UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20212022 or
☐ |
|
For the transition period from __________________ to ___________________
Commission File Number 1-36117
inTEST Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware | 22-2370659 |
804 East Gate Drive, Suite 200
Mt. Laurel, New Jersey 08054
(Address of principal executive offices, including zip code)
(856) 505-8800
(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act: | ||
Title of Each Class | Trading Symbol INTT | Name of Each Exchange on Which Registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.YES
Yes ☒ NONo ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).YES
Yes ☒ NONo ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer,"filer" "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).YES
Yes ☐ NONo ☒
Number of shares of Common Stock, $0.01 par value, outstanding as of the close of business on April 30, 2021: 10,747,131May 2, 2022: 11,005,180
inTEST CORPORATIONINDEX
TABLE OF CONTENTS
Page | ||
PART I. | FINANCIAL INFORMATION | |
Item 1. | Financial Statements | |
Consolidated Balance Sheets as of March 31, | 1 | |
Unaudited Consolidated Statements of Operations for the three months ended March 31, | 2 | |
Unaudited Consolidated Statements of Comprehensive Earnings | 3 | |
Unaudited Consolidated Statements of Stockholders' Equity for the three months ended March 31, | 4 | |
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, | 5 | |
Notes to Consolidated Financial Statements | 6 | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | |
PART II. | OTHER INFORMATION | |
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. | Defaults Upon Senior Securities | |
Item 4. | Mine Safety Disclosures | |
Item 5. | Other Information | |
Item 6. | Exhibits | |
SIGNATURES |
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
inTEST CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
March 31, | December 31, | March 31, | December 31, | |||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 10,195 | $ | 10,277 | $ | 17,211 | $ | 21,195 | ||||||||
Trade accounts receivable, net of allowance for doubtful accounts of $212 | 13,487 | 8,435 | ||||||||||||||
Trade accounts receivable, net of allowance for doubtful accounts of $212 and $213, respectively | 17,292 | 16,536 | ||||||||||||||
Inventories | 8,212 | 7,476 | 14,913 | 12,863 | ||||||||||||
Prepaid expenses and other current assets | 562 | 776 | 1,853 | 1,483 | ||||||||||||
Total current assets | 32,456 | 26,964 | 51,269 | 52,077 | ||||||||||||
Property and equipment: | ||||||||||||||||
Machinery and equipment | 5,401 | 5,356 | 5,801 | 5,733 | ||||||||||||
Leasehold improvements | 2,901 | 2,636 | 3,193 | 3,001 | ||||||||||||
Gross property and equipment | 8,302 | 7,992 | 8,994 | 8,734 | ||||||||||||
Less: accumulated depreciation | (5,764 | ) | (5,642 | ) | (6,190 | ) | (6,046 | ) | ||||||||
Net property and equipment | 2,538 | 2,350 | 2,804 | 2,688 | ||||||||||||
Right-of-use assets, net | 6,099 | 6,387 | 5,657 | 5,919 | ||||||||||||
Goodwill | 13,738 | 13,738 | 21,863 | 21,448 | ||||||||||||
Intangible assets, net | 12,117 | 12,421 | 20,905 | 21,634 | ||||||||||||
Restricted certificates of deposit | 140 | 140 | 100 | 100 | ||||||||||||
Other assets | 38 | 30 | 336 | 39 | ||||||||||||
Total assets | $ | 67,126 | $ | 62,030 | $ | 102,934 | $ | 103,905 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of Term Note | $ | 4,100 | $ | 4,100 | ||||||||||||
Current portion of operating lease liabilities | 1,444 | 1,371 | ||||||||||||||
Accounts payable | $ | 3,655 | $ | 2,424 | 5,896 | 4,281 | ||||||||||
Accrued wages and benefits | 2,044 | 1,944 | 2,898 | 4,080 | ||||||||||||
Accrued professional fees | 515 | 776 | 527 | 1,048 | ||||||||||||
Customer deposits and deferred revenue | 1,191 | 396 | 5,425 | 6,038 | ||||||||||||
Accrued sales commissions | 703 | 472 | 842 | 863 | ||||||||||||
Current portion of operating lease liabilities | 1,160 | 1,215 | ||||||||||||||
Domestic and foreign income taxes payable | 1,157 | 825 | 1,625 | 2,024 | ||||||||||||
Other current liabilities | 746 | 804 | 1,390 | 1,267 | ||||||||||||
Total current liabilities | 11,171 | 8,856 | 24,147 | 25,072 | ||||||||||||
Operating lease liabilities, net of current portion | 5,753 | 6,050 | 4,876 | 5,248 | ||||||||||||
Term Note, net of current portion | 15,117 | 16,000 | ||||||||||||||
Deferred tax liabilities | 1,913 | 1,922 | 941 | 1,379 | ||||||||||||
Contingent consideration | 1,369 | 930 | ||||||||||||||
Other liabilities | 440 | 450 | 483 | 453 | ||||||||||||
Total liabilities | 19,277 | 17,278 | 46,933 | 49,082 | ||||||||||||
Commitments and Contingencies | ||||||||||||||||
Stockholders' equity: | ||||||||||||||||
Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued or outstanding | - | - | 0 | 0 | ||||||||||||
Common stock, $0.01 par value; 20,000,000 shares authorized; 10,743,408 and 10,562,200 shares issued, respectively | 108 | 106 | ||||||||||||||
Common stock, $0.01 par value; 20,000,000 shares authorized; 10,995,194 and 10,910,460 shares issued, respectively | 110 | 109 | ||||||||||||||
Additional paid-in capital | 27,835 | 26,851 | 30,358 | 29,931 | ||||||||||||
Retained earnings | 19,322 | 17,110 | 24,970 | 24,393 | ||||||||||||
Accumulated other comprehensive earnings | 788 | 889 | 767 | 594 | ||||||||||||
Treasury stock, at cost; 33,077 shares | (204 | ) | (204 | ) | (204 | ) | (204 | ) | ||||||||
Total stockholders' equity | 47,849 | 44,752 | 56,001 | 54,823 | ||||||||||||
Total liabilities and stockholders' equity | $ | 67,126 | $ | 62,030 | $ | 102,934 | $ | 103,905 |
See accompanying Notes to Consolidated Financial Statements.
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Net revenues | $ | 19,556 | $ | 11,230 | ||||
Cost of revenues | 10,035 | 6,363 | ||||||
Gross margin | 9,521 | 4,867 | ||||||
Operating expenses: | ||||||||
Selling expense | 2,403 | 2,052 | ||||||
Engineering and product development expense | 1,322 | 1,292 | ||||||
General and administrative expense | 3,161 | 2,876 | ||||||
Restructuring and other charges | 55 | 8 | ||||||
Total operating expenses | 6,941 | 6,228 | ||||||
Operating income (loss) | 2,580 | (1,361 | ) | |||||
Other expense | (2 | ) | (32 | ) | ||||
Earnings (loss) before income tax expense (benefit) | 2,578 | (1,393 | ) | |||||
Income tax expense (benefit) | 366 | (250 | ) | |||||
Net earnings (loss) | $ | 2,212 | $ | (1,143 | ) | |||
Net earnings (loss) per common share - basic | $ | 0.21 | $ | (0.11 | ) | |||
Weighted average common shares outstanding - basic | 10,329,449 | 10,220,853 | ||||||
Net earnings (loss) per common share - diluted | $ | 0.21 | $ | (0.11 | ) | |||
Weighted average common shares and common share equivalents outstanding - diluted | 10,525,826 | 10,220,853 |
Three Months Ended | ||||||||
2022 | 2021 | |||||||
Revenue | $ | 24,081 | $ | 19,556 | ||||
Cost of revenue | 13,068 | 10,035 | ||||||
Gross profit | 11,013 | 9,521 | ||||||
Operating expenses: | ||||||||
Selling expense | 3,456 | 2,403 | ||||||
Engineering and product development expense | 1,924 | 1,322 | ||||||
General and administrative expense | 4,831 | 3,161 | ||||||
Restructuring and other charges | 0 | 55 | ||||||
Total operating expenses | 10,211 | 6,941 | ||||||
Operating income | 802 | 2,580 | ||||||
Other expense | (147 | ) | (2 | ) | ||||
Earnings before income tax expense | 655 | 2,578 | ||||||
Income tax expense | 78 | 366 | ||||||
Net earnings | $ | 577 | $ | 2,212 | ||||
Earnings per common share – basic | $ | 0.05 | $ | 0.21 | ||||
Weighted average common shares outstanding – basic | 10,617,271 | 10,329,449 | ||||||
Earnings per common share – diluted | $ | 0.05 | $ | 0.21 | ||||
Weighted average common shares and common share equivalents outstanding – diluted | 10,842,592 | 10,525,826 |
See accompanying Notes to Consolidated Financial Statements.
