inTEST Corporation — 2021 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2021, compared with 2020. inTEST supplies test and process solutions across semiconductor and other markets, through its Thermal and Electromechanical Semiconductor Products (EMS) segments. In 2021, it acquired North Sciences (formerly Z-Sciences), Videology and Acculogic, broadening its life-sciences, imaging and electronic-test offerings.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $84.9 million | $53.8 million |
| Gross margin | 49% | 45% |
| Operating income (loss) | $8.5 million | $(1.2) million |
| Net earnings (loss) | $7.3 million | $(0.9) million |
| Diluted earnings (loss) per share | $0.68 | $(0.09) |
| Cash from operating activities | $10.8 million | $3.2 million |
| Cash and cash equivalents at year-end | $21.2 million | $10.3 million |
| Working capital at year-end | $27.0 million | $18.1 million |
- Revenue increased 58%. Semiconductor-market revenue rose 104% to $54.9 million; Multimarket revenue increased 11% to $29.9 million. EMS revenue rose 139% to $32.5 million, while Thermal revenue increased 30% to $52.4 million.
- Gross-margin improvement primarily reflected better fixed-cost absorption from higher sales, partly offset by higher material costs, supply-chain constraints and product mix.
- Year-end debt included $20.1 million outstanding on the term note; $4.1 million was current and $16.0 million long-term. No revolving-credit borrowings were outstanding; the facility provides $10 million of availability, with $4.5 million remaining under the term-note commitment.
- Investing cash outflow was $21.4 million, including $20.4 million for acquisitions. Financing cash inflow was $21.7 million, mainly from $20.5 million of term-note borrowing.
Material changes and notable items
- Orders rose 71% to $101.9 million; year-end backlog increased to $34.1 million from $11.5 million. Substantially all backlog was expected to ship in 2022, but orders may be canceled or rescheduled and backlog is not a reliable forecast of future sales.
- A $10 million fourth-quarter order from a Thermal semiconductor customer, the company’s largest order to date, was scheduled to ship throughout 2022. Customer deposits and deferred revenue increased to $6.0 million, partly due to a deposit related to this order.
- The three acquisitions were completed late in 2021 and contributed $1.5 million of revenue after their acquisition dates. Videology and Acculogic purchase-price allocations remained preliminary at year-end; the Acculogic allocation could change materially.
- General and administrative expense rose 39% to $15.9 million, including $1.9 million in acquisition and financing-related transaction costs. Restructuring charges declined to $0.3 million from $1.3 million.
- Fourth-quarter 2021 revenue was $22.4 million and net earnings were $0.3 million, below the preceding three quarters’ earnings. The filing notes quarterly results can fluctuate with demand, product mix and expense timing.
Outlook, commentary and risks
- Management’s strategy targets annual revenue of $200 million to $250 million by 2025 while maintaining its margin profile, through organic growth and acquisitions. This is a strategic goal, not a specific near-term forecast.
- Management expected cash, revolving-credit capacity and operating cash flows to cover short-term requirements and planned investments over the next 12 months. Estimated minimum short-term working-capital needs were $8 million to $10 million.
- Major risks include semiconductor-market cyclicality, customer concentration (Texas Instruments represented 13% of 2021 revenue; the ten largest customers represented 43%), supplier shortages and cost inflation, and the ability to deliver backlog on schedule.
- Other risks include acquisition integration and execution, foreign-market exposure, COVID-19-related disruption, competition, hiring and labor costs, and debt covenants. The filing also identifies a Belarus sole-source material supplier for Acculogic as a potential supply-chain exposure amid the Russia-Ukraine conflict.
- The company reported no material legal proceedings or material off-balance-sheet arrangements. The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective at a reasonable-assurance level; the auditor did not provide an internal-control attestation.
Investor verification priorities
- Check subsequent filings for conversion of the $34.1 million backlog into revenue, particularly the $10 million order, and any cancellations or delivery delays.
- Track integration, profitability and final purchase accounting for Videology and Acculogic, including contingent consideration and acquired intangible-asset assumptions.
- Monitor gross margins, supplier availability and price increases, and whether customer pricing offsets higher material and labor costs.
- Review debt amortization, interest-rate exposure, covenant compliance and remaining borrowing capacity as acquisition plans proceed.
- Assess dependence on the semiconductor cycle and major customers, alongside progress toward the 2025 revenue target and diversification goals.