inTEST Corporation — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports unaudited fourth-quarter results. Unless noted otherwise, amounts below are in millions of dollars.
Business context
inTEST designs and sells mechanical, thermal and electrical products used mainly in semiconductor integrated-circuit testing. Thermal products are also sold into industries including automotive, aerospace, communications and consumer electronics. The business remains exposed to semiconductor-industry cycles, though non-semiconductor thermal sales are an increasingly important source of diversification.
Financial performance
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Revenue | $47.3 | $46.2 |
| Gross profit / margin | $22.9 / 48.4% | $22.1 / 47.9% |
| Operating income / margin | $7.6 / 16.0% | $7.4 / 15.9% |
| Net income | $9.9 | $7.3 |
| Diluted EPS | $0.96 | $0.72 |
| Cash provided by operations | $7.8 | $6.4 |
Revenue increased 2% year over year. Thermal Products revenue rose 48% to $26.9 million, while Mechanical Products fell 24% to $15.2 million and Electrical Products fell 35% to $5.2 million. Non-ATE-industry sales were $12.6 million, or 27% of revenue, versus $8.0 million, or 17%, in 2010. Foreign-customer revenue was $28.1 million, 59% of total, compared with $28.7 million, 62%, in 2010.
Net income growth substantially reflected a $2.2 million income-tax benefit, including reversal of $3.1 million in deferred-tax valuation allowance. The company reported pretax income of $7.7 million, compared with $7.4 million in 2010.
Fourth quarter: Revenue was $10.1 million, versus $10.1 million in Q4 2010; gross profit was $4.9 million. Net income was $0.8 million, compared with $1.3 million a year earlier. Q4 included $0.4 million of income-tax expense; Q3 2011 included a $2.8 million tax benefit.
Liquidity, debt and balance sheet
At December 31, 2011, cash and cash equivalents were $14.0 million, working capital was $19.8 million, total assets were $31.2 million and stockholders’ equity was $26.2 million. Current liabilities were $5.0 million; the balance sheet reported no debt. Operating cash flow was $7.8 million and capital expenditures were $0.8 million. The secured credit facility was terminated in 2011, and the company said it had no available borrowing facility. Management expected cash and projected operating cash flow to cover short-term working-capital needs.
Changes, outlook and material items
- Orders declined to $45.2 million from $47.7 million in 2010; year-end backlog fell to $4.0 million from $6.1 million. Backlog orders may be cancelled, delayed or rescheduled.
- The company relocated its Mechanical and Thermal operations to smaller facilities in early 2011 to reduce fixed costs. No restructuring charges were recorded in 2011 or 2010.
- On January 16, 2012, a subsidiary acquired substantially all of Thermonics’ assets and certain liabilities for approximately $3.8 million cash, plus assumed liabilities. The purchase-price allocation was incomplete; the company expected to record about $0.2 million of restructuring charges in Q1 2012 after relocating the product line.
- No specific revenue or earnings guidance was provided. Management noted uncertainty around semiconductor demand and said future orders and revenue could not be predicted with certainty.
- Key risks include semiconductor cyclicality, customer concentration, pricing pressure, order cancellations, international and currency exposure, inventory obsolescence, competition and dependence on technical personnel. Texas Instruments represented 12% of 2011 revenue; the ten largest customers represented about 49%.
- The company reported no material legal proceedings or material off-balance-sheet arrangements. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the independent auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Whether the tax benefit from the deferred-tax valuation-allowance reversal is sustainable, and whether forecast taxable income supports realization of the remaining deferred-tax assets.
- Whether weaker orders, lower backlog and declines in Mechanical and Electrical Products continue, and whether thermal-market diversification offsets them.
- The final purchase-price allocation, acquired liabilities and ongoing results of Thermonics, along with the actual relocation and restructuring costs.
- Cash available after the Thermonics acquisition and the company’s funding options given the absence of an available credit facility.
- Customer concentration, international cash accessibility, and the potential effect of cancellations, pricing pressure and inventory write-offs on margins and cash flow.