as a little bit in the life science and consumer electronics. And it is a business that had a good track record for demonstrating growth and one that we feel with being part of inTEST, we can continue that track record. Talking a little bit about the diversification efforts we've made over the last four years here. When I came on board in 2020, the company had over 2/3 of its business in semi.
And over the last few years, you can see how our semi exposure has lessened as we've grown and focused in our other targeted markets, both organically and inorganically here. And we'll continue that diversification. But semi is always going to be a key market for us. And we laid out our 2025 plan. We see it being in that 35%-40% range going forward as well. Shifting a little bit into our three technology divisions. First is electronic test. This is where the heritage of the company resides, that back-end semi test solutions that we manufacture for making testers and probers, testers and handlers interface seamlessly together, as well as manipulators that allow changeover of test head operations for customers in that back-end space.
Then through acquisitions, we've added integrated circuit board testing capabilities, electric vehicle battery testing capabilities, as well as the Alphamation business with the infotainment and automotive electronics test capabilities into our portfolio there. So really excited about our solutions we are offering in this space and the diversification. This business was 100% semi and now very diversified in a variety of markets, that division. Shifting to Environmental Technologies. Today, our solutions in this space are very much thermally focused, thermal focused. We make temperature chambers for cycling products and sub-assemblies to test the robustness of performance of these electronics. We also make chillers, process chillers that are used to control temperature during a wide variety of process applications out there. And really what differentiates us is our know-how and expertise to tightly control temperature over a wide range to meet some of the stringent specs out there.
Last but not least is our Process Technologies Division. This is a part of our company that really joined through the acquisition of Ambrell in 2017. They brought in induction heating solutions that are used in nearly every industry and a wide variety of applications out there. Anywhere there's a furnace, a flame, a gas, a weld, a joining of materials, induction heating can be used in a much greener and more tightly controlled fashion. So it's really about diversifying and displacing other technologies. We acquired a camera image capture solutions business, which is also used in a wide variety of applications and process areas, as well as in markets like life sciences, identification, the traffic management, etc. Great technologies serving a wide variety of processing applications out there.
And M&A is, as I mentioned, one of our five strategies, and it's a core competency for us. It's something I've done throughout my career at Emerson and AMETEK. And it's about having that process to identify the right companies, work with the owners on agreeable terms that make sense for both businesses or both owners, and then driving the integration to get the maximized synergies that we can across the businesses there. And the teams are doing well. So with that, let me turn it over to Duncan. Oh, one more before I do that. We will continue to build our divisions through acquisitions going forward here. Some areas that we're targeting is, again, continuing to diversify our electronic test and lessen the exposure on the semi market, expanding our geographic footprint, and again, focus more on automation and electronic testing capabilities out there.
From environmental, we want to move beyond thermal, getting into humidity, altitude, vibration testing, stress testing, etc., to broaden our solutions for our customers in the space. Also targeting some defense aero applications, as well as further EV markets. And then process technologies. We have a nice portfolio of solutions for RF induction heating, and we want to continue to expand that, being able to get to some lower frequency, higher power applications as well, to broaden our applications for solutions out there, and then continue the geographic expansion in those spaces. So with that, I'll turn it over to Duncan.
Thank you, Nick. And nice to see everyone here today and everyone who's joining us online. So financial overview, let me go through a high level our financials.
If we start looking at orders, for Q3, the most recently reported quarter, our orders were up 4.5% versus Q3 of last year, $28.1 million. That does include $3.1 million contribution from the Alphamation acquisition that Nick talked about. We also saw some nice increase in auto EV, excluding the Alphamation business. Auto EV as a whole more than doubled inclusive of that Alphamation business. What was nice to see was that a lot of our auto EV business isn't necessarily tied to EV. We also see contribution in the traditional internal combustion engine side of things, so not really tied directly to that EV softness that we're seeing out there. On a defense aero also can remain robust, up $1.4 million year over year, which is a 47% increase. Where we did see a decrease is our semi business, which is a common theme.
Our semi business has been a little bit softer. So year over year on the orders side, we're around $5 million down, which is really the offsetting piece on the orders picture year over year. On a sequential basis, orders were up 7.1%. We have seen orders creeping up over the course of the last two or three sequential quarters. And again, auto EV, defense security, defense aerospace security, offsetting the decline we've been seeing in the semi sectors across our businesses. From a backlog perspective, our backlog at the end of Q3 at $45 million, up $5 million year over year. But that does include just under $15 million contribution from the Alphamation business, which came in with a nice backlog.
About 42% of the backlog will ship beyond Q4 of 2024. On the revenue side of that picture, Q3 revenues came in at just over $30 million, $30.3 million.
That was a slight decrease year over year. Includes $5.4 million from Alphamation, the big offset there being the semi side of the business, which was down $7 million. Again, auto EV, mainly driven by Alphamation, was up nicely. But we also saw an uptick in the industrial markets and across some of the other market sectors that we serve. Overall, as Nick mentioned, our diversification efforts certainly continue. Obviously, the semi space has been a little bit softer of late, and we see that in the numbers. But we continue to make progress across the other market sectors that we serve. On a sequential basis, we did see a decrease in revenue of just under $4 million.