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
(In thousands)
(Unaudited)
Three Months Ended | ||||||||
2021 | 2020 | |||||||
Net earnings (loss) | $ | 2,212 | $ | (1,143 | ) | |||
Foreign currency translation adjustments | (101 | ) | (38 | ) | ||||
Comprehensive earnings (loss) | $ | 2,111 | $ | (1,181 | ) |
Three Months Ended | ||||||||
2022 | 2021 | |||||||
Net earnings | $ | 577 | $ | 2,212 | ||||
Unrealized gain on interest rate swap agreement | 289 | 0 | ||||||
Foreign currency translation adjustments | (116 | ) | (101 | ) | ||||
Comprehensive earnings | $ | 750 | $ | 2,111 |
See accompanying Notes to Consolidated Financial Statements.Statements
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | Treasury | Stockholders' | |||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Earnings | Stock | Equity | ||||||||||||||||||||||
Balance, January 1, 2021 | 10,562,200 | $ | 106 | $ | 26,851 | $ | 17,110 | $ | 889 | $ | (204 | ) | $ | 44,752 | ||||||||||||||
Net earnings | - | - | - | 2,212 | - | - | 2,212 | |||||||||||||||||||||
Other comprehensive loss | - | - | - | - | (101 | ) | - | (101 | ) | |||||||||||||||||||
Amortization of deferred compensation related to stock-based awards | - | - | 269 | - | - | - | 269 | |||||||||||||||||||||
Issuance of unvested shares of restricted stock | 81,468 | 1 | (1 | ) | - | - | - | |||||||||||||||||||||
Stock options exercised | 99,740 | 1 | 716 | - | - | - | 717 | |||||||||||||||||||||
Balance, March 31, 2021 | 10,743,408 | $ | 108 | $ | 27,835 | $ | 19,322 | $ | 788 | $ | (204 | ) | $ | 47,849 |
Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | Treasury | Stockholders' | |||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Earnings | Stock | Equity | ||||||||||||||||||||||
Balance, January 1, 2022 | 10,910,460 | $ | 109 | $ | 29,931 | $ | 24,393 | $ | 594 | $ | (204 | ) | $ | 54,823 | ||||||||||||||
Net earnings | - | 0 | 0 | 577 | 0 | 0 | 577 | |||||||||||||||||||||
Other comprehensive earnings | - | 0 | 0 | 0 | 173 | 0 | 173 | |||||||||||||||||||||
Amortization of deferred compensation related to stock-based awards | - | 0 | 372 | 0 | 0 | 0 | 372 | |||||||||||||||||||||
Issuance of unvested shares of restricted stock | 79,489 | 1 | (1 | ) | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Shares issued under Employee Stock Purchase Plan | 5,245 | 0 | 56 | 0 | 0 | 0 | 56 | |||||||||||||||||||||
Balance, March 31, 2022 | 10,995,194 | $ | 110 | $ | 30,358 | $ | 24,970 | $ | 767 | $ | (204 | ) | $ | 56,001 |
Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | Treasury | Stockholders' | |||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Earnings | Stock | Equity | ||||||||||||||||||||||
Balance, January 1, 2020 | 10,413,982 | $ | 104 | $ | 26,256 | $ | 18,005 | $ | 673 | $ | (204 | ) | $ | 44,834 | ||||||||||||||
Net loss | - | - | - | (1,143 | ) | - | - | (1,143 | ) | |||||||||||||||||||
Other comprehensive loss | - | - | - | - | (38 | ) | - | (38 | ) | |||||||||||||||||||
Amortization of deferred compensation related to stock-based awards | - | - | 187 | - | - | - | 187 | |||||||||||||||||||||
Issuance of unvested shares of restricted stock | 58,160 | 1 | (1 | ) | - | - | - | - | ||||||||||||||||||||
Forfeiture of unvested shares of restricted stock | (8,315 | ) | - | - | - | - | - | - | ||||||||||||||||||||
Repurchase and retirement of common stock | (13,767 | ) | - | (74 | ) | - | - | - | (74 | ) | ||||||||||||||||||
Balance, March 31, 2020 | 10,450,060 | $ | 105 | $ | 26,368 | $ | 16,862 | $ | 635 | $ | (204 | ) | $ | 43,766 |
Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | Treasury | Stockholders' | |||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Earnings | Stock | Equity | ||||||||||||||||||||||
Balance, January 1, 2021 | 10,562,200 | $ | 106 | $ | 26,851 | $ | 17,110 | $ | 889 | $ | (204 | ) | $ | 44,752 | ||||||||||||||
Net earnings | - | 0 | 0 | 2,212 | 0 | 0 | 2,212 | |||||||||||||||||||||
Other comprehensive loss | - | 0 | 0 | 0 | (101 | ) | 0 | (101 | ) | |||||||||||||||||||
Amortization of deferred compensation related to stock-based awards | - | 0 | 269 | 0 | 0 | 0 | 269 | |||||||||||||||||||||
Issuance of unvested shares of restricted stock | 81,468 | 1 | (1 | ) | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Stock options exercised | 99,740 | 1 | 716 | 0 | 0 | 0 | 717 | |||||||||||||||||||||
Balance, March 31, 2021 | 10,743,408 | $ | 108 | $ | 27,835 | $ | 19,322 | $ | 788 | $ | (204 | ) | $ | 47,849 |
See accompanying Notes to Consolidated Financial Statements.Statements
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended | Three Months Ended | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
Net earnings (loss) | $ | 2,212 | $ | (1,143 | ) | |||||||||||
Adjustments to reconcile net earnings (loss) to net cash used in operating activities: | ||||||||||||||||
Net earnings | $ | 577 | $ | 2,212 | ||||||||||||
Adjustments to reconcile net earnings to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 740 | 791 | 1,279 | 740 | ||||||||||||
Provision for excess and obsolete inventory | 39 | 171 | 123 | 39 | ||||||||||||
Foreign exchange loss | 8 | 38 | 40 | 8 | ||||||||||||
Amortization of deferred compensation related to stock-based awards | 269 | 187 | 372 | 269 | ||||||||||||
Loss on disposal of property and equipment | 22 | - | 0 | 22 | ||||||||||||
Proceeds from sale of demonstration equipment, net of gain | 7 | - | 19 | 7 | ||||||||||||
Deferred income tax benefit | (9 | ) | (93 | ) | (438 | ) | (9 | ) | ||||||||
Changes in assets and liabilities: | ||||||||||||||||
Trade accounts receivable | (5,082 | ) | 1,188 | (832 | ) | (5,082 | ) | |||||||||
Inventories | (783 | ) | (714 | ) | (2,177 | ) | (783 | ) | ||||||||
Prepaid expenses and other current assets | 212 | 117 | (374 | ) | 212 | |||||||||||
Other assets | (8 | ) | (4 | ) | (8 | ) | (8 | ) | ||||||||
Accounts payable | 1,235 | 316 | 1,592 | 1,235 | ||||||||||||
Accrued wages and benefits | 103 | (543 | ) | (1,179 | ) | 103 | ||||||||||
Accrued professional fees | (261 | ) | (105 | ) | (520 | ) | (261 | ) | ||||||||
Customer deposits and deferred revenue | 799 | 152 | (608 | ) | 799 | |||||||||||
Accrued sales commissions | 232 | 78 | (20 | ) | 232 | |||||||||||
Operating lease liabilities | (343 | ) | (323 | ) | (346 | ) | (343 | ) | ||||||||
Domestic and foreign income taxes payable | 335 | (207 | ) | (395 | ) | 335 | ||||||||||
Other current liabilities | (57 | ) | (25 | ) | 40 | (57 | ) | |||||||||
Other liabilities | (7 | ) | - | 60 | (7 | ) | ||||||||||
Net cash used in operating activities | (337 | ) | (119 | ) | (2,795 | ) | (337 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
Purchase of property and equipment | (388 | ) | (80 | ) | (335 | ) | (388 | ) | ||||||||
Net cash used in investing activities | (388 | ) | (80 | ) | (335 | ) | (388 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||
Repayments of Term Note | (883 | ) | 0 | |||||||||||||
Proceeds from shares sold under Employee Stock Purchase Plan | 56 | 0 | ||||||||||||||
Proceeds from stock options exercised | 717 | - | 0 | 717 | ||||||||||||
Repurchases of common stock | - | (74 | ) | |||||||||||||
Net cash provided by (used in) financing activities | 717 | (74 | ) | (827 | ) | 717 | ||||||||||
Effects of exchange rates on cash | (74 | ) | (21 | ) | (27 | ) | (74 | ) | ||||||||
Net cash used in all activities | (82 | ) | (294 | ) | (3,984 | ) | (82 | ) | ||||||||
Cash and cash equivalents at beginning of period | 10,277 | 7,612 | 21,195 | 10,277 | ||||||||||||
Cash and cash equivalents at end of period | $ | 10,195 | $ | 7,318 | $ | 17,211 | $ | 10,195 | ||||||||
Cash payments for: | ||||||||||||||||
Domestic and foreign income taxes | $ | 41 | $ | 50 | $ | 966 | $ | 41 | ||||||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: | ||||||||||||||||
Adjustments to preliminary purchase accounting for Acculogic (Note 3) | ||||||||||||||||
Increase in liability for contingent consideration | $ | 500 | 0 | |||||||||||||
Increase in fair value of intangible assets | $ | (49 | ) | 0 | ||||||||||||
Increase in goodwill | $ | (451 | ) | 0 |
See accompanying Notes to Consolidated Financial Statements.
