inTEST Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amounts below are in millions of dollars unless noted. inTEST supplies test and process technology across semiconductor, automotive, defense/aerospace, industrial, life sciences and security markets through Electronic Test, Environmental Technologies and Process Technologies.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $32.7 | $30.8 | $97.1 | $84.4 |
| Gross profit / margin | $15.3 / 47% | $13.9 / 45% | $45.4 / 47% | $38.5 / 46% |
| Operating income | $3.3 | $3.2 | $10.1 | $6.7 |
| Net earnings | $3.0 | $2.5 | $8.6 | $5.2 |
| Diluted EPS | $0.24 | $0.23 | $0.74 | $0.48 |
| Operating cash flow | Not separately stated | Not separately stated | $11.5 | $(3.7) |
- Q3 comparison: Revenue rose 6.1% year over year; net earnings increased about 18%. Gross margin improved by 2 percentage points, which management attributed mainly to lower average component costs and product mix.
- Nine-month comparison: Revenue increased 15.1%, operating income about 52%, and net earnings about 64%. Management cited stronger semiconductor demand and defense/aerospace demand for thermal test solutions; gross-margin improvement reflected product mix, lower component costs as a share of revenue, and better absorption of fixed manufacturing costs.
- Cash and working capital: Cash and equivalents were $41.7 at September 30, versus $13.4 at year-end 2022; working capital was $60.1 versus $33.2. Operating cash flow was $11.5 for the nine months. Cash growth also reflects $19.2 of net ATM offering proceeds.
- Debt and facilities: Term Note debt totaled $13.1, including $4.1 current; no revolving-facility borrowings were outstanding. The filing reports $30.0 of remaining Term Note availability and a $10.0 revolving facility. The company was in covenant compliance. One borrowing carries a fixed rate of about 3.2%; the other was variable at about 7.4% at September 30.
- Other: Total assets were $134.6 and total liabilities $40.0. Interest expense was $0.5 for the nine months. The filing does not provide a formal quarterly operating cash-flow figure.
Business trends and material changes
- Q3 revenue was nearly flat sequentially, up 0.3% from Q2 2023. Semiconductor revenue increased 3.1% year over year in Q3; defense/aerospace rose 77.2%, while other markets were mixed.
- Nine-month revenue growth was led by semiconductor (+14.9%) and defense/aerospace (+109.5%). Semiconductor represented 57.9% of nine-month revenue. One customer accounted for 15% of nine-month revenue, primarily in Electronic Test.
- Orders were $26.9 in Q3, down 17.8% year over year and 14.6% sequentially. Lower orders from semiconductor, industrial and other markets were partly offset by security, automotive/EV and life sciences. Management described semiconductor order demand as cyclical and noted customers were continuing to deploy previously delivered back-end test units.
- Backlog was approximately $38.8 at September 30, down from $47.9 a year earlier and $44.6 at June 30. The company expected to deliver approximately 60% in 2023; customers may cancel or reschedule orders.
- In May 2023, the company sold 921,797 shares under an at-the-market offering for $19.2 net proceeds. This increased cash and diluted shareholders.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided. Management expects existing cash, available credit and anticipated operating cash flow to cover short-term requirements and planned investments over the next 12 months. Estimated minimum short-term working-capital needs are $8–$10; no significant capital-expenditure commitments were reported for the balance of 2023.
- Management anticipated inventory would continue to decline through the rest of 2023, citing easing supply constraints and slower order rates, especially in semiconductor markets.
- Q3 general and administrative expense included $0.819 of corporate-development costs, mainly for an acquisition opportunity no longer being pursued. A $0.358 reduction in expected Acculogic contingent consideration, following lower sales forecasts for EV and battery customers, partially offset expense.
- Supply-chain exposure includes an Israeli sole-source capacitor supplier for certain induction-heating products; management estimated available supply through Q4 2023 and warned disruption could materially affect future results. Acculogic also relied on a Belarusian sole-source supplier, with an estimated six-to-nine-month supply; an alternate supplier was being qualified.
- Other stated risks include semiconductor-market cyclicality, order timing and backlog conversion, customer concentration, materials availability, foreign exchange, pricing pressure and acquisition integration. The company reported no material legal proceedings, no material off-balance-sheet arrangements, and effective disclosure controls.
Important facts for investors to verify
- Whether orders and backlog stabilize or continue declining, particularly in semiconductor markets, and how much backlog converts to revenue.
- Exposure to the customer representing 15% of nine-month revenue and the concentration of sales in semiconductor markets.
- Continuity of Israeli and Belarusian sole-source components, and progress qualifying alternatives.
- Cash generation excluding ATM proceeds, debt amortization, variable-rate interest exposure and compliance with credit-facility covenants.
- Effects of share issuance and equity compensation on dilution, and whether acquisition-related spending or contingent-consideration estimates change.