inTEST Corporation (NYSE American: INTT) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing was signed March 27, 2024. inTEST supplies test and process technology across semiconductor, industrial, automotive/EV, defense/aerospace, life sciences and security markets through Electronic Test, Environmental Technologies and Process Technologies segments.
Financial performance and liquidity
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Revenue | $123.3 million | $116.8 million | Up 5.5% |
| Gross profit / margin | $57.0 million / 46% | $53.4 million / 46% | Margin unchanged |
| Operating income | $10.4 million | $10.7 million | Down from prior year |
| Net earnings | $9.3 million | $8.5 million | Up approximately 10% |
| Diluted EPS | $0.79 | $0.78 | Share count increased |
| Cash from operations | $16.2 million | $(1.4) million | Improved substantially |
| Capital expenditures | $1.3 million | $1.4 million | Primarily equipment and facility improvements |
| Cash and working capital | $45.3 million / $61.5 million | $13.4 million / $33.2 million | Cash rose, in part due to equity issuance |
| Term Note debt | $12.0 million | $16.1 million | $4.1 million repaid; no revolving-facility borrowings |
Revenue growth was led by defense/aerospace and industrial demand, partly offset by semiconductor weakness, particularly in the fourth quarter. Semiconductor sales were $65.7 million, or 53.3% of revenue, down 3.9%. Non-semiconductor markets generated $57.6 million, or 47% of revenue. Segment revenue was $41.0 million for Electronic Test, $30.8 million for Environmental Technologies and $51.5 million for Process Technologies.
Year-end backlog was $40.1 million, down from $46.8 million. 2023 orders fell 10% to $116.6 million, including an 18.8% decline in semiconductor orders. Management said substantially all backlog was expected to ship in 2024, but noted cancellations and schedule changes mean backlog is not a reliable forecast of future sales.
Cash from operations benefited from lower receivables and inventories as activity slowed and supply conditions normalized. Financing cash flow included $19.2 million net proceeds from an at-the-market offering of 921,797 shares, partly offset by debt repayment. The company had approximately $30 million of additional Term Note borrowing capacity and a $10 million undrawn revolving facility at year-end; it reported compliance with credit covenants. The credit facility is secured by substantially all company assets.
Material changes and notable items
- Annual revenue increased, but operating income declined to $10.4 million as operating expenses rose. Selling expense increased 11% and general and administrative expense increased 11%; G&A included $1.2 million of corporate development costs, much of it related to an acquisition opportunity not pursued.
- Fourth-quarter revenue was $27.9 million versus $32.4 million in Q4 2022; net earnings were $1.5 million versus $3.2 million. The filing attributes the semiconductor-market decline to a cyclical slowdown.
- On March 12, 2024, after year-end, inTEST acquired Alfamation for approximately $22.4 million, comprising about €18 million cash, 187,432 shares and additional cash for excess delivered assets. Alfamation serves automotive, life sciences and specialty consumer electronics markets and joins Electronic Test.
- The company raised $19.2 million net through its 2023 equity offering. A share repurchase authorization of up to $10 million was approved through November 2024; no shares had been repurchased by year-end. No cash dividends were paid, and the company said it did not currently plan dividends in the foreseeable future.
- Goodwill was $21.7 million; management reported no impairment in 2023. The annual strategy target, originally stated as growing revenue to $200 million–$250 million by 2025 through organic growth and acquisitions while maintaining margins, is an aspiration rather than formal near-term guidance.
Outlook, risks and controls
- Management expects cash, operating cash flow and available credit to cover short-term working-capital and corporate needs. It estimated minimum short-term working-capital requirements of $8 million–$10 million and reported no significant 2024 capital-expenditure commitments.
- Management expects semiconductor cyclicality to remain a source of volatility. Customer concentration is notable: one customer represented 13% of 2023 revenue, and the ten largest customers represented approximately 42%.
- Supply-chain exposures include a sole-source Israeli capacitor supplier used in certain induction-heating products, with a reported two-to-three-month safety stock, and a Belarusian sole-source supplier for certain Acculogic materials, with six-to-nine months of supply. An alternate supplier was being qualified.
- Foreign customers accounted for 63% of revenue; 13% of cash was held by foreign subsidiaries. The filing cites geopolitical, trade, currency, repatriation and regional risks, including China/Taiwan tensions and the Ukraine and Israel conflicts.
- Material weakness and restatement: Controls over revenue recognition for discontinued customer-purchased materials held at inTEST were inadequate. The weakness contributed to material misstatements and restatement of the three- and nine-month 2023 financial statements. Management and the auditor concluded internal control over financial reporting was ineffective at December 31, 2023; remediation was still being developed and had not been demonstrated effective. The auditor gave an unqualified opinion on the financial statements but an adverse opinion on internal control.
- Other risks include competition and pricing pressure, supplier and labor costs, acquisition integration and financing, inventory obsolescence, cybersecurity incidents, environmental compliance and potential tax-rate variability. No material legal proceedings or material off-balance-sheet arrangements were reported.
Investor verification priorities
- Review the September 2023 quarterly restatement, the affected revenue transactions and progress testing remediation of the material weakness.
- Track semiconductor orders and revenue, quarterly sequential performance, and whether the $40.1 million backlog converts to sales as expected.
- Assess the Alfamation purchase price, share dilution, integration costs and contribution to results after acquisition.
- Monitor the sole-source Israeli and Belarusian supply risks, alternate-source qualification and any effect on shipments or margins.
- Reconcile operating cash generation and liquidity with the impact of the equity issuance, debt repayments, future acquisition spending and credit-facility covenants.
- Evaluate customer concentration and the feasibility of the stated $200 million–$250 million revenue target for 2025 against current orders and market conditions.