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
(In thousands, except share and per share data)
| NATURE OF OPERATIONS |
We are a global supplier of innovative test and process solutions for use in manufacturing and testing across a wide range of markets including automotive, defense/aerospace, industrial, medical, semiconductorlife sciences, security and telecommunications. We managesemiconductor. During the year ended December 31, 2021, we managed our business as two2 operating segments which arewere also our reportable segments and reporting units: Thermal Products ("Thermal") and Electromechanical Solutions ("EMS"). Our Thermal segment designs, manufacturesAs discussed further in Note 15, effective January 1, 2022, we reorganized our operating segments. Accordingly, for 2022, we have three operating segments which are also our reportable segments and sellsreporting units: Electronic Test, Environmental Technologies and Process Technologies. Prior period information has been reclassified to be comparable to the current period’s presentation.
The consolidated entity is comprised of inTEST Corporation and our thermal test and thermal process products while our EMS segment designs, manufactures and sells our semiconductor test products.wholly-owned subsidiaries. We manufacture our products in the U.S.U.S, Canada and the Netherlands. Marketing and support activities are conducted worldwide from our facilities in the U.S., Canada, Germany, Singapore, the Netherlands and the U.K. The consolidated entity is comprised of inTEST CorporationWe operate our business worldwide and sell our wholly-owned subsidiaries.products both domestically and internationally.
Our EMS segment sells its products to semiconductor manufacturers and third-party test and assembly houses (end user sales) and to automated test equipment (“ATE”) manufacturers (original equipment manufacturer (“OEM”) sales), who ultimately resell our equipment with theirs to both semiconductor manufacturers and third-party test and assembly houses. These sales all fall within the ATE sector of the broader semiconductor market. Our Thermal segment sells its products to many of these same types of customers; however, it also sells to customers in the wafer processing sector within the broader semiconductor market and to customers in a variety of other markets outside the semiconductor market, including the automotive, defense/aerospace, industrial (including consumer products packaging, fiber optics and other sectors within the broader industrial market), medical and telecommunications markets.
BothAll of our operating segments have multiple products that we design, manufacture and market to our customers. Due to a number of factors, our products have varying levels of gross margin. The mix of products we sell in any period is ultimately determined by our customers' needs. Therefore, the mix of products sold in any given period can change significantly from the prior period. In addition, we sell our products to a variety of different types of customers with varying levels of discounts and commission expense. As a result of changes in both the mix of products sold as well as customer mix in any given period, our consolidated gross margin can bevary significantly impacted in any givenfrom period by a change in the mix of products sold in thatto period.
We refer toThe semiconductor market (“semi” or the “semi market”) which includes both the broader semiconductor market, includingas well as the more specialized ATEautomated test equipment (“ATE”) and wafer processing sectors within thatthe broader semiconductor market, ashas historically been the “Semi Market.” All other markets are designated as “Multimarket.” The Semi Market, which is the principallargest single market in which we operate,operate. The semi market is characterized by rapid technological change, competitive pricing pressures and cyclical as well as seasonal market patterns. ThisThe semi market is also subject to periods of significant economic downturns at various times.expansion or contraction in demand. In addition to the semi market, we sell into a variety of other markets. Our intention is to continue diversifying our markets, our product offerings within the markets we serve and our customer base across all of our markets with the goal of reducing our dependence on any one market, product or customer. In particular, we are seeking to reduce the impact of volatility in the semi market on our results of operations.
Our Electronic Test segment sells its products to semiconductor manufacturers and third-party test and assembly houses (end user sales) and to ATE manufacturers (original equipment manufacturer (“OEM”) sales), who ultimately resell our equipment with theirs to both semiconductor manufacturers and third-party test and assembly houses. These sales all fall within the ATE sector of the semi market. With the acquisition of Acculogic in December 2021, our Electronic Test segment also sells its products to customers in markets outside the semi market including the automotive, defense/aerospace, industrial and life sciences markets. Our Environmental Technologies segment sells its products to end users and OEMs within the ATE sector of the semi market. It also sells its products to customers in a variety of other markets other than the semi market, including the automotive, defense/aerospace, industrial and life sciences markets. Our Process Technologies segment sells its products to customers in the wafer processing sector within the semi market. It also sells its products to customers in a variety of other markets other than the semi market, including the automotive, defense/aerospace, industrial, life sciences and security markets.
Our financial results are affected by a wide variety of factors, including, but not limited to, general economic conditions worldwide and in the markets in which we operate, economic conditions specific to the Semi Marketsemi market and the other markets we serve, our ability to safeguard patented technology and intellectual property in a rapidly evolving market, downward pricing pressures from customers, and our reliance on a relatively few number of customers for a significant portion of our sales.sales and our ability to safeguard patented technology and intellectual property in a rapidly evolving market. In addition, we are exposed to the risk of obsolescence of our inventory depending on the mix of future business and technological changes within the markets that we serve. Part of our strategy for growth includes potential acquisitions that may cause us to incur substantial expense in the reviewreviewing and evaluation ofevaluating potential transactions. We may or may not be successful in locating suitable businesses to acquire orand in closing acquisitions of businesses we pursue. In addition, we may not be able to successfully integrate any business we do acquire with our existing business and we may not be able to operate the acquired business profitably. As a result of these or other factors, we may experience significant period-to-period fluctuations in our future operating results.
COVID-19 Pandemic
Demand from all of the markets we serve was significantly affected by COVID-19 during the first half of 2020. The impact of COVID-19 on demand from the Semi Market was intensified during the first half of 2020 because our business operations were also being negatively affected by a global downturn in the Semi Market at that time. The Semi Market, from which approximately half of our orders and net revenues are derived, entered a cyclical downturn in the beginning of 2019. During the first quarter of 2020, before the spread of COVID-19, we had started to see indications that the downturn was coming to an end. These indications included increased quoting activity and order levels for the first quarter of 2020 compared to the fourth quarter of 2019. However, we believe COVID-19 delayed the recovery in the Semi Market as the increase in activity leveled off during late March 2020. Although we saw slightly increased order rates from our customers in the Semi Market during the second and third quarters of 2020, it was not until the fourth quarter of 2020 that we saw a significant increase in our orders from the Semi Market, which we believe indicates that we have now entered the next cyclical upturn. During the fourth quarter of 2020, our orders from the Semi Market increased 53% sequentially and were 141% higher than in the fourth quarter of 2019, the low point of the prior cyclical downturn for the products that we sell. This trend in our orders from the Semi Market continued in the first quarter of 2021 with a further 54% sequential increase from the level in the fourth quarter of 2020. We believe the level of increase in our orders and net revenues from the Semi Market during the fourth quarter of 2020 and the first quarter of 2021 reflects a combination of increased demand in the market resulting from the interruption of the normal recovery in the Semi Market cycle caused by the onset of COVID-19 in the first half of 2020, as well as increased demand for semiconductors, generally. We believe this increase in demand is being driven both by changing technology as well as increased use of technology across all aspects of daily life, such as in devices that facilitate remote work and education, smart technology used in homes and businesses, the increase in the number of integrated circuits used in the automotive industry and changes occurring in the telecommunications and mobility markets.
COVID-19 Pandemic
AsWith respect to the COVID-19 pandemic, we are following the guidance of the date of this filing, allCenters for Disease Control and Prevention and the local regulatory authorities in regions outside the U.S. While in most cases we are no longer requiring employees to wear masks indoors in our domestic locations, in certain of our operationsfacilities, where we have experienced a recent increase in the number of employees contracting the virus, we have re-instituted a mask requirement. We are encouraging all employees to receive COVID-19 vaccinations and boosters, if possible. We are continuing to conduct temperature screenings and encouraging all employees to maintain social distancing when appropriate. We are also continuing to allow employees to work remotely either part-time or full-time in circumstances when possible. We are still assessing the impact of the recent increase in cases in certain of our facilities and exploring alternatives to address the lost production time. With regard to the recent shutdowns in China, we are working with our customers to identify alternate plans for delivery of our products to this region. If the spread of COVID-19 or its variants continues to worsen, we may experience additional lost production time or further interruption in our ability to ship our products to our customers. In addition, if one or more of our significant customers or suppliers is impacted, or significant additional governmental regulations and restrictions are imposed, our business in the future could be negatively impacted. We continue to be deemed “criticalmonitor the situation closely and essential business operations” under the various governmental COVID-19 mandates, which has allowed us to continue to operatewill adjust our business with certain modifications. These modifications include a significant number of our employees working remotely. Such employees have been provided with the tools and technologyoperations as necessary to do so. Additionally, we have implemented workplace safeguards designed to protect the health and well-being of our employees. Employees who remain in our facilitiesTo the extent that further governmental mandates or restrictions are following World Health Organization (“WHO”) and Centers for Disease Control and Prevention (“CDC”) recommended safety practices, as well as state and local directives. We have had occasions where one or more employees have contracted COVID-19 and entered our facilities while infected. To date, we have managed these occurrences with minimal disruption to our business while protecting other employees, but there can be no assurances that we can avoid similar occurrencesimplemented in the future, or, that in such cases, we can avoid significant disruption of our operations.
