Interlink Electronics, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated financial statements; amounts below are in millions unless stated otherwise.
Business context
Interlink designs, manufactures, and sells force-sensing and human-machine-interface technologies and products for consumer electronics, automotive, industrial, and medical markets. It operates one reportable segment and manufactures its products in Shenzhen, China.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $2.040 | $2.064 | $4.031 | $3.632 |
| Gross profit / margin | $0.952 / 46.7% | $1.127 / 54.6% | $2.193 / 54.4% | $2.001 / 55.1% |
| Operating income (loss) | $(0.151) | $0.133 | $(0.133) | $0.073 |
| Net income | $0.112 | $0.063 | $0.254 | $0.020 |
| Net income applicable to common stockholders | $0.012 | $0.063 | $0.054 | $0.020 |
| Basic and diluted EPS | $0.00 | $0.01 | $0.01 | $0.00 |
Q2 revenue slipped 1.2%, while first-half revenue rose 11.0%. Industrial and medical growth was offset in part by a steep decline in consumer revenue. Q2 gross margin fell to 46.7%; management cited higher materials and component costs and increased production labor costs. R&D expense rose 42% in Q2 to $0.330 million, reflecting higher engineering headcount and development activity.
Reported non-operating income materially supported earnings: $0.342 million in Q2 and $0.497 million in the first half, including unrealized marketable-security gains of $0.225 million and $0.381 million, respectively, and foreign-currency transaction gains. First-half net income also included $0.200 million of preferred dividends, leaving $0.054 million applicable to common stockholders.
Cash, liquidity, and obligations
At June 30, cash and cash equivalents were $4.402 million and marketable securities were $6.408 million, together approximately $10.810 million; working capital was $12.0 million. The company reported no indebtedness. Cash and restricted cash declined $6.375 million in the first half, primarily because $6.027 million was used to purchase marketable securities; operating cash flow was $0.028 million, compared with $0.234 million in the prior-year period.
Current liabilities were $0.968 million, and lease liabilities totaled $0.259 million. The company had 200,000 shares of 8% Series A convertible preferred stock outstanding, with a $5.0 million aggregate liquidation preference and cumulative cash dividends. It paid $0.200 million of preferred dividends in the first half.
Changes, outlook, risks, and unusual items
- Q2 industrial revenue increased 70% and medical revenue increased 73% year over year; consumer revenue declined 98%, primarily following a design change at a major customer. Automotive sales resumed in 2022 for the first time since 2018.
- For the first half, medical revenue increased to $1.197 million from $0.328 million, which management attributed to higher shipments to its largest medical customer as COVID-19-related hospital restrictions eased. Orders can be uneven and difficult to predict.
- Management said existing cash and cash equivalents should be sufficient for current operations, but noted it could seek additional financing or reduce expenses if circumstances change. No quantified revenue or earnings guidance was provided.
- Key risks include customer and order concentration, supply or manufacturing disruption, international operations and currency movements, product quality, competition and technology changes, and the ability to attract employees or raise capital. Three customers represented 24%, 25%, and less than 10% of Q2 revenue; three customers held 28%, 21%, and 11% of receivables at quarter-end.
- The company reported no legal proceedings at June 30 and no material changes to its previously disclosed risk factors. It disclosed related-party facilities, service, and expense-reimbursement arrangements with Qualstar and BKF Capital, entities linked to its CEO and CFO.
Investor facts to verify
- Whether operating performance improves: Q2 operating loss and gross-margin compression contrast with reported net income that benefited from investment and foreign-currency gains.
- How marketable-security values and gains evolve, including the concentration and risk of the equity-security investment.
- Whether growth in medical and industrial programs offsets the sharp consumer decline, customer concentration, and unpredictable order timing.
- Cash generation and liquidity after preferred dividends, and the ongoing cost and terms of the 8% preferred stock.
- The extent and governance of related-party transactions and the possible costs of indemnities, executive severance, and lease commitments.