Interlink Electronics, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; unaudited. Interlink designs and sells force-sensing and human-machine-interface products for consumer, automotive, industrial and medical markets. All amounts below are in thousands of dollars, except per-share data.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2,223 | $1,548 | $5,855 | $4,941 |
| Gross profit / margin | $1,292 / 58.1% | $811 / 52.4% | $3,293 / 56.2% | $2,768 / 56.0% |
| Operating income (loss) | $259 | $(79) | $332 | $(110) |
| Net income | $223 | $65 | $243 | $60 |
| Basic and diluted EPS | $0.03 | $0.01 | $0.04 | $0.01 |
- Revenue increased 43.6% in Q3 and 18.5% for the nine-month period year over year. Q3 gains came principally from industrial and medical customers and standard products; consumer revenue was essentially flat. Nine-month revenue increased across all reported markets.
- Q3 gross margin improved 5.7 percentage points; nine-month margin was nearly unchanged. Management attributed the quarterly improvement to product and customer mix.
- Q3 operating expenses were $1,033, up from $890: R&D fell to $105 from $208, while SG&A rose to $928 from $682. For nine months, operating expenses were $2,961 versus $2,878, including R&D of $554 versus $786 and SG&A of $2,407 versus $2,092.
- Operating cash flow for nine months was $639, compared with $42 in 2020. Investing cash outflow was $142, mainly for equipment and completion of the Camarillo development center; financing cash flow was nil. Cash, cash equivalents and restricted cash rose by $522 to $6,647. The balance sheet reports cash and cash equivalents of $6,642 plus $5 restricted cash.
- At September 30, cash and cash equivalents were $6,642, working capital was $7,867, total assets were $10,213, and total liabilities were $1,089. The company reported no indebtedness; its $186 PPP loan had been forgiven in Q1 2021. Current and long-term lease liabilities totaled $221.
Changes, outlook and notable items
- Management cited higher customer purchasing and recovery from pandemic-affected medical demand as revenue drivers, while noting that customer orders can be irregular and bulk purchases can shift revenue between quarters.
- Lower R&D costs reflected reduced Singapore-center costs and headcount during transfer of lab activity to Camarillo, plus a Singapore government research incentive grant. Higher SG&A reflected additional personnel, professional fees and Nasdaq relisting costs.
- The nine-month results include a $186 PPP loan-forgiveness gain. No specific revenue or earnings guidance was provided. Management said existing cash was expected to support current operations, while noting that changed circumstances could require additional capital or expense reductions.
- Subsequent to quarter-end, the company sold 120,000 shares of 8.0% Series A convertible preferred stock for $3.0 million gross proceeds and approximately $2.82 million net proceeds. Each preferred share converts into two common shares at $12.50 per share, subject to adjustments; the agreement permits sales of up to 480,000 additional preferred shares within 90 days of the initial closing. The preferred stock generally has no voting rights and carries redemption provisions and registration-related obligations.
Risks and contingencies
- Three customers each represented at least 10% of nine-month revenue; the largest contributed 22%. Two customers represented 34% and 23% of accounts receivable at quarter-end. The company reported no allowance for doubtful accounts.
- Key risks include customer concentration and order timing, supply availability and manufacturing disruption, international operations and currency movements, product quality, competition and intellectual-property matters. Manufacturing is in Shenzhen, China; COVID-19 or other public-health disruptions affecting the company or third parties could impair operations.
- No litigation was pending at September 30. The company disclosed uncapped intellectual-property indemnities and director/officer indemnification obligations, for which maximum potential losses could not be determined. Related-party dealings with Qualstar and BKF Capital include shared facilities, services and expense reimbursements.
- Management reported disclosure controls and procedures were effective at a reasonable-assurance level and no material change in internal control over financial reporting during the quarter. No material risk-factor changes were reported.
Important facts for investors to verify
- Whether revenue growth and Q3 gross-margin gains persist given uneven customer order patterns and customer concentration.
- The sustainability of operating cash generation, including the effect of the nonrecurring PPP forgiveness gain and working-capital movements.
- The preferred-stock financing’s dividend, conversion, redemption and potential dilution terms, including any subsequent additional issuance and registration deadlines.
- Exposure to major customers, China-based manufacturing and supply-chain risks, and the financial implications of related-party arrangements and indemnities.