The aftermarket service and support that we provide to our customers has been, and we expect may continue to be, adversely impacted by COVID-19. Specifically, the travel restrictions that remain in place, coupled with limitations on visitors into customer facilities, have resulted in the reduction or suspension of in-person service and support activities. The net revenues associated with these aftermarket service and support activities typically range from 8% to 10% of our consolidated net revenues. Although these net revenues returned to a more typical range during the second half of 2020, they declined again in the first quarter of 2021. If the spread of COVID-19 or variations of the virus worsen, these revenues may continue to be reduced in future periods.
While the negative impact of COVID-19 on our business was reduced significantly in the second half of 2020 and the first quarter of 2021, the spread of the virus or variants of the virus could worsen and one or more of our significant customers or suppliers could be impacted, or significant additional governmental regulations and restrictions could be imposed, thus negatively impacting our business in the future. As a result of our current level of working capital as well as the availability of our revolving credit facility, which is discussed in Note 9, we currently expect to have sufficient liquiditybe able to continue to operate our business throughout 2021. Our revolving credit facility, which had no outstanding balance, was setin a manner similar to mature on April 9, 2021. As discussed in Note 14,how we modified this facility on April 10, 2021 and extended it as modified through April 9, 2024.have operated over the past year.
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements include our accounts and those of our wholly-ownedwholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”("U.S. GAAP") requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenuesrevenue and expenses during the reporting period. Actual results could differ from those estimates. Certain of our accounts, including contingent consideration, inventories, long-lived assets, goodwill, identifiable intangibles and deferred tax assets and liabilities, including related valuation allowances, are particularly impacted by estimates.
In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations, and changes in cash flows for the interim periods presented. Certain footnote information has been condensed or omitted from these consolidated financial statements. Therefore, these consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in our Form 10-K10-K for the year ended December 31, 2020 (“20202021 (the “2021 Form 10-K”10-K”) filed on March 23, 2021 2022 with the Securities and Exchange Commission.
Reclassification
Certain prior period amounts have been reclassified to be comparable with the current period's presentation.
Subsequent Events
We have made an assessment of our operations and determined that there were no material subsequent events requiring adjustment to, or disclosure in, our consolidated financial statements for the three months ended March 31, 2021 other than those described in Note 14.2022.
Business Combinations
Acquired businesses are accounted for using the purchase method of accounting, which requires that the purchase price be allocated to the net assets acquired at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Fair values of intangible assets are estimated by valuation models prepared by our management and third-partythird-party advisors. The assets purchased and liabilities assumed have been reflected in our consolidated balance sheets, and the operating results are included in the consolidated statements of operations and consolidated statements of cash flows from the date of acquisition. Any change in the fair value of acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, will be recognized in the consolidated statement of operations in the period of the estimated fair value change. Acquisition-related transaction costs, including legal and accounting fees and other external costs directly related to the acquisition, are recognized separately from the acquisition and expensed as incurred in general and administrative expense in the consolidated statements of operations.
Restructuring and Other ChargesFair Value of Financial Instruments
InOur financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, our credit facility, interest rate swaps and our liabilities for contingent consideration. Our cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at cost which approximates fair value, due to the short maturities of the accounts. Our credit facility and our interest rate swap are discussed further below and in Note 11. Our liabilities for contingent consideration are accounted for in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 420 (Exit or Disposal Cost Obligations), we recognize820 (Fair Value Measurement). ASC Topic 820 establishes a liabilityfair value hierarchy for restructuring costsinstruments measured at fair value only whenthat distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). Our contingent consideration liabilities are measured at fair value on a recurring basis using Level 3 inputs which are inputs that are unobservable and significant to the overall fair value measurement. These unobservable inputs reflect our assumptions about the inputs that market participants would use in pricing the asset or liability is incurred. Workforce-related chargesand are accrued when it is determined that a liability has been incurred, which is generally after individuals have been notified of their termination dates and expected severance benefits. Dependingdeveloped based on the timing ofbest information available in the termination dates, these charges may be recognized upon notification or ratably over the remaining required service period of the employees. Plans to consolidate excess facilities may result in lease termination fees and impairment charges related to our right-of-use (“ROU”) assets that are associated with the leasescircumstances. See Note 4 for these facilities. Other long-lived assets that may be impaired as a result of restructuring consist of property and equipment, goodwill and intangible assets. Asset impairment charges included in restructuring and other charges are based on an estimate of the amounts and timing of future cash flowsfurther disclosures related to the expected future remaining use and ultimate sale or disposal of the asset, and, in the casefair value of our ROU assets, would include expected future sublease rental income, if applicable. These estimates are derived using the guidance in ASC Topic 842 (Leases), ASC Topic 360 (Property, Plant and Equipment) and ASC Topic 350 (Intangibles - Goodwill and Other).
liabilities for contingent consideration.
Goodwill, Intangible and Long-Lived Assets
As discussed in Notes 1 and 15, during the year ended December 31, 2021, we managed our business as 2 operating segments which were also our reportable segments and reporting units: Thermal and EMS. Effective January 1, 2022, we reorganized our operating segments. Accordingly, for 2022, we have 3 reportable segments which are also our reporting units: Electronic Test, Environmental Technologies and Process Technologies.
We account for goodwill and intangible assets in accordance with ASC Topic 350 (Intangibles - Goodwill and Other). Finite-lived intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment annually inat the beginning of the fourth quarter on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. Goodwill is considered to be impaired if the fair value of a reporting unit is less than its carrying amount. As a part of the goodwill impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more-likely-than-notmore-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If, as a result of our qualitative assessment, we determine that it is more-likely-than-notmore-likely-than-not that the fair value of the reporting unit is greater than its carrying amount, a quantitative goodwill impairment test is not required. However, if, as a result of our qualitative assessment, we determine it is more-likely-than-notmore-likely-than-not that the fair value of a reporting unit is less than its carrying amount, or, if we choose not to perform a qualitative assessment, we are required to perform a quantitative goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized.
The quantitative goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The goodwill impairment assessment is based upon the income approach, which estimates the fair value of our reporting units based upon a discounted cash flow approach. This fair value is then reconciled to our market capitalization at year end with an appropriate control premium. The determination of the fair value of our reporting units requires management to make significant estimates and assumptions including the selection of control premiums, discount rates, terminal growth rates, forecasts of revenue and expense growth rates, income tax rates, changes in working capital, depreciation, amortization and capital expenditures. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charge.
Indefinite-lived intangible assets are assessed for impairment annually inat the beginning of the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. As a part of the impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If, as a result of our qualitative assessment, we determine that it is more-likely-than-notmore-likely-than-not that the fair value of the indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required; otherwise, no further testing is required. The quantitative impairment test consists of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
Long-lived assets, which consist of finite-lived intangible assets, property and equipment and ROUright-of-use (“ROU”) assets, are assessed for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. The cash flow estimates used to determine the impairment, if any, contain management's best estimates using appropriate assumptions and projections at that time.
Revenue Recognition
We recognize revenue in accordance with the guidance in ASC Topic 606 (Revenue from Contracts with Customers). We recognize revenue for the sale of products or services when our performance obligations under the terms of a contract with a customer are satisfied and control of the product or service has been transferred to the customer. Generally, this occurs when we ship a product or perform a service. In certain cases, recognition of revenue is deferred until the product is received by the customer or at some other point in the future when we have determined that we have satisfied our performance obligations under the contract. Our contracts with customers may include a combination of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. In addition to the sale of products and services, we also lease certain of our equipment to customers under short-term lease agreements. We recognize revenue from equipment leases on a straight-line basis over the lease term.
Revenue is recorded in an amount that reflects the consideration we expect to receive in exchange for those products or services. We do not have any material variable consideration arrangements, or any material payment terms with our customers other than standard payment terms which generally range from net 30 to net 90 days. We generally do not provide a right of return to our customers. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.
