Interlink Electronics, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unless noted, amounts are in U.S. dollars; financial statement figures are in thousands. Interlink develops and sells force/touch sensors, gas sensors, membrane keypads, graphic overlays and related products.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $3.075 million | $1.851 million | $10.402 million | $5.882 million |
| Gross profit / margin | $1.459 million / 47.4% | $872,000 / 47.1% | $5.107 million / 49.1% | $3.065 million / 52.1% |
| Operating income (loss) | ($92,000) | ($190,000) | $141,000 | ($323,000) |
| Net income (loss) | ($125,000) | $6,000 | $65,000 | $260,000 |
| Net income (loss) applicable to common stockholders | ($225,000) | ($94,000) | ($235,000) | ($40,000) |
- Per-share results: Basic and diluted loss per share was $0.03 in Q3 and $0.04 for the nine-month period, compared with losses of $0.01 in both prior-year periods. Common-stockholder results include preferred dividends of $100,000 for Q3 and $300,000 year to date.
- Cash flow: Nine-month operating cash flow was $155,000, versus cash used of $385,000 in 2022. Investing used $4.322 million, principally for the Calman acquisition; financing used $650,000, including $300,000 of preferred dividends and $350,000 of share repurchases. Cash decreased $4.884 million to $5.207 million.
- Balance sheet: Cash was $5.207 million and working capital was $8.0 million at September 30. The company reported no indebtedness. Total liabilities were $2.015 million, including $195,000 of lease liabilities. Preferred stock had a $5.0 million liquidation preference.
- Goodwill rose to $4.392 million, largely reflecting the Calman acquisition. Calman’s purchase accounting measurements, including goodwill, were provisional.
Changes versus prior comparable periods
- Revenue increased 66.1% in Q3 and 76.8% year to date. The filing attributes much of the growth to the SPEC/KWJ and Calman acquisitions, alongside stronger industrial demand and increased medical-market sales. Consumer revenue declined, which management attributed mainly to order timing and product-design cycles.
- Q3 gross margin edged up from 47.1% to 47.4%; year-to-date gross margin fell from 52.1% to 49.1%, which management attributed to higher materials and component costs on certain orders and unfavorable product and customer mix.
- Operating results improved versus the prior year, but Q3 remained loss-making. Year-to-date net income fell despite a move to operating profit, in part because other income declined: 2022 included substantial gains on marketable securities, while no marketable securities were held at September 30, 2023.
- R&D and selling, general and administrative expenses increased, mainly due to added employees following the acquisitions; R&D also reflected increased product-development activity. Year-to-date SG&A additionally included increased legal and professional fees.
Outlook, risks and other notable items
- No numerical revenue or earnings guidance is provided. Management said existing cash should be sufficient for current operations, while noting that changed circumstances could require additional capital or expense reductions.
- Management cautioned that customer order timing is unpredictable and can be concentrated in particular periods. It expects its effective tax rate generally to remain above the U.S. statutory rate because domestic losses do not currently generate tax benefits while some foreign subsidiaries earn taxable income.
- Key disclosed risks include customer concentration, international operations and foreign-currency exposure, supply-chain or manufacturing disruptions, changing customer demand, product quality, and the ability to develop and protect technology. Two customers represented 26% and 17% of accounts receivable at quarter-end; one customer contributed 22% of nine-month revenue.
- The company reported no legal proceedings as of September 30. It disclosed customary intellectual-property, director/officer and other indemnities whose maximum potential exposure cannot be determined, as well as severance and change-in-control provisions for the CEO.
- Interlink continued monthly cumulative cash dividends on its 8% Series A preferred stock, subject to board declaration, and repurchased 32,120 common shares for $350,000 during the first nine months. Related-party arrangements with Qualstar and BKF Capital include facility, consulting and expense-reimbursement arrangements; the CEO has leadership roles and control connections with these entities.
Most important facts for investors to verify
- How much of revenue growth and future operating performance is attributable to acquired businesses versus continuing demand in Interlink’s legacy operations.
- Whether gross margins can recover from the year-to-date decline as product mix and material costs change.
- Cash use, acquisition-related obligations and the company’s stated liquidity outlook, including the ongoing preferred-dividend burden.
- Customer concentration and order variability, especially the impact of consumer-market cyclicality and large-customer purchasing patterns.
- Final Calman purchase accounting, goodwill valuation and the performance of acquired operations relative to the acquisition cost.