inTEST Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the same 2020 periods unless stated otherwise. Amounts below are in millions of dollars except per-share data. inTEST supplies test and process solutions across semiconductor and other markets, through its Thermal and Electromechanical Solutions (EMS) segments.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $21.8 | $13.3 | $41.4 | $24.5 |
| Gross margin | $11.0; 50% | $6.1; 46% | $20.5; 50% | $10.9; 45% |
| Operating income (loss) | $3.0 | $0.2 | $5.6 | ($1.2) |
| Net earnings (loss) | $2.6 | $0.2 | $4.8 | ($1.0) |
| Diluted earnings (loss) per share | $0.24 | $0.02 | $0.45 | ($0.10) |
| Operating cash flow | Not separately stated | Not separately stated | $3.9 | $0.1 |
Q2 revenue increased 64%; first-half revenue increased 69%. Management attributed the improvement principally to stronger semiconductor-market demand and better absorption of fixed costs at higher production levels. Gross margin expansion was partly offset by higher component costs and product-mix changes.
Segments, orders, and balance sheet
- Q2 Thermal revenue was $12.8 million, up 35%; EMS revenue was $9.1 million, up 138%. For the first half, Thermal rose 27% to $23.8 million and EMS rose 208% to $17.6 million.
- Semiconductor-market revenue grew 129% in Q2 to $15.7 million; Multimarket revenue declined 4% to $6.1 million. Texas Instruments represented 14% of first-half consolidated revenue.
- Q2 orders were $25.1 million, versus $13.9 million a year earlier and $25.2 million in Q1 2021. Backlog was approximately $20.4 million at June 30, compared with $8.7 million a year earlier. Most backlog was expected to ship in 2021, but orders may be rescheduled or canceled.
- Cash and cash equivalents were $14.6 million at June 30, versus $10.3 million at year-end 2020; working capital was $25.0 million, versus $18.1 million. Operating cash flow was below net earnings, principally as receivables rose $4.4 million and inventory rose $1.3 million.
- The company reported no outstanding borrowings. Its revolving facility was increased to $10 million and extended to April 2024. Total liabilities were $19.5 million, including $6.6 million of operating lease liabilities; the filing does not report other funded debt.
Outlook, risks, and notable items
- No numerical revenue or earnings guidance was provided. Management expected available cash, operating cash flow, and unused credit availability to meet operating needs through 2021, while noting COVID-19 and variant-related uncertainty.
- Management cited semiconductor demand and supply-chain interruptions as important uncertainties. Other risks include semiconductor-market cyclicality, customer concentration, component availability, pricing pressure, hiring costs, and execution of the EMS manufacturing consolidation.
- The EMS consolidation into Mt. Laurel took longer than planned as resources were redirected to customer shipments. The company expected completion in Q3 2021 and approximately $50,000–$100,000 of additional cash charges. Management warned that training new staff could affect shipments and product quality, and that higher labor costs could pressure margins.
- On July 19, 2021, the company signed a Fremont facility sublease running through November 2025. It expected about $350,000 of incremental sublease income versus its prior estimate, recognized over the sublease term.
- A New York grant agreement left $370,000 potentially repayable if employment targets are not met; the company said it was compliant as of June 30, 2021. The CFO retired in June and Duncan Gilmour became CFO; transition-related costs were recorded.
- COVID-19 restrictions eased in some regions during Q2, but variants and renewed restrictions could affect employees, customers, suppliers, or operations. The filing reported no material legal proceedings and no material changes to previously disclosed risk factors.
Key facts for investors to verify
- Whether strong orders and the $20.4 million backlog convert into shipments and collections, particularly given customer delivery changes and semiconductor-market cyclicality.
- Whether the EMS consolidation is completed on schedule without disrupting shipments, quality, or expected cost savings.
- Whether the increase in receivables and inventory is temporary and operating cash generation improves as growth continues.
- Whether COVID-19, supply constraints, labor costs, or customer concentration affect margins and the company’s liquidity outlook.
- The future effect of stock-based compensation and share dilution; the filing reported 10.8 million common shares outstanding at July 31, 2021.