We did have $2 million of shipments that were delayed into the fourth quarter, so we'll pick that up in the fourth quarter, and it doesn't affect our full year guidance. And it also compared with what was a very strong Alphamation came in with a strong backlog, as I mentioned, and we did have very high shipments for that business of just under $10 million in Q2. So we saw that normalize back into the $5 million or so range in Q3. So that was another driver of our Q3 versus Q2 revenue picture. And the trailing 12-month pie chart you can see there, 39% for semi. This business has had semi being as high as touching on 60% relatively recently.
So there really has been a shift driven by efforts that we've been making in the non-semi sectors, as well as softness in the semi businesses across the portfolio. How does that translate into gross profit and margin? In Q3, we did see some very nice progress in gross margin. Gross margin of 46.3% was up 570 basis points versus what was a weak margin percentage in Q2. A lot of that was driven by product mix, but we're also seeing the benefits of cost actions that we have been taking in the business as demand has softened in a couple of spots, again, across the portfolio. And then year over year, we're really seeing margin percentage being relatively flat, even though it was on slightly lower revenue. So all in all, from a profitability percentage perspective, certainly happy with what we saw there in Q3.
Operating expenses up $1.5 million versus the prior year. However, over two million of that is because we have a new business on board. So over $2.3 million of operating expenses associated with the business in Italy. So on an apples-to-apples basis, again, we are seeing the benefits of some of the cost reductions that we have been putting into place as we've seen demand soften a little bit on that semi side. On a sequential basis, Alphamation was on board for a full quarter in Q2. So operating expenses, flatter picture there Q2 versus Q3. How does that all translate through into earnings and Adjusted EBITDA? Q3 EPS in the top left there. Adjusted EPS, the only adjustment we make to EPS is we do add back intangible amortization, a tax-affected intangible amortization. So $0.04 on a GAAP EPS, $0.10 adjusted EPS.
An uptick from Q2, that increased profitability in Q3 helping kind of drive that uptick. Compared with the prior quarters where we did have that higher semi business, we can see the impact on profitability as a result of that. On the right-hand side, adjusted EBITDA. Our adjusted EBITDA, the only adjustment there versus a traditional EBITDA metric is we add back stock-based compensation expense into the adjusted EBITDA metric. Again, Q3, $2.4 million of adjusted EBITDA as compared with $500,000 of net earnings. We have to reconcile between net earnings and adjusted EBITDA from an SEC reporting perspective. Again, we saw an increase there, even though revenues were down a little bit Q3 versus Q2, we did see that increase flowing through to the bottom line.
From a capital structure perspective, Q3, we did generate $4.2 million of cash from operations, free cash flow of just under $4 million, modest CapEx really in our business. We paid down over $5 million of short-term debt in the quarter. We did buy back $1 million worth of shares as well. So absolute cash came down a little bit as a result of those investments and paying down the debt and buying back 140,000 shares. We ended the quarter with just under $18 million in cash. We still have an acquisition funding line with our commercial banking partner. We have $30 million available for acquisitions under that facility. So we continue to have that as well as a revolver facility available to us. So all in all, our balance sheet relatively robust.
Our debt position at the end of the quarter, I think we have leverage of 1.8x in terms of debt versus our trailing 12 months EBITDA. That is the metric we kind of look at there from a leverage standpoint. In terms of capital allocation priorities, we do want to continue to really focus on organic growth. There's a lot of opportunity on the organic growth side with the businesses in our portfolio. So focusing on delivering what our businesses can do there is really our number one priority. Continuing to work down debt in line with debt repayment schedules. M&A certainly a focus. And then opportunistic return of capital as we saw in Q3 with respect to repurchase of shares. But I'd say certainly priority around growing the businesses we have and delivering the capability that we have as a business here.
With that, sorry, I just touched on the outlook, so there was a shift of $2 million of revenue, as I said, Q3 into Q4. We held, we tightened our full year outlook. Top line $128 million-$131 million. Gross margin in that 42%-43%. Other metrics as stated on the slide there. What that means for fourth quarter is we're looking at a revenue number in the fourth quarter around $34 million-$37 million. Gross margin a little bit softer than we saw in Q3 because of the projected mix, and these other metrics are really relatively consistent with what we saw in Q3. Operating expenses around $13.5 million and so on. I won't read all the numbers on the slide here. With that, I'll hand it back to Nick to wrap us up.
Thanks, Duncan.
And yeah, no, continue that diversification is paying off here. We have seen some signs of stabilization in our business. We've talked about it on our Q3 earnings call. Our back-end semi business really started going soft in Q2 of last year, at the end of Q2 of 2023, and starting to see that come out of the trough with the, I would say, more stable type improvement for us. Front-end semi, on the other hand, went down and bottomed towards the beginning of this year in Q1, and we continue to see that part of it being soft. But our aerospace defense remains robust. Auto projects, we're seeing some activities there as well. So all in all, signs of some stabilization in our targeted industries.
