Interlink Electronics, Inc. — Q1 2024 Form 10-Q
Business and reporting period. The company designs, manufactures and sells force/touch sensors, gas and environmental sensors, and printed electronics products. This unaudited report covers the three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Amounts below are in millions of dollars except per-share data.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue | $3.124 | $3.278 |
| Gross profit / margin | $1.253 / 40.1% | $1.587 / 48.4% |
| Operating loss | $(0.751) | $(0.173) |
| Net loss | $(0.741) | $(0.191) |
| Net loss attributable to common stockholders; diluted EPS | $(0.841); $(0.09) | $(0.291); $(0.03) |
| Cash from operating activities | $0.222 | $(0.620) |
| Cash and cash equivalents | $4.367 at March 31 | $4.304 at December 31, 2023 |
| Working capital; indebtedness | $7.2; none | — |
| Total assets; stockholders’ equity | $14.498; $12.080 | $15.062; $13.028 at December 31, 2023 |
Operating cash flow included $0.775 million from changes in operating assets and liabilities. Investing used $0.018 million, while financing used $0.100 million for preferred-stock dividends. Cash increased by $0.063 million during the quarter. The company reported current assets of $9.077 million and current liabilities of $1.835 million. No interest was paid.
Material changes and management commentary
- Revenue declined 4.7%. Lower demand from certain larger force-sensor customers and lower custom-product revenue in industrial, medical and consumer markets were partly offset by a 68.2% increase in standard-product revenue.
- Revenue by market: industrial fell 34.1% to $0.677 million; medical fell 12.3% to $1.185 million; consumer fell 42.1% to $0.132 million; standard products increased 68.2% to $1.130 million.
- Gross margin fell to 40.1% from 48.4%, which management attributed mainly to product and customer mix and, in part, lower revenue. Cost of revenue rose to $1.871 million.
- Operating expenses increased to $2.004 million from $1.760 million. R&D rose 9.3% to $0.576 million; SG&A rose 15.8% to $1.428 million. The company cited higher engineering compensation and amortization, and Calman acquisition-related operating costs and amortization.
- Calman Technology, acquired in March 2023, contributed to year-over-year cost comparisons. Pro forma Q1 2023 revenue and net income, as if Calman had been included for the full quarter, were $4.039 million and $0.296 million, respectively; Q1 2024 pro forma figures equal reported results.
- Cash at quarter-end included $2.7 million held by foreign subsidiaries. Management believes existing cash will fund current operations, but says changed circumstances could require additional capital or expense reductions.
Outlook, risks and unusual items
- The filing provides no quantitative revenue, earnings or cash-flow guidance. Management notes that customer order timing and demand can fluctuate, and that interim results may not indicate full-year performance.
- Key disclosed risks include customer demand and concentration, international operations and foreign-exchange movements, supply-chain or manufacturing disruptions, product quality, competition and technology changes, and the ability to raise capital. Management reported no material changes to the risk factors in its 2023 Form 10-K.
- Two customers represented 16% and 17% of Q1 revenue; two customers represented 24% and 19% of accounts receivable at March 31. The company reported no allowance for doubtful accounts.
- The company has 200,000 shares of 8.0% Series A convertible preferred stock outstanding, with a $5.0 million liquidation preference. It paid $0.100 million in preferred dividends in Q1 and expects monthly dividends to continue while the preferred stock remains outstanding, subject to legal limitations.
- A 50% common-stock dividend was paid March 22, 2024; share and per-share data were retroactively adjusted. Shares outstanding increased from 6,573,570 to 9,860,368.
- Federal and state net operating losses are subject to annual limitations following a 2010 ownership change; a valuation allowance remains on federal and state deferred tax assets. The quarter’s income-tax expense was $0.022 million despite a pre-tax loss.
- The company disclosed related-party arrangements with Qualstar and BKF Capital, whose leadership overlaps with Interlink’s CEO and CFO. It reported no legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls as of March 31, 2024.
Investor verification priorities
- Check subsequent quarters for recovery in custom-product demand and improvement in gross margin, especially as product and customer mix changes.
- Assess whether the $4.367 million cash balance and $7.2 million working capital remain adequate given operating losses, preferred dividends and planned facility commitments.
- Review customer concentration, receivable collections and the effect of foreign-held cash and currency fluctuations.
- Verify the continuing cost and operating contribution of the Calman acquisition, including intangible-asset amortization.
- Review preferred-stock dividend obligations, conversion terms and the $5.0 million liquidation preference, along with the related-party arrangements and governance disclosures.