Compared with the prior-year period, revenue increased $3.0 million, or 10%. Revenue related to the defense/aerospace industry more than doubled to $3.9 million from higher sales of thermal test chambers and flying probe test sets. Semiconductor industry revenue of $18.8 million was up 15% from strong sales for both front-end applications of induction heating solutions for silicon carbide and epitaxy crystal growth and traditional back-end semi testing applications.

Compared with the first quarter of 2023, growth in semi market revenue was primarily driven by higher front-end related sales, which increased 27%. Defense/aerospace revenue was up 37% driven by greater sales of thermal test chambers. Sales to industrial, automotive/EV, life sciences and security experienced modest declines sequentially primarily reflecting the variability in timing of customer needs from quarter to quarter.

Gross margin expanded 40 basis points compared with the prior-year period. On a sequential basis, it contracted 100 basis points and was in line with guidance. Gross margin in the first quarter of 2023 benefitted from favorable product mix.

Operating expenses were up $0.9 million over the prior-year period, reflecting annual merit increases and continued investments in engineering, sales and marketing. Nonetheless, second quarter operating expenses as a percent of revenue improved to 35.9% compared with 36.6% in last year’s second quarter, which we believe demonstrates continued operating leverage improvement as sales grow. This operating leverage improvement contributed to the 22.6% growth in operating income compared with last year’s second quarter.

Balance Sheet and Cash Flow Review

Cash and cash equivalents at the end of the reported period were $37.4 million. This was an increase of $22.0 million over the trailing first quarter of 2023, reflecting $2.9 million in cash generated by operations combined with

$19.2 million in net proceeds from the recently completed At-The-Market (“ATM”) equity offering. At quarter end, total debt was $14.1 million, down $1.0 million from March 31, 2023. For the first half of 2023, the Company generated $5.3 million in cash from operations assisted by improving working capital efficiencies as supply chains normalized, enabling inventory improvements.

Capital expenditures were $375,000 in the 2023 second quarter, similar to last year’s second quarter. For the first six months, capital expenditures were $709,000, also in line with last year.

Second Quarter 2023 Orders and Backlog (see orders by market in accompanying tables)

Orders received in the second quarter were 22% lower compared with the record level achieved in the prior-year period. Increased demand from the industrial, defense/aerospace and automotive/EV markets helped to offset lower demand from the semi, life sciences, security and other markets. Orders more than doubled for the industrial markets, grew 70% in defense/aerospace, and increased 19% in automotive/EV. Sequentially, orders grew across most markets with notable strength in security, defense/aerospace, automotive/EV, industrial and other markets.

Backlog at June 30, 2023, was $44.6 million, down 3.1% and 2.5% from June 30, 2022 and March 31, 2023, respectively. Approximately 45% of backlog is expected to ship beyond the third quarter of 2023.

Third Quarter and Full Year 2023 Outlook

Revenue for the third quarter of 2023 is expected to be similar to the second quarter with gross margin of approximately 46%. Third quarter 2023 operating expenses, including amortization, are also expected to be similar to the second quarter. Intangible asset amortization is expected to be approximately $520,000 pre-tax, which is approximately $430,000 after tax, or $0.03 per share. Interest expense is expected to be approximately $175,000 for the quarter and the effective tax rate is expected to be approximately 16% to 17% for the year. The Company should benefit from interest income due to its higher cash balance which should mostly offset the increase in weighted average shares from the recently completed ATM. Weighted average shares are expected to be about 12.4 million in the third quarter.

Third quarter 2023 estimated EPS is expected to be in the range of $0.20 to $0.24, while third quarter estimated adjusted EPS (Non-GAAP)⁽³⁾ is expected to be in the range of $0.23 to $0.27.

For the full year of 2023, based on strong second quarter results, the Company is updating its guidance as follows: