inTEST Corporation — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020; filed March 23, 2021. This is an annual report, not a standalone fourth-quarter filing. inTEST supplies thermal test/process equipment and semiconductor test products through its Thermal and EMS segments.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $53.8 million | $60.7 million |
| Gross profit / margin | $24.1 million / 45% | $29.2 million / 48% |
| Operating income (loss) | $(1.2) million | $2.5 million |
| Net income (loss) | $(0.9) million; $(0.09) per share | $2.3 million; $0.22 per share |
| Cash from operations | $3.2 million | $(8.4) million |
| Capital expenditures | $0.7 million | $0.6 million |
- Revenue fell 11% year over year. Thermal revenue declined 8% to $40.2 million; EMS declined 19% to $13.6 million.
- Semi Market revenue was $26.9 million, down 13%; Multimarket revenue was $27.0 million, down 9%. Multimarket comprised 50% of revenue.
- Gross margin contracted three percentage points. Management attributed this mainly to product mix and higher component material costs as a share of revenue; lower fixed costs were less absorbed by reduced sales.
- Segment operating results: Thermal income was $0.3 million versus $2.3 million; EMS loss was $1.1 million versus income of $1.7 million. Corporate operating loss was $0.4 million.
- Fourth-quarter revenue was $14.9 million and net loss was $0.4 million. Quarterly revenue rose from $11.2 million in Q1 to $14.9 million in Q4; orders from the Semi Market rose 53% sequentially in Q4.
Cash, liquidity and obligations
- Year-end cash was $10.3 million, up from $7.6 million; working capital was $18.1 million, up from $16.5 million. Cash included $3.2 million held by foreign subsidiaries.
- The company reported no revolving-credit borrowings at year-end and had $7.5 million available under its secured revolving facility. The facility matured April 9, 2021; management was discussing a three-year replacement and expected it by or before maturity.
- Operating lease liabilities totaled $7.3 million, including $1.2 million current; scheduled lease payments totaled $8.3 million before $1.0 million of imputed interest. These are lease obligations, not reported funded debt.
- Management expected cash, available credit and operating cash generation to cover 2021 needs; estimated minimum short-term working-capital requirements were $5–$7 million. No assurance was given that replacement or additional financing would be available on acceptable terms.
Changes, outlook and notable items
- Total orders increased 13% to $59.7 million; year-end backlog more than doubled to $11.5 million from $5.5 million. Substantially all backlog was expected to ship in 2021, but orders may be canceled or rescheduled.
- Management viewed the Q4 Semi Market order surge as evidence of a cyclical upturn and expected Q1 2021 revenue to increase significantly from Q4. This was directional commentary, not quantified guidance.
- COVID-19 materially affected all markets in the first half of 2020; its business impact eased in the second half. Management warned that renewed disruption could affect customers, suppliers, service revenue, operations and liquidity. Aftermarket service/support typically represented 8%–10% of consolidated revenue.
- EMS manufacturing was consolidated from Fremont, California, to Mt. Laurel, New Jersey, substantially completed in Q4. The company recorded $1.3 million of restructuring and other charges, including $903,000 for the EMS consolidation and a $612,000 total impairment of right-of-use assets. It expected another $100,000–$150,000 of consolidation costs in the first half of 2021 and warned of possible temporary shipment, quality and warranty-cost pressures.
- Other unusual developments included executive leadership changes and the relocation of corporate headquarters to Mt. Laurel. Goodwill was $13.7 million and no goodwill impairment was recorded; the auditor identified goodwill valuation as a critical audit matter. A separate $423,000 grant-related contingent liability remained potentially repayable if employment targets were not met; the company had received a waiver for 2020 and had until year-end 2021 to meet the applicable targets.
- No material legal proceedings or material off-balance-sheet arrangements were reported. The auditor issued an unqualified opinion on the financial statements; management concluded disclosure controls and internal control over financial reporting were effective at a reasonable-assurance level.
Investor facts to verify
- Whether the expiring revolving facility was replaced, and its terms, availability and covenant compliance.
- Whether the Semi Market recovery and management’s Q1 revenue expectation translated into realized orders, shipments and margins.
- Whether the EMS consolidation achieved expected savings without delivery, quality or warranty problems, and whether additional restructuring costs arose.
- Progress on the Rochester employment targets or further waivers, given the potential grant repayment exposure.
- Cash generation, foreign cash accessibility, customer concentration and the sensitivity of Thermal goodwill valuation to forecast assumptions.