inTEST Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; compared primarily with Q1 2021. Amounts below are in millions unless otherwise noted. inTEST supplies test and process solutions to semiconductor and other markets. Effective January 1, 2022, it reorganized reporting into Electronic Test, Environmental Technologies, and Process Technologies; prior-period segment data was reclassified.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $24.1 | $19.6 |
| Gross profit / margin | $11.0 / 45.7% | $9.5 / 48.7% |
| Operating income / margin | $0.8 / 3.3% | $2.6 / 13.2% |
| Net earnings | $0.6 | $2.2 |
| Diluted EPS | $0.05 | $0.21 |
| Net cash used in operating activities | $(2.8) | $(0.3) |
| Capital expenditures | $0.3 | $0.4 |
Revenue rose 23% year over year, including $4.0 million from businesses acquired in Q4 2021; management reported organic growth of 3%. Gross margin declined, mainly due to product and customer mix, higher component costs and labor costs, and acquired-business and capacity costs. Operating expenses rose to $10.2 million from $6.9 million, reflecting acquisitions, staffing, travel, product development, and professional fees. Q1 2022 included $0.8 million of acquired-intangible amortization, versus $0.3 million a year earlier. Other expense was $0.1 million, including interest expense associated with the credit facility. Effective tax rate was 12%, compared with 14%.
Segments, markets, and demand
| Segment | Revenue | Income from divisional operations |
|---|---|---|
| Electronic Test | $8.8 million; +3% | $1.9 million, down from $3.0 million |
| Environmental Technologies | $7.0 million; +13% | $0.8 million, down from $0.9 million |
| Process Technologies | $8.3 million; +71% | $0.7 million, up from $0.5 million |
Semiconductor revenue was nearly flat at $13.4 million. Automotive/EV revenue increased 108% to $2.8 million, and industrial revenue increased 96% to $2.8 million. Orders were $25.1 million, roughly unchanged year over year but 18% below Q4 2021. Semiconductor orders declined 28% year over year and 42% sequentially; management cited the prior-year period’s unusually strong back-end demand and a large Q4 front-end order. Automotive/EV, industrial, life sciences, and defense/aerospace demand strengthened. Backlog was approximately $35.0 million, versus $17.1 million a year earlier and $34.1 million at year-end; management cautioned that backlog is not necessarily indicative of future sales.
Cash, debt, and liquidity
Cash and cash equivalents were $17.2 million at March 31, 2022, down from $21.2 million at December 31, 2021. Working capital was $27.1 million, compared with $27.0 million at year-end. Operating cash use of $2.8 million reflected, among other items, inventory growth of $2.2 million, receivables growth of $0.8 million, and payment of previously accrued bonuses. Cash declined by $4.0 million overall during the quarter.
Term Note debt was $19.2 million, including $4.1 million current; the company repaid $0.9 million in principal during the quarter. It had no revolving-credit borrowings and reported $10.0 million of revolver capacity and $4.5 million remaining under the $25.0 million delayed-draw Term Note. One $12.0 million acquisition draw is hedged at an approximately 3.2% annual rate; the $8.5 million draw is variable-rate (approximately 2.2% at March 31, rising to approximately 2.4% effective April 1). Debt is secured by substantially all tangible and intangible assets and subject to financial covenants. Management expected cash, revolver availability, and anticipated operating cash to cover near-term working-capital and corporate needs.
Outlook, risks, and notable items
- The filing provides no specific revenue or earnings guidance. Management expected to ship approximately $1.0 million of Q1 orders delayed by supply-chain and logistics constraints during Q2 2022, but warned that constraints, higher costs, shortages, and delivery delays could continue for the foreseeable future.
- Acculogic depends on a key sole-source Belarusian supplier for certain material; the company estimated a six-to-nine-month supply and was qualifying an alternate supplier, with completion expected by the end of Q2 2022. Failure to qualify an alternative could adversely affect future revenue and earnings.
- COVID-19-related facility cases and China shutdowns could cause lost production or shipping interruptions. The company also cited inflation, the war in Ukraine, foreign exchange, semiconductor-market cyclicality, customer concentration, and acquisition integration as risks.
- Q1 included a $0.5 million increase in estimated Acculogic contingent consideration as part of finalizing purchase accounting; the related liability was $1.5 million at March 31. The company expected a $0.35–$0.45 million decrease in Acculogic’s purchase price from the outstanding working-capital adjustment.
- No material legal proceedings, material subsequent events, off-balance-sheet arrangements, or material changes to previously disclosed risk factors were reported. Management concluded disclosure controls were effective.
Most important facts for investors to verify
- Whether the company shipped the approximately $1.0 million of delayed products in Q2 and whether supply constraints or the Belarus supplier issue affected later periods.
- Whether orders and backlog converted to revenue, particularly the large front-end semiconductor order and the acquired-business backlog.
- Whether gross margins and operating profitability recovered as acquisition, labor, material, and other costs evolved.
- Whether operating cash flow improved and debt, covenant headroom, interest costs, and liquidity remained manageable.
- Final Acculogic purchase-price adjustments and subsequent changes in acquisition-related contingent consideration.