Interlink Electronics, Inc. — Q2 2021 Form 10-Q
Period: Three and six months ended June 30, 2021; comparisons are to the corresponding 2020 periods. Financial figures are in U.S. dollars, in thousands, unless stated otherwise. Interlink designs, manufactures, and sells force-sensing and human-machine-interface products for consumer, automotive, industrial, and medical markets. Its products are manufactured in Shenzhen, China.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $2,064 | $1,702 | $3,632 | $3,393 |
| Gross profit / margin | $1,127 / 54.6% | $998 / 58.6% | $2,001 / 55.1% | $1,957 / 57.7% |
| Operating income (loss) | $133 | $41 | $73 | $(31) |
| Net income (loss) | $63 | $13 | $20 | $(5) |
| Basic and diluted EPS | $0.01 | $0.00 | $0.00 | $(0.00) |
- At June 30, cash and cash equivalents were $6,245, restricted cash was $5, working capital was $7,541, and the company reported no indebtedness. Total assets were $9,903 and total liabilities were $1,015.
- For the first six months, operating cash flow was $234, investing cash outflow was $142, and financing cash flow was zero; cash, cash equivalents, and restricted cash increased $125 to $6,250. Capital spending primarily supported completion of the Camarillo product-development and materials-science center.
- The $186 PPP loan received in 2020 was fully forgiven in February 2021. The forgiveness was a noncash gain in the 2021 first-half cash-flow reconciliation; the loan payable was zero at quarter-end.
Material changes and management commentary
- Q2 revenue rose 21.3% year over year. Medical revenue increased 137.5% and consumer revenue 71.4%; industrial revenue declined 12.0%. Management attributed medical growth partly to comparison with pandemic-affected 2020 levels, consumer growth to higher purchasing on programs, and industrial weakness to order timing.
- First-half revenue increased 7.0%. Consumer revenue nearly doubled and industrial revenue rose 9.9%, while medical revenue fell 37.4%, primarily because COVID-related hospital installation delays reduced shipments to the largest medical customer. Standard-product revenue declined 6.6%, reflecting bulk purchases by larger customers in 2020.
- Gross margin declined in both comparison periods. Management cited product and customer mix and increased production costs, despite higher revenue and gross profit.
- First-half R&D expense fell 22.3%, primarily due to reduced costs and headcount as the Singapore R&D lab was transferred to Camarillo. SG&A rose 4.9% for the first half, reflecting additional personnel and Nasdaq relisting costs; management said the increase was partly offset by the PPP forgiveness benefit.
- Asia and the Middle East represented $2,490 of first-half revenue, versus $860 from the United States and $282 from Europe and other regions. One customer accounted for 25% of first-half revenue; two customers represented 45% and 12% of receivables at quarter-end.
Outlook, risks, contingencies, and unusual items
- The filing provides no quantified revenue, earnings, or margin guidance. Management said existing cash was expected to fund current operations, while noting circumstances could change and additional capital might then be required.
- Risks discussed include COVID-19 disruptions, unpredictable and cyclical customer orders, customer concentration, potential supply shortages and manufacturing disruptions, international operations and currency exposure, product quality, competition and technology changes, and intellectual-property matters. The company manufactures all products at its Shenzhen facility.
- The company reported no legal proceedings as of June 30 and no material changes to the risk factors in its 2020 Form 10-K. It disclosed uncapped intellectual-property indemnities and director/officer indemnification obligations whose potential losses could not be determined. CEO Steven N. Bronson’s employment agreement includes severance and change-in-control payments and accelerated equity vesting provisions.
- Related-party arrangements with Qualstar and BKF Capital include facilities, services, and expense reimbursements. The companies share senior executives, and Mr. Bronson and BKF Capital control both Interlink and Qualstar.
- Management assessed disclosure controls as effective at a reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the Q2 revenue gains are sustained, given variable order timing, customer concentration, and the prior-year pandemic comparison.
- Whether gross margin can recover from the year-over-year decline as production costs and product/customer mix evolve.
- Whether COVID-related installation delays continue to affect medical shipments and whether industrial demand remains variable.
- The extent to which first-half earnings benefited from the one-time $186 PPP loan forgiveness, and the company’s cash generation excluding that item.
- Exposure to the Shenzhen manufacturing site, supply availability, and the disclosed related-party arrangements and executive agreement obligations.