We continue to optimize our front-end efforts to further capture competitive accounts, new customers, identify these adjacent segments we want to go after with our products, existing products out there. And the team's driving innovation across all the businesses around new products. And we continue to launch those on a higher frequency going forward here as well. So all in all, I believe we're well positioned in some challenging times out there. And as Duncan touched on, we are taking the appropriate cost actions to right-size certain parts of our business with the softer markets that we see out there. So with that, we have about 10 minutes available for Q&A. So I'll open it up. And Duncan, you can join me up here for some of the questions.
Yeah.
[audio distortion] What publicly traded companies should we compare to?
And are there any other publicly traded companies that are customers that we should be looking at to kind of see how they might be doing since you might be doing it?
Yeah. I would say we are pretty unique with our three technology divisions. So there's not one public company that has a similar profile for us out there. But within the divisions, the back-end semi test space, you can look at the Teradynes, the Cohus, the Advantests of the world. Those are key players in that space and that test equipment that we play in. Front-end semi is more your ST, onsemi players out there. When you shift to induction heating solutions, again, very broad markets in that. But there's companies like Park-Ohio. Inductotherm, is that part of Park-Ohio? I forget. But it's another public company you could watch in that space.
And then from our thermal solutions, there's esmo and MPI are kind of the bigger competitors in that space out there. Not sure both are public, but some of the companies you can keep an eye on from that perspective. Yeah.
How sticky is your testing solutions across the different markets, semi versus auto versus aerospace? [audio distortion]
Yeah. Great question. So the question is, how sticky is our testing solutions? I would say they're very sticky. Our customers have been with us for a long time. That when we win that application, that opportunity to break into a customer, our expertise, know-how really differentiates the problems that they're having and solves them for them. I mean, we work very closely with the customers in ensuring that we can continue to be their ongoing test supplier. And they're usually approaching us when they're having a problem.
Once we solve it, that opens the door and we're in. So we hang on to them. Yeah.
Nick, in your opening remarks, you referenced the diversification away from semi. You listed a number of different industries where you're already at. Which of those would you anticipate that you would want to grow more aggressively? Which ones maybe less aggressively and why?
Yeah. The question is, great question, by the way. Given our diversification efforts to kind of lessen our exposure on semi, which are target markets that we believe will continue to be a focus area for us to grow to provide further diversification is kind of summarizing there. We strongly believe auto EV is a great market for us in an area that we will continue to pursue opportunities. All of our divisions are selling solutions into the auto EV space.
Our back-end semi test is driven by a number of components going into auto EV. That space, even though EV is a little out of fashion right now, for us, it's pretty agnostic in some of the testing areas out there, and I believe autos are not going away anytime soon, so we think that's, and then you look at the electronification that's going on in cars, the new digital dashboards and capabilities they're adding, all that's got to be tested, and so it's a great space for us, and we got good technology and know-how in that auto space. I would say this green push from the industrial markets going more green with some of our induction heating solutions is an area that we believe will be a nice focus and deliver some growth for us down the road.
We're seeing companies ripping out furnaces and gas welders and brazing ovens to use induction heating, which is a very green solution for them. So I think that push will continue. The aerospace and defense markets for us has been strong. We continue to develop more and more applications in that markets across our divisions. So we will see that as a growth area for us as we drive further diversification. But just to be clear, semi is still an important market. And even though it's moved from 65% to 40%, semi has grown through those years. It's just that we've grown the other parts of our business faster. And so we'll continue to drive that growth in those areas. And it'll be an important play for us. Yeah.
I think about your customers in the semi business. Should I be thinking Intel and AMD or smaller producers or? [audio distortion]
Yeah. No. So the question is relative to customers in our semi business. And so we are analog mixed signal. We don't do really memory PC space. So it's more of your Texas Instruments, your AMDs, your analogs. So it's Qualcomm in those areas that we deal with. That said, we do a little bit with the Intels, the TSMCs, etc. But those are not big plays for us because where our solutions are used are really more in the operations that get changed over more frequently. And memory PC is just a set it and forget it kind of operation. Yeah. How much did you pay for Alphamation in terms of deep down multiple and how was it sourced? So how much did we pay for Alphamation and what was the last? And how did we source it?
Starting with the last part of it, our CTO at Acculogic knew the owner at Alphamation and knew he was needing a succession plan for his business. He didn't have anything internally. So he put us in contact with Mauro, the owner over there, which over a course of a year, we courted and got to know each other and built the relationship, which is very, very important for the European companies there. And so yeah, I'm very happy to be able to get an agreed-upon price. So what we paid for Alphamation was the purchase price was EUR 20 million. Of that, EUR 2 million was stock, EUR 18 million in cash. And then we assumed roughly EUR 7 million of debt, EUR 7 million-EUR 8 million of debt out there for the business.
Enterprise value, I think it was around 28-ish, which was just over 1.1x LTM sales for that business, around $25 million. So 1.1,x 1.2x sales. And EBITDA in the 7x-8x range. Any other questions? All right. Thank you all for your time this morning. I appreciate your interest in inTEST. We look forward to speaking with some of you at our one-on-one.