inTEST Corporation — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012. The filing also includes unaudited quarterly results, including Q4 2012. The company designs and sells thermal, mechanical and electrical products used primarily in semiconductor testing, with thermal products also serving other industries.
Financial performance and liquidity
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $43.4 million | $47.3 million |
| Gross profit (margin) | $19.1 million (43.9%) | $22.9 million (48.4%) |
| Operating income (margin) | $3.0 million (6.9%) | $7.6 million (16.0%) |
| Net earnings | $2.2 million | $9.9 million |
| Operating cash flow | $6.6 million | $7.8 million |
- At year-end, cash and cash equivalents were $15.6 million, working capital was $21.0 million, and total stockholders’ equity was $27.8 million. The company reported no long-term debt and no available credit facility; $450,000 of restricted certificates of deposit supported lease letters of credit.
- Q4 revenue was $8.3 million and net earnings were $201,000, down from Q3 revenue of $10.8 million and earnings of $664,000.
Changes versus the prior year
- Revenue declined 8%. Thermal segment revenue fell 10% and Mechanical fell 35%; Electrical rose 79%. Mechanical reported an operating loss of $1.9 million, versus $736,000 operating income in 2011. Thermal and Electrical operating income was $2.9 million and $2.0 million, respectively.
- Gross margin fell 4.5 percentage points, reflecting higher component costs, lower revenue absorption of fixed costs, product/customer mix and increased inventory obsolescence charges.
- Net earnings fell substantially in part because 2011 included a $3.1 million reversal of deferred-tax valuation allowances; 2012 recorded $897,000 of income tax expense.
- Operating cash flow decreased to $6.6 million. Cash increased by $1.6 million after investing and financing activities, including the Thermonics acquisition and special dividend.
- The company acquired Thermonics in January 2012 for approximately $3.8 million cash plus assumed specified liabilities. Thermonics contributed $4.7 million of revenue from acquisition through year-end; its standalone net income was not tracked.
Outlook, risks and notable items
- Management gave no quantified revenue or earnings guidance. It reported a 13% increase in Thermal orders in Q4 versus Q3, but cautioned that continuation was uncertain. Management expected weaker Electrical segment revenue to continue into Q1 2013.
- Management expected cash and projected operating cash flow to meet short-term working-capital needs, but noted there was no borrowing facility in place.
- Major risks include semiconductor-industry cyclicality, competitive pricing, customer concentration (Texas Instruments represented 14% of 2012 revenue; Teradyne 11%), supplier constraints, and reliance on growth in non-semiconductor markets. Non-ATE revenue declined to $6.6 million, or 15% of sales, from $12.6 million, or 27%.
- Other notable items: a one-time $0.08-per-share special dividend ($834,000 total); $313,000 of Thermonics facility-closure charges; and $688,000 of inventory obsolescence charges. No material legal proceedings or material off-balance-sheet arrangements were reported.
- The company reported effective disclosure controls and internal control over financial reporting at year-end; the auditor issued an unqualified opinion on the financial statements. The filing notes that New Jersey and California facilities were no longer ISO 9001 certified.
Important facts for investors to verify
- Whether Thermal demand improved after Q4 and whether the anticipated Electrical weakness affected Q1 2013.
- Whether Mechanical Products returned to profitability and whether lower volumes or pricing pressure continued to compress margins.
- Thermonics’ contribution to segment profitability and the realized benefits of integrating the acquired business.
- Customer concentration, inventory obsolescence, and the company’s ability to fund operations without a credit facility, including access to overseas cash.
- The assumptions supporting realization of deferred tax assets and the reported goodwill and intangible-asset valuations.