Nature of Products and Services
We are a global supplier of innovative test and process solutions for use in manufacturing and testing across a wide range ofin targeted markets including automotive, defense/aerospace, industrial, medical, semiconductorlife sciences, security and telecommunications.semiconductor. We sell thermal management products including ThermoStreams, ThermoChambers, and process chillers, refrigerators and freezers, which we sell under our Temptronic, Sigma, Thermonics and ThermonicsNorth Sciences (formerly Z-Sciences) product lines, and Ambrell Corporation’s (“Ambrell”) precision induction heating systems, including EKOHEAT and EASYHEAT products. As a result of the acquisition of Videology, we sell industrial-grade circuit board mounted video digital cameras and related devices, systems and software. We sell semiconductor ATE interface solutions which include manipulators, docking hardware and electrical interface products. As a result of the acquisition of Acculogic, we sell robotics-based electronic production test equipment. We provide post-warranty service and support for the equipment we sell. We sell semiconductor ATE interface solutions and certain thermal management products to the Semi Market.semi market. We also sell many of our thermal management products to various other markets including the automotive, defense/aerospace, industrial, medicallife sciences and telecommunicationssecurity markets.
We lease certain of our equipment under short-term leasing agreements with original lease terms of six months or less. Our lease agreements do not contain purchase options.
Types of Contracts with Customers
Our contracts with customers are generally structured as individual purchase orders which specify the exact products or services being sold or equipment being leased along with the selling price, service fee or monthly lease amount for each individual item on the purchase order. Payment terms and any other customer-specific acceptance criteria are also specified on the purchase order. We generally do not have any customer-specific acceptance criteria, other than that the product performs within the agreed upon specifications. We test substantially all products manufactured as part of our quality assurance process to determine that they comply with specifications prior to shipment to a customer.
Contract Balances
We record accounts receivable at the time of invoicing. Accounts receivable, net of the allowance for doubtful accounts, is included in current assets on our balance sheet. To the extent that we do not recognize revenue at the same time as we invoice, we record a liability for deferred revenue. In certain instances, we also receive customer deposits in advance of invoicing and recording of accounts receivable. Deferred revenue and customer deposits are included in current liabilities on our consolidated balance sheets.
The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, if any, historical experience, and other currently available evidence.
Costs to Obtain a Contract with a Customer
The only costs we incur associated with obtaining contracts with customers are sales commissions that we pay to our internal sales personnel or third-partythird-party sales representatives. These costs are calculated based on set percentages of the selling price of each product or service sold. Commissions are considered earned by our internal sales personnel at the time we recognize revenue for a particular transaction. Commissions are considered earned by third-partythird-party sales representatives at the time that revenue is recognized for a particular transaction. We record commission expense in our consolidated statements of operations at the time the commission is earned. Commissions earned but not yet paid are included in current liabilities on our balance sheets.
Product Warranties
In connection with the sale of our products, we generally provide standard one-one- or two-yeartwo-year product warranties which are detailed in our terms and conditions and communicated to our customers. Our standard warranties are not offered for sale separately from our products; therefore, there is not a separate performance obligation related to our standard warranties. We record estimated warranty expense for our standard warranties at the time of sale based upon historical claims experience. We offer customers an option to separately purchase an extended warranty on certain products. In the case of extended warranties, we recognize revenue in the amount of the sale price for the extended warranty on a straight-line basis over the extended warranty period. We record costs incurred to provide service under an extended warranty at the time the service is provided. Warranty expense is included in selling expense in our consolidated statements of operations.
Refer toSee Notes 57 and 1315 for further information about our revenue from contracts with customers.
Inventories
Inventories are valued at cost on a first-in, first-outfirst-in, first-out basis, not in excess of market value. Cash flows from the sale of inventories are recorded in operating cash flows. On a quarterly basis, we review our inventories and record excess and obsolete inventory charges based upon our established objective excess and obsolete inventory criteria. Our criteria identify excess material as the quantity of material on hand that is greater than the average annual usage of that material over the prior three years. Effective January 1, 2021, ourOur criteria identify obsolete material as material that has not been used in a work order during the prior twenty-four months. Prior to January 1, 2021, these criteria identified obsolete material as material that had not been used in a work order during the prior twelve months. In certain cases, additional excess and obsolete inventory charges are recorded based upon current market conditions, anticipated product life cycles, new product introductions and expected future use of the inventory. The excess and obsolete inventory charges we record establish a new cost basis for the related inventories. We incurred excess and obsolete inventory charges of $39$123 and $171$39 for the three months ended March 31, 2021 2022 and 2020,2021, respectively. The change in our estimate of obsolete material that was effective as of January 1, 2021 reflects changes that have occurred in the markets we serve and the business cycles within those markets. This change in estimate did not have a material impact on our consolidated financial statements.
Leases
We account for leases in accordance with ASC Topic 842 (Leases) which was effective for us as of January 1, 2019. Upon adoption of ASC Topic 842, we elected the package of practical expedients which included the grandfathering of the lease classification that had been made under prior guidance and, accordingly, we did not re-evaluate any of our leases for classification purposes in connection with the implementation of ASC Topic 842. All our lease contracts are still being treated as operating leases. We do not currently have any lease contracts that meet the criteria to be categorized as finance leases. We did not elect the hindsight practical expedient and therefore did not reevaluate the lease terms that we used under prior guidance. The implementation of ASC Topic 842 had a significant impact on our consolidated balance sheet as a result of recording ROU assets and lease liabilities for all our multi-year leases. Under prior guidance, none of these leases had any related asset recorded on our balance sheets. The only related liability recorded on our balance sheets was the amount which represented the difference between the lease payments we had made and the straight-line rent expense we had recorded in our statements of operations. The implementation of ASC Topic 842 did not have a significant impact on our pattern of expense recognition for any of our multi-year leases.
. We determine if an arrangement is a lease at inception. A lease contract is within scope if the contract has an identified asset (property, plant or equipment) and grants the lessee the right to control the use of the asset during the lease term. The identified asset may be either explicitly or implicitly specified in the contract. In addition, the supplier must not have any practical ability to substitute a different asset and would not economically benefit from doing so for the lease contract to be in scope. The lessee’s right to control the use of the asset during the term of the lease must include the ability to obtain substantially all of the economic benefits from the use of the asset as well as decision-making authority over how the asset will be used. Leases are classified as either operating leases or finance leases based on the guidance in ASC Topic 842. Operating leases are included in operating lease ROU assets and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment and finance lease liabilities. We do not currently have any finance leases. We do not have embedded leases nor do we have any initial direct costs related to our lease contracts.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. None of our leases provide an implicit rate; therefore, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease. We include these options in the determination of the amount of the ROU asset and lease liability when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Certain of our operating leases contain predetermined fixed escalations of minimum rentals and rent holidays during the original lease terms. Rent holidays are periods during which we have control of the leased facility but are not obligated to pay rent. For these leases, our ROU asset and lease liability are calculated including any rent holiday in the determination of the life of the lease.
We have lease agreements which contain both lease and non-lease components, which are generally accounted for separately. In addition to the monthly rental payments due, most of our leases for our offices and warehouse facilities include non-lease components representing our portion of the common area maintenance, property taxes and insurance charges incurred by the landlord for the facilities which we occupy. These amounts are not included in the calculation of the ROU assets and lease liabilities as they are based on actual charges incurred in the periods to which they apply.
Operating lease payments are included in cash outflows from operating activities on our consolidated statements of cash flows. Amortization of ROU assets is presented separately from the change in operating lease liabilities and is included in depreciation and amortization inon our consolidated statements of cash flows.
We have made an accounting policy election not to apply the recognition requirements of ASC Topic 842 to short-term leases (leases with a term of one year or less at the commencement date of the lease). Lease expense for short-term lease payments is recognized on a straight-line basis over the lease term.
See Note 810 for further disclosures regarding our leases.
Interest Rate Swap Agreement
We are exposed to interest rate risk on our floating-rate debt. We have entered into an interest rate swap agreement to effectively convert our floating-rate debt to a fixed-rate basis for a portion of our floating rate debt, as discussed further in Notes 4 and 11. The principal objective of this agreement is to eliminate the variability of the cash flows for interest payments associated with our floating-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. We have elected to apply the hedge accounting rules in accordance with ASC Topic 815 (Derivatives and Hedging). Further, we have determined that this agreement qualifies for the shortcut method of hedge accounting. Changes in the fair value of interest rate swap agreements designated as cash flow hedges are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity and are amortized to interest expense over the term of the related debt.
