inTEST Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited consolidated financial statements. inTEST designs and sells thermal, mechanical and electrical products, primarily for semiconductor testing, with thermal products also serving other industries.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 / prior date |
|---|---|---|
| Revenue | $8.973 million | $10.731 million; down 16% year over year |
| Gross profit / margin | $4.105 million / 45.7% | $4.596 million / 42.8% |
| Operating income (loss) | $364,000 | $(84,000) |
| Net income (loss) | $292,000; diluted EPS $0.03 | $(43,000); reported EPS $0.00 |
| Operating cash flow | $(134,000) | $(86,000) |
| Cash and cash equivalents | $15.384 million | $15.576 million at Dec. 31, 2012 |
| Current assets / current liabilities | $26.068 million / $4.496 million | $25.579 million / $4.579 million at Dec. 31, 2012 |
| Total assets / stockholders’ equity | $32.603 million / $28.107 million | $32.399 million / $27.820 million at Dec. 31, 2012 |
No borrowings or credit facilities were reported. Restricted certificates of deposit of $450,000 secured lease letters of credit. Management said cash and projected future cash flow were expected to meet short-term working-capital needs. Investing cash use was $44,000, primarily for property and equipment; financing cash provided $30,000 from option exercises.
Material changes and operating trends
- Revenue increased 9% from Q4 2012, but orders fell to $7.7 million from $9.3 million in Q4 2012 and $12.9 million in Q1 2012. Backlog declined to approximately $2.9 million from $4.2 million at year-end and $7.0 million a year earlier.
- Year-over-year segment revenue declined: Thermal Products 4% to $5.898 million, Mechanical Products 28% to $1.796 million, and Electrical Products 39% to $1.282 million. Thermal generated $1.158 million of segment pretax earnings; Mechanical reported a $686,000 pretax loss and Electrical an $8,000 pretax loss.
- Gross margin improved mainly because component material costs fell as a percentage of revenue and fixed operating costs were lower. Operating expenses also benefited from the absence of Q1 2012 Thermonics acquisition costs and $359,000 of restructuring charges.
- Non-ATE revenue was $1.7 million, or 19% of total, versus $2.4 million, or 22%, a year earlier. Foreign revenue was $5.759 million, down 12%; U.S. revenue was $3.214 million, down 23%.
- Operating cash use reflected working-capital investment, including increases in receivables and inventory, partly offset by higher accounts payable. Cash decreased $192,000 during the quarter.
Outlook, risks and contingencies
The filing provides no numerical revenue or earnings guidance. Management described demand as uneven: Mechanical orders improved in Q1, and Electrical demand strengthened late in the quarter and into Q2; Thermal orders fell 27% sequentially. Management cautioned that future orders and revenue are uncertain and backlog is not necessarily indicative of future sales; accepted orders may be canceled, accelerated or postponed.
Key risks include semiconductor and ATE market cyclicality, customer and product mix, pricing pressure, reliance on a limited number of customers, inventory obsolescence, and competitive pressures. One customer, Hakuto, represented 10% of Q1 2013 revenue. Management reported no material changes to the risk factors in its 2012 Form 10-K, no material legal proceedings, no material off-balance-sheet arrangements, and no significant capital-expenditure commitments for the balance of 2013. No material subsequent events were reported.
Important facts for investors to verify
- Whether order trends and the $2.9 million backlog convert into revenue, given the sharp year-over-year declines.
- Whether the gross-margin improvement is sustainable despite lower sales and ongoing competitive pricing pressure.
- Whether working-capital needs reverse sufficiently to restore positive operating cash flow.
- The performance of the loss-making Mechanical and Electrical segments and the concentration of revenue in major customers.
- Potential liquidity needs: the company reported no borrowing facility, although it held $15.4 million in cash at quarter-end.