inTEST Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise noted. inTEST supplies test and process technology across semiconductor, industrial, automotive, defense/aerospace, life sciences, and security markets. Its reportable segments are Electronic Test, Environmental Technologies, and Process Technologies. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $31.9 million | $24.1 million |
| Gross profit / margin | $15.1 million / 47% | $11.0 million / 46% |
| Operating income | $3.5 million | $0.8 million |
| Net earnings | $2.8 million | $0.6 million |
| Diluted EPS | $0.25 | $0.05 |
| Cash from operating activities | $2.5 million | $(2.8) million |
| Capital expenditures | $0.3 million | $0.3 million |
Revenue rose 32.5% year over year, while gross margin increased about one percentage point. Management attributed the margin improvement mainly to better absorption of fixed costs at higher revenue, with favorable product mix and pricing actions also contributing. Operating expenses were $11.5 million, up from $10.2 million; selling expense increased with commissions and staffing, while general and administrative expense rose 7%. The effective tax rate was 17%, versus 12% a year earlier.
By segment, revenue and income from divisional operations were: Electronic Test, $10.4 million and $2.6 million; Environmental Technologies, $8.0 million and $1.0 million; Process Technologies, $13.5 million and $2.7 million. Process Technologies recorded the largest year-over-year revenue and divisional income increases.
Cash and cash equivalents were $15.4 million at March 31, 2023, plus $0.5 million restricted cash; working capital was $35.7 million. The company reported total debt of $15.1 million, including $4.1 million current, and no borrowings on its $10 million revolving facility. It also reported $30 million available under the Term Note. Q1 debt principal repayments were $1.0 million. The company was in compliance with its debt covenants; its funded debt-to-EBITDA and fixed-charge coverage ratios were 0.8 and 3.7, respectively.
Changes, outlook, and risks
- Markets and orders: Semiconductor revenue increased 32.1% year over year to $17.7 million, representing 55.4% of sales. Defense/aerospace, life sciences, and security also grew; automotive/EV revenue declined 5.8%. Orders were $30.8 million, up 23.0% year over year but down 1.6% sequentially. Backlog was approximately $45.7 million, compared with $35.0 million a year earlier and $46.8 million at year-end. Management said most backlog was expected to ship in 2023, but customers may cancel, accelerate, or postpone orders.
- Sequential performance: Revenue declined 1.5% from Q4 2022, primarily due to shipment timing. Management also attributed lower sequential orders mainly to timing after large Q4 customer orders.
- Liquidity outlook: Management expects cash, available credit, and anticipated operating cash flow to cover short-term working capital and other corporate requirements over the next 12 months. Estimated minimum short-term working capital needs were $8–$10 million. No formal revenue or earnings guidance was provided in the filing.
- Supply chain exposure: Acculogic relies on a key sole-source supplier in Belarus for certain materials and estimated a six-to-nine-month supply. The company was qualifying an alternate supplier, aiming for full qualification by year-end 2023. Supply disruptions, inflation, higher costs, and logistics delays could affect results despite mitigation efforts.
- Other risks and items: The semiconductor market is cyclical, and management cited variability in customer demand, product mix, and order timing. One customer represented 13% of Q1 revenue. A customer-specific restricted cash balance supports a bank guarantee tied to a large order and declines as shipments are made. The company disclosed no material legal proceedings, material off-balance-sheet arrangements, or material changes to its previously reported risk factors. A $86,000 facility-relocation expense was included in Q1 general and administrative expense.
Important facts for investors to verify
- Whether elevated orders and backlog convert to revenue on schedule, given customer rights to reschedule or cancel and the company’s shipment-timing sensitivity.
- Progress in qualifying the alternate supplier for the Belarus-sourced material, and the adequacy of existing supply if qualification is delayed.
- Semiconductor demand trends, particularly in wafer production and the company’s exposure to a limited number of customers; one customer generated 13% of quarterly revenue.
- Working-capital and cash-flow trends, including inventory growth of $1.9 million from year-end and the company’s reliance on operating cash flow and available borrowing capacity.
- Debt costs and covenant headroom as the unhedged Term Note borrowing bears a variable rate; the filing reported an approximate 6.7% rate at March 31, 2023, rising to approximately 6.9% effective May 1.