Contingent Liability for Repayment of State and Local Grant ProceedsFunds Received
In connection with leasing a new facility in Rochester, New York, which our subsidiary, Ambrell, occupied in May 2018, we entered into agreements with the city of Rochester and the state of New York under which we received grants totaling $463$550 to help offset a portion of the cost of the leasehold improvements we have made to this facility. The final payment of $87 was received during the three months ended March 31, 2022. In exchange for the funds we received under these agreements, we are required to create and maintain specified levels of employment in this location through various dates ending in 2023.2024. If we fail to meet these employment targets, we may be required to repay a proportionate share of the proceeds. As of March 31, 2021, $3702022, $285 of the total proceeds received could still be required to be repaid if we do not meet the targets. We have recorded this amount as a contingent liability which is included in other liabilities on our balance sheet. Those portions of the proceeds which are no longer subject to repayment are reclassified to deferred grant proceeds and amortized to income on a straight-line basis over the remaining lease term for the Rochester facility. Deferred grant proceeds are included in other current liabilities and other liabilities on our balance sheet and totaled $81$236 at March 31, 2021.
2022. As of DecemberMarch 31, 2020, 2022, we were not in compliance with the employment targets as specified in the grant agreement with the city of Rochester. We applied for and received a waiver of this requirement for the year ended December 31, 2020. The waiver provided us until December 31, 2021 to come into compliance with the targets as outlined in the waiver. As of March 31, 2021, we were in compliance with those targets.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC Topic 718 (Compensation - Stock Compensation), which requires that employee share-based equity awards be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value of stock options, granted, which is then amortized to expense over the service periods. See further disclosures related to our stock-based compensation planplans in Note 10.12.
Income Taxes
The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carryforwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.
Net Earnings (Loss) Per Common ShareNet earnings
Earnings (loss) per common share - basic is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during each period. Net earningsEarnings (loss) per common share - diluted is computed by dividing net earnings (loss) by the weighted average number of common shares and common share equivalents outstanding during each period. Common share equivalents represent unvested shares of restricted stock and stock options and are calculated using the treasury stock method. Common share equivalents are excluded from the calculation if their effect is anti-dilutive.
The table below sets forth, for the periods indicated, a reconciliation of weighted average common shares outstanding - basic to weighted average common shares and common share equivalents outstanding - diluted and the average number of potentially dilutive securities that were excluded from the calculation of diluted earnings (loss) per share because their effect was anti-dilutive:
Three Months Ended | Three Months Ended | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Weighted average common shares outstanding - basic | 10,329,449 | 10,220,853 | ||||||||||||||
Weighted average common shares outstanding–basic | 10,617,271 | 10,329,449 | ||||||||||||||
Potentially dilutive securities: | ||||||||||||||||
Unvested shares of restricted stock and employee stock options | 196,377 | - | 225,321 | 196,377 | ||||||||||||
Weighted average common shares and common share equivalents outstanding - diluted | 10,525,826 | 10,220,853 | ||||||||||||||
Weighted average common shares and common share equivalents outstanding–diluted | 10,842,592 | 10,525,826 | ||||||||||||||
Average number of potentially dilutive securities excluded from calculation | 347,068 | 685,667 | 318,574 | 347,068 |
Effect of Recently Issued Amendments to Authoritative Accounting Guidance
In June 2016, the Financial Accounting Standards Board (“FASB”) issued amendments to the guidance for accounting for credit losses. In November 2019, the FASB deferred the effective date of these amendments for certain companies, including smaller reporting companies. As a result of the deferral, the amendments are effective for us for reporting periods beginning after December 15, 2022. The amendments replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. The amendments require a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We plan to adopt the amendments when they become effective for us on January 1, 2023. We do notare currently expect thatevaluating the impact the adoption of these amendments will have a material impact on our consolidated financial statements.
|
|
EMS Segment Restructuring and Facility ConsolidationZ-Sciences
On September 21, 2020, we notified employees in our Fremont, California facility of a plan to consolidate all manufacturing for our EMS segment into our manufacturing operations located in Mt. Laurel, New Jersey. The consolidation was substantially completed during the fourth quarter of 2020 and resulted in the termination of employment for certain employees at the Fremont location. Prior to the consolidation, our interface products were manufactured in the Fremont facility, and our manipulator and docking hardware products were manufactured in the Mt. Laurel facility. The consolidation was undertaken to better serve customers through streamlined operations and reduce the fixed annual operating costs for the EMS segment. A small engineering and sales office will be maintained in northern California.
As a result of the consolidation, we incurred charges for severance and other one-time termination benefits, other associated costs, including moving and production start-up costs, and charges related to exiting the facility, including an impairment charge related to the ROU asset for the lease of the Fremont facility, which are more fully discussed further in Note 3 to our consolidated financial statements in our 20202021 Form 10-K.10-K, on October 6, 2021, we acquired substantially all of the assets of Z-Sciences Corp. (“Z-Sciences”), a developer of ultra-cold storage solutions for the medical cold chain market. The Z-Sciences product line was re-branded as “North Sciences” after our acquisition. The acquisition enhances our medical offerings and increases our presence in the life sciences market which is a key target market for us. Z-Sciences was founded in 2004. Its founder joined us as a consultant and is expected to become an employee in 2022. As of March 31, 2022, he was still a consultant. The purchase price for Z-Sciences was $500 in cash, subject to a customary post-closing working capital adjustment, $300 of which was paid at closing. The remaining $200, adjusted for the final working capital amount, will be paid on the one-year anniversary of closing based on the seller complying with the terms of his employment agreement. This amount has been recorded as a contingent consideration liability on our balance sheet at March 31, 2022 as our current assumption is that this liability will be paid out in October 2022. It is included in Other Current Liabilities. The fair value of this liability at March 31, 2022 approximates its cost due to the short maturity. In addition to his salary, in connection with his prospective employment, Z-Sciences’ founder will receive a multi-year restricted stock award with vesting provisions which would be contingent upon achieving future performance milestones related to sales growth and profitability of products related to the Z-Sciences business for the fiscal years from 2022 through 2026. The award will be valued at a maximum of $1,800. The actual numbers of shares to be awarded will be based on the stock price on the date of grant with a cap of 200,000 shares at the 100% attainment level of the vesting provisions that are defined in the restricted stock award agreement. The value of the award will be recorded as compensation expense in our statement of operations on a straight-line basis over the period in which the shares vest.
The acquisition of Z-Sciences has been accounted for as a business combination using purchase accounting, and, accordingly, the results of Z-Sciences have been included in our consolidated results of operations from the date of acquisition. The allocation of the Z-Sciences’ purchase price was based on fair values as of October 6, 2021. Further information about the allocation of the purchase price is discussed in Note 3 to our consolidated financial statements in our 2021 Form 10-K.
Unaudited pro forma information which would give effect to the acquisition of Z-Sciences as if the acquisition occurred on January 1, 2021 is not presented because the financial results for Z-Sciences prior to our acquisition are considered immaterial.
Videology
As discussed further in Note 3 to our consolidated financial statements in our 2021 Form 10-K, on October 28, 2021, we acquired substantially all of the assets of Videology Imaging Solutions Inc. and Videology Imaging Solutions Europe B.V. (collectively, “Videology”), a global designer, developer and manufacturer of OEM digital streaming and image capturing solutions. The acquisition of Videology expands our process technology solutions, diversifies our reach into key targeted markets and broadens our customer base. It also builds on our process technology platforms by expanding our automation capabilities to add future product solutions with imaging data and analytical tools. The purchase price for Videology was $12,000 paid in cash at closing subject to a customary post-closing working capital adjustment.
The acquisition of Videology has been accounted for as a business combination using purchase accounting, and, accordingly, the results of Videology have been included in our consolidated results of operations from the date of acquisition. The allocation of the Videology purchase price was based on fair values as of October 27, 2021. Further information about the allocation of the purchase price, and goodwill and intangible assets recorded as a result of the acquisition is discussed in Note 3 to our consolidated financial statements in our 2021 Form 10-K.
The following unaudited pro forma information gives effect to the acquisition of Videology as if the acquisition occurred on January 1, 2021. These proforma summaries do not reflect any operating efficiencies or costs savings that may be achieved by the combined businesses. These proforma summaries are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been had the acquisition taken place as of that date, nor are they indicative of future consolidated results of operations:
Three Months Ended March 31, 2021 | ||||
Revenue | $ | 21,855 | ||
Net earnings | $ | 2,832 | ||
Diluted earnings per share | $ | 0.27 |
The pro forma results shown above do not reflect the impact on general and administrative expense of investment advisory costs, legal costs and other costs of $288 incurred by us as a direct result of the transaction.
