Interlink Electronics, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Interlink designs and sells force-sensing and human-machine-interface products for consumer, industrial, medical, and automotive applications. It manufactures in Shenzhen, China.
Financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $1.568 million | $1.691 million |
| Gross profit / margin | $874 thousand / 55.7% | $959 thousand / 56.7% |
| Operating loss | $60 thousand | $72 thousand |
| Net loss | $43 thousand | $18 thousand |
| Basic and diluted loss per share | $0.01 | $0.00 |
| Operating cash flow | $(1) thousand | $263 thousand |
At March 31, cash and cash equivalents were $6.098 million, working capital was $7.5 million, and the company reported no indebtedness. Total liabilities were $928 thousand, including $294 thousand in lease liabilities. Cash and cash equivalents declined $22 thousand during the quarter; investing activities used $12 thousand, principally for property and equipment. The company reported $1.7 million of cash held by foreign subsidiaries and stated its intent to keep these funds invested outside the U.S.
Changes and management commentary
- Revenue declined 7.3%. Industrial revenue rose 37.2% to $538 thousand and consumer revenue rose 140.1% to $449 thousand; medical revenue fell 89.4% to $43 thousand, and standard-product revenue fell 24.0% to $538 thousand.
- Management attributed the medical decline mainly to COVID-19-related delays in hospital installations by its largest medical customer. Standard-product revenue was affected by customers’ bulk purchases in 2020 and subsequent inventory absorption.
- Gross margin decreased 1.0 percentage point. R&D expense declined 23.9% to $217 thousand following reduced costs and headcount at the Singapore R&D center as work shifted to Camarillo.
- SG&A was $717 thousand, down 3.9%. This included a $186 thousand benefit from forgiveness of the PPP loan, partly offset by higher personnel, legal, and Nasdaq relisting costs.
- The full $186 thousand PPP loan was forgiven in February 2021. The forgiveness was recorded as a reduction of SG&A; it is a material non-recurring item when assessing underlying expenses.
Outlook, risks, and contingencies
Management said existing cash should be sufficient for current operations, but noted additional funding could be needed if circumstances change; potential equity financing could dilute shareholders, while debt financing could add fixed obligations and restrictions. No quantified revenue or earnings guidance was provided. The company expected its Camarillo Global Product Development and Materials Science Center to be operational in May 2021.
Risks include COVID-19 and related business disruption, dependence on international operations and Shenzhen manufacturing, supply availability, customer loss and order timing, foreign currency movements, and technology and intellectual-property risks. Customer concentration was notable: two customers represented 46% and 17% of Q1 revenue, while two customers represented 46% and 12% of receivables at quarter-end. The company reported no legal proceedings as of March 31 and no material changes to the risk factors in its 2020 Form 10-K. It disclosed uncapped intellectual-property indemnities and executive severance and change-in-control obligations; maximum potential exposure was not quantifiable.
Key facts for investors to verify
- Whether industrial and consumer growth can offset the medical customer’s installation delays and cyclical standard-product demand.
- The sustainability of reported expenses and operating results after excluding the one-time $186 thousand PPP forgiveness benefit.
- Customer concentration, receivable exposure, and any resulting volatility in quarterly shipments and cash flows.
- Progress and costs associated with the Camarillo development center, and any effects of COVID-19 or supply/manufacturing disruption.
- Cash needs and access to foreign-held funds if U.S. operations require additional liquidity; management’s stated cash-sufficiency assessment is forward-looking.