inTEST Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Financial statements are unaudited; dollar figures below are in millions unless otherwise noted.
Business context and period developments
inTEST supplies test and process technology across semiconductor, automotive, defense/aerospace, industrial, life sciences and security markets. Its reportable segments are Electronic Test, Environmental Technologies and Process Technologies.
On March 12, 2024, inTEST acquired Alfamation, an Italian test-and-measurement solutions provider, for approximately $22.4 million of total purchase consideration, including cash, shares and customary working-capital adjustments. Alfamation contributed $1.4 million of revenue and a $0.1 million net loss from March 13 through March 31. Purchase-price allocation remains preliminary and could change materially.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $29.8 | $31.9 |
| Gross profit / margin | $13.1 / 44% | $15.1 / 47% |
| Operating income | $0.5 | $3.5 |
| Net earnings | $0.7 | $2.8 |
| Diluted EPS | $0.05 | $0.25 |
| Operating cash flow | $2.1 | $2.5 |
| Capital expenditures | $0.3 | $0.3 |
Revenue declined 6.6% year over year. Lower revenue and reduced absorption of fixed costs contributed to the gross-margin decline. Operating expenses rose to $12.6 million from $11.5 million; G&A increased 16% to $6.0 million, including $1.0 million of Alfamation transaction costs. Other income was $0.4 million versus $0.1 million; the filing text does not clearly identify its principal source.
By segment, revenue was $11.1 million in Electronic Test (up from $10.4 million), $6.8 million in Environmental Technologies (down from $8.0 million), and $11.9 million in Process Technologies (down from $13.5 million). Segment income from divisional operations was $1.8 million, $0.0 million and $2.0 million, respectively, compared with $2.6 million, $1.0 million and $2.7 million.
Balance sheet, debt and liquidity
At March 31, cash and cash equivalents were $27.3 million, down from $45.3 million at year-end 2023. Working capital was $45.7 million, compared with $61.5 million. Total debt was approximately $20.4 million, including debt assumed with Alfamation; cash exceeded reported debt by approximately $6.9 million. The company had not drawn on its $10 million revolving facility and reported compliance with its credit covenants. The debt facility is secured by substantially all tangible and intangible assets.
Cash fell by $17.9 million in the quarter, principally reflecting $18.9 million of net cash paid for Alfamation. Operating cash flow was $2.1 million; financing cash outflow was $0.9 million, including $1.2 million of long-term debt repayments. Management expects cash, available borrowing capacity and anticipated operating cash flow to cover short-term needs and planned investments. It estimates minimum short-term working-capital requirements of $8–$10 million.
On May 2, 2024, after quarter-end, the credit agreement was amended to extend the term-loan advance period through May 2, 2026 and extend the facility maturity to May 2, 2031.
Changes, outlook and risks
Revenue from semiconductor markets fell 15.4% year over year to $15.0 million, while automotive/EV revenue rose 52.4% to $4.0 million and industrial revenue rose 33.5% to $4.2 million. Management attributed the overall revenue decline primarily to weak semiconductor demand and described the semiconductor market as cyclical. Compared with Q4 2023, Q1 revenue increased 7.0%, with improved semiconductor demand partly offset by industrial weakness.
Orders were $22.8 million, down 26.0% from Q1 2023 and 17.2% sequentially. Backlog was $55.5 million versus $45.7 million a year earlier and $40.1 million at December 31, 2023; it includes $22.8 million attributable to Alfamation. Most backlog was expected to ship in 2024, but customers may cancel or reschedule orders, and backlog is not necessarily indicative of future sales.
The filing provides no specific revenue or earnings guidance. Management cites continued market diversification and growth in non-semiconductor markets as strategic priorities. Key risks include semiconductor cyclicality, customer concentration (one customer represented 15% of Q1 revenue), acquisition integration and purchase-accounting uncertainty, foreign-exchange and variable-rate debt exposure, and supply interruptions. A sole-source Israeli capacitor supplier and a Belarusian supplier create geopolitical supply risks; the company reports safety stock and is qualifying an alternative source for the latter.
Management concluded disclosure controls were not effective at March 31, 2024 because of a material weakness in controls over accounting for customer-related procurement and sales of discontinued materials/components. The weakness contributed to restatement of the three- and nine-month 2023 financial statements. Remediation is in process and has not yet been demonstrated effective. The filing reports no material legal proceedings and no material changes to the previously disclosed risk factors.
Important facts for investors to verify
- Whether semiconductor orders and demand stabilize, and whether backlog converts to shipments as expected.
- Final Alfamation purchase-price allocation, working-capital adjustment, integration performance and contribution to earnings.
- Progress in remediating the material weakness and the effectiveness of the revised controls.
- Cash conversion and working-capital needs, including the effect of acquisition-related inventory and debt.
- Whether sole-source supply risks are mitigated and whether variable-rate borrowing or currency movements affect results.