Acculogic
As discussed further in Note 3 to our consolidated financial statements in our 2021 Form 10-K, on December 21, 2021, we completed our acquisition of Acculogic Inc. and its affiliates (collectively, “Acculogic”), a global manufacturer of robotics-based electronic production test equipment and application support services. The acquisition was completed by acquiring all of the outstanding capital stock of Acculogic. The Acculogic acquisition adds electronics test capabilities with new technologies and services as well as broadens our customer base, furthers our end market diversification and expands our international footprint. The purchase price for Acculogic was approximately $9,000 paid in cash at closing subject to a customary post-closing working capital adjustment. In addition, we may pay the seller up to an additional CAD $5,000 in the five-year period from 2022 through 2026. The additional payments will be based on a percent of net invoices for which payments have been received on systems sold to EV or battery customers in excess of CAD $2,500 per year in each of the five years. The maximum payment is capped at CAD $5,000, which equates to approximately $4,000 at March 31, 2022. To estimate the fair value of the contingent consideration at the acquisition date, an option-based income approach using a Monte Carlo simulation model was utilized due to the non-linear payout structure. As of the acquisition date, this resulted in an estimated fair value of $1,430. This amount was recorded as a contingent consideration liability and included in the purchase price as of the acquisition date. In future reporting periods, this same approach will be utilized to estimate the fair value of the contingent consideration at each reporting date. Changes in the amount of the estimated fair value of the earnouts since the acquisition date will be recorded as operating expenses in our statement of operations in the quarter in which they occur.
The acquisition of Acculogic has been accounted for as a business combination using purchase accounting, and, accordingly, the results of Acculogic have been included in our consolidated results of operations from the date of acquisition. The allocation of the purchase price for Acculogic is not yet complete as the calculation of post-closing working capital adjustment has not yet been finalized. We are in discussions with the seller and expect the calculation to be finalized in the second quarter of 2022. We currently expect the final post-closing working capital adjustment to be a decrease in the purchase price in the range of $350 to $450.
The preliminary allocation of the Acculogic purchase price which is presented below was based on estimated fair values as of December 21, 2021. At December 31, 2021, we were still working with third-party valuation specialists to assist us with finalizing several aspects of the purchase price, including the valuation of intangible assets and contingent consideration. During the first quarter of 2022, we finalized the valuation of intangible assets, which did not change materially from the preliminary values reported in our 2021 Form 10-K, and the valuation of contingent consideration, which increased approximately $500 from the preliminary value reported in our 2021 Form 10-K. The increase primarily reflects an increase in the estimate of net invoices for which payments are expected to be received on systems sold to EV or battery customers in excess of CAD $2,500 per year in the five-year period from 2022 through 2026.
The excess of the purchase price over the identifiable intangible and net tangible assets was allocated to goodwill and is not deductible for tax purposes. Goodwill is attributed to synergies that are expected to result from the operations of the combined businesses.
The total purchase price of $9,797, which includes $1,430 for the estimated fair value of contingent consideration, has been allocated as follows:
Goodwill | $ | 3,363 | ||
Identifiable intangible assets | 5,123 | |||
Tangible assets acquired and liabilities assumed: | ||||
Cash | 312 | |||
Trade accounts receivable | 2,630 | |||
Inventories | 1,329 | |||
Other current assets | 240 | |||
Property and equipment | 156 | |||
Accounts payable | (406 | ) | ||
Accrued expenses | (2,950 | ) | ||
Total purchase price | $ | 9,797 |
Further information about the intangible assets recorded as a result of the acquisition is discussed in Note 3 to our consolidated financial statements in our 2021 Form 10-K.
The following unaudited pro forma information gives effect to the acquisition of Acculogic as if the acquisition occurred on January 1, 2021. These proforma summaries do not reflect any operating efficiencies or costs savings that may be achieved by the combined businesses. These proforma summaries are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been had the acquisition taken place as of that date, nor are they indicative of future consolidated results of operations:
Three Months Ended March 31, 2021 | ||||
Revenue | $ | 22,286 | ||
Net earnings | $ | 2,185 | ||
Diluted earnings per share | $ | 0.21 |
The pro forma results shown above do not reflect the impact on general and administrative expense of investment advisory costs, legal costs and other costs of $1,297 incurred by us as a direct result of the transaction.
(4) | FAIR VALUE MEASUREMENTS |
ASC Topic 820 (Fair Value Measurement) establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.
ASC Topic 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a three-tier fair value hierarchy that distinguishes among the following:
Level 1 Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access.
Level 2 Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.
Level 3 Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Recurring Fair Value Measurements
The interest rate swap agreement we entered into in connection with our Term Note, as discussed further in Notes 2 and 11 is measured at fair value on a recurring basis using Level 2 inputs. The contingent consideration liabilities on our balance sheet are measured at fair value on a recurring basis using Level 3 inputs. Our contingent consideration liabilities are a result of our acquisitions of Z-Sciences on October 6, 2021 and Acculogic on December 21, 2021. The contingent consideration liability for Z-Sciences represents the estimated fair value of the additional cash consideration payable that is contingent upon the continued employment with us of the Z-Sciences founder as discussed more fully in Note 3. It is included in Other Current Liabilities on our balance sheet. At December 31, 2021, we have assumed this payment will be made. The contingent consideration liability for Acculogic represents the estimated fair value of the additional cash consideration payable that is contingent upon sales to EV or battery customers as described further in Note 3. This amount was increased by $500 during the three months ended March 31, 2022 in connection with finalizing this aspect of the purchase price allocation.
The following fair value hierarchy table presents information about liabilities measured at fair value on a recurring basis:
Amounts at | Fair Value Measurement Using | |||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
As of March 31, 2022 | ||||||||||||||||
Contingent consideration liability – Z-Sciences | $ | 179 | $ | 0 | $ | 0 | $ | 179 | ||||||||
Contingent consideration liability – Acculogic | $ | 1,478 | $ | 0 | $ | 0 | $ | 1,478 | ||||||||
Interest rate swap | $ | 289 | $ | 0 | $ | 289 | $ | 0 |
Changes in the fair value of our Level 3 contingent consideration liabilities for the three months ended March 31, 2022 were as follows:
Three March 31, 2022 | ||||
Balance at beginning of period | $ | 1,109 | ||
Adjustment to contingent consideration liability in connection with the acquisition of Acculogic | 500 | |||
Impact of foreign currency translation adjustments | 48 | |||
Balance at end of period | $ | 1,657 |
(5) | RESTRUCTURING AND OTHER CHARGES |
During 2021, we recorded restructuring and other charges related to various actions including the consolidation of manufacturing for certain of our Electronic Test segment’s products and changes in our executive management team. These charges are discussed more fully in Note 5 to our consolidated financial statements in our 2021 Form 10-K. There were 0 restructuring and other charges incurred in the three months ended March 31, 2022. During the first quarter of 2021, we incurred $55 of additional charges associated with finalizing the integration of the aforementioned manufacturing operations. Alloperations of theseour Electronic Test segment.
Accrued Restructuring
The liability for accrued restructuring charges were cash charges.at March 31, 2022 relates to costs associated with the move of our corporate office from our Mansfield, Massachusetts facility to our facility in New Jersey, as discussed more fully in Note 5 to our consolidated financial statements in our 2021 Form 10-K. We expect to completepay out the integration inremaining amount accrued during the second quarter of 2021 and expect to incur additional cash charges in the range of $50 to $100.
Other Restructuring Actions
During the first quarter of 2020, we recorded cash charges for severance and other one-time termination benefits of $8 related to headcount reductions in our corporate office.
Accrued Restructuring
2022.The liability for accrued restructuring charges is included in other current liabilities on our consolidated balance sheet. Changes in the amount of the liability for accrued restructuring for the three months ended March 31, 2021 is2022 were as follows:
Balance - January 1, 2021 | $ | 340 | ||
Accruals for other costs associated with the EMS segment facility consolidation | 55 | |||
Cash payments | (138 | ) | ||
Balance - March 31, 2021 | $ | 257 |
Balance - January 1, 2022 | $ | 70 | ||
Cash payments | (7 | ) | ||
Balance - March 31, 2022 | $ | 63 |
| GOODWILL AND INTANGIBLE ASSETS |
We have twothree operating segments which are also our reporting units: ThermalElectronic Test, Environmental Technologies and EMS.Process Technologies. Goodwill and intangible assets on our balance sheets are the result of our acquisitions of Sigma Systems Corp. ("Sigma") in October 2008, Thermonics, Inc. ("Thermonics") in January 2012 and Ambrell in May 2017. All our goodwill and intangible assets are allocated to our Thermal segment.acquisitions.
Goodwill
Changes in the amount of the carrying value of goodwill for the three months ended March 31, 2022 are as follows:
Balance - January 1, 2022 | $ | 21,448 | ||
Adjustments to preliminary amounts recorded in the fourth quarter of 2021 for contingent consideration and intangible assets related to acquisition of Acculogic (see Note 3) | 451 | |||
Impact of foreign currency translation adjustments | (36 | ) | ||
Balance - March 31, 2022 | $ | 21,863 |
Goodwill totaled $13,738 at both March 31, 2021 and December 31, 2020 and was comprised of the following:following at March 31, 2022 and December 31, 2021:
March 31, | December 31, | |||||||||||
2022 | 2021 | |||||||||||
Electronic Test: | ||||||||||||
Acculogic | $ | 3,566 | $ | 3,055 | ||||||||
Environmental Technologies: | ||||||||||||
Sigma | $ | 1,656 | 1,656 | 1,656 | ||||||||
Thermonics | 50 | 50 | 50 | |||||||||
Z-Sciences | 111 | 111 | ||||||||||
Total Environmental Technologies | 1,817 | 1,817 | ||||||||||
Process Technologies: | ||||||||||||
Ambrell | 12,032 | 12,032 | 12,032 | |||||||||
Total | $ | 13,738 | ||||||||||
Videology | 4,448 | 4,544 | ||||||||||
Total Process Technologies | 16,480 | 16,576 | ||||||||||
Total goodwill | $ | 21,863 | $ | 21,448 |
Intangible Assets
Changes in the amount of the carrying value of indefinite-lived intangible assets for the three months ended March 31, 2022 are as follows:
Balance - January 1, 2022 | $ | 8,428 | ||
Adjustments to preliminary amounts recorded in the fourth quarter of 2021 related to acquisition of Acculogic (see Note 3) | 20 | |||
Impact of foreign currency translation adjustments | 2 | |||
Balance - March 31, 2022 | $ | 8,450 |
Changes in the amount of the carrying value of finite-lived intangible assets for the three months ended March 31, 2021 2022 are as follows:
Balance - January 1, 2022 | $ | 13,206 | ||
Adjustments to preliminary amounts recorded in the fourth quarter of 2021 related to acquisition of Acculogic (see Note 3) | 29 | |||
Impact of foreign currency translation adjustments | 2 | |||
Amortization | (782 | ) | ||
Balance - March 31, 2022 | $ | 12,455 |
Balance - January 1, 2021 | $ | 5,711 | ||
Amortization | (304 | ) | ||
Balance - March 31, 2021 | $ | 5,407 |
Intangible assets were allocated to our reporting segments at March 31, 2022 and December 31, 2021 as follows:
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
Electronic Test: | ||||||||
Acculogic | $ | 4,973 | $ | 5,074 | ||||
Environmental Technologies: | ||||||||
Sigma | 510 | 510 | ||||||
Thermonics | 3 | 5 | ||||||
Z-Sciences | 365 | 378 | ||||||
Total Environmental Technologies | 878 | 893 | ||||||
Process Technologies: | ||||||||
Ambrell | 10,375 | 10,680 | ||||||
Videology | 4,679 | 4,987 | ||||||
Total Process Technologies | 15,054 | 15,667 | ||||||
Total intangible assets | $ | 20,905 | $ | 21,634 |
The following tables provide further detail about our intangible assets as of March 31, 2021 2022 and December 31, 2020:2021:
March 31, 2021 | March 31, 2022 | |||||||||||||||||||||||
Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | |||||||||||||||||||
Finite-lived intangible assets: | ||||||||||||||||||||||||
Customer relationships | $ | 10,480 | $ | 5,191 | $ | 5,289 | $ | 16,566 | $ | 6,634 | $ | 9,932 | ||||||||||||
Technology | 600 | 498 | 102 | 2,971 | 682 | 2,289 | ||||||||||||||||||
Patents | 590 | 574 | 16 | 590 | 587 | 3 | ||||||||||||||||||
Backlog | 507 | 276 | 231 | |||||||||||||||||||||
Software | 270 | 270 | - | 270 | 270 | 0 | ||||||||||||||||||
Trade name | 140 | 140 | - | 140 | 140 | 0 | ||||||||||||||||||
Total finite-lived intangible assets | 12,080 | 6,673 | 5,407 | 21,044 | 8,589 | 12,455 | ||||||||||||||||||
Indefinite-lived intangible assets: | ||||||||||||||||||||||||
Trademarks | 6,710 | - | 6,710 | 8,450 | - | 8,450 | ||||||||||||||||||
Total intangible assets | $ | 18,790 | $ | 6,673 | $ | 12,117 | $ | 29,494 | $ | 8,589 | $ | 20,905 |
December 31, 2021 | ||||||||||||
Gross | Accumulated Amortization | Net | ||||||||||
Finite-lived intangible assets: | ||||||||||||
Customer relationships | $ | 16,544 | $ | 6,160 | $ | 10,384 | ||||||
Technology | 2,950 | 569 | 2,381 | |||||||||
Patents | 590 | 585 | 5 | |||||||||
Backlog | 521 | 85 | 436 | |||||||||
Software | 270 | 270 | 0 | |||||||||
Trade name | 140 | 140 | 0 | |||||||||
Total finite-lived intangible assets | 21,015 | 7,809 | 13,206 | |||||||||
Indefinite-lived intangible assets: | ||||||||||||
Trademarks | 8,428 | - | 8,428 | |||||||||
Total intangible assets | $ | 29,443 | $ | 7,809 | $ | 21,634 |
December 31, 2020 | ||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Amount | ||||||||||
Finite-lived intangible assets: | ||||||||||||
Customer relationships | $ | 10,480 | $ | 4,912 | $ | 5,568 | ||||||
Technology | 600 | 477 | 123 | |||||||||
Patents | 590 | 570 | 20 | |||||||||
Software | 270 | 270 | - | |||||||||
Trade name | 140 | 140 | - | |||||||||
Total finite-lived intangible assets | 12,080 | 6,369 | 5,711 | |||||||||
Indefinite-lived intangible assets: | ||||||||||||
Trademarks | 6,710 | - | 6,710 | |||||||||
Total intangible assets | $ | 18,790 | $ | 6,369 | $ | 12,421 |
We generally amortize our finite-lived intangible assets over their estimated useful lives on a straight-line basis, unless an alternate amortization method can be reliably determined. Any such alternate amortization method would be based on the pattern in which the economic benefits of the intangible assetassets are expected to be consumed. consumed, or on a straight-line basis, if an alternate amortization method cannot be reliably determined. Any such alternate amortization method would. None of our intangible assets have any residual value.
Total amortization expense for our finite-lived intangible assets was $304 and $311, respectively, for the three months ended March 31, 2021 and 2020. The following table sets forth the estimated annual amortization expense for each of the next five years:
2021 (remainder) | $ | 923 | ||||||
2022 | $ | 1,167 | ||||||
2022 (remainder) | $ | 1,937 | ||||||
2023 | $ | 1,067 | $ | 2,137 | ||||
2024 | $ | 980 | $ | 2,013 | ||||
2025 | $ | 905 | $ | 1,799 | ||||
2026 | $ | 1,188 |
| REVENUE FROM CONTRACTS WITH CUSTOMERS |
The following tables provide additional information about our revenue from contracts with customers, including revenue by customer and product type and revenue by market. The information about revenue by market for the three months ended March 31, 2021 has been reclassified to be consistent with how the information for the current period is presented. See also Note 1315 for information about revenue by operating segment and geographic region.
Three Months Ended | ||||||||
2021 | 2020 | |||||||
Net revenues by customer type: | ||||||||
End user | $ | 17,660 | $ | 9,922 | ||||
OEM/Integrator | 1,896 | 1,308 | ||||||
$ | 19,556 | $ | 11,230 | |||||
Net revenues by product type: | ||||||||
Thermal test | $ | 4,305 | $ | 4,147 | ||||
Thermal process | 5,566 | 3,748 | ||||||
Semiconductor production test | 8,320 | 1,825 | ||||||
Service/other | 1,365 | 1,510 | ||||||
$ | 19,556 | $ | 11,230 | |||||
Net revenues by market: | ||||||||
Semi Market | $ | 13,320 | $ | 5,011 | ||||
Multimarket: | ||||||||
Industrial | 3,828 | 4,227 | ||||||
Defense/aerospace | 1,129 | 1,408 | ||||||
Telecommunications | 340 | 411 | ||||||
Other Multimarket | 939 | 173 | ||||||
$ | 19,556 | $ | 11,230 |
Three Months Ended | ||||||||
2022 | 2021 | |||||||
Revenue by customer type: | ||||||||
End user | $ | 19,579 | $ | 17,660 | ||||
OEM/Integrator | 4,502 | 1,896 | ||||||
$ | 24,081 | $ | 19,556 | |||||
Revenue by product type: | ||||||||
Thermal test | $ | 5,057 | $ | 4,305 | ||||
Thermal process | 7,465 | 5,566 | ||||||
Semiconductor test | 6,348 | 8,320 | ||||||
Video imaging | 1,851 | 0 | ||||||
Flying probe and in-circuit testers | 1,688 | 0 | ||||||
Service/other | 1,672 | 1,365 | ||||||
$ | 24,081 | $ | 19,556 | |||||
Revenue by market: | ||||||||
Semiconductor | $ | 13,390 | $ | 13,320 | ||||
Industrial | 2,799 | 1,427 | ||||||
Automotive (including Electric Vehicles) | 2,756 | 1,327 | ||||||
Defense/aerospace | 1,493 | 1,252 | ||||||
Life Sciences | 699 | 643 | ||||||
Security | 574 | 0 | ||||||
Other | 2,370 | 1,587 | ||||||
$ | 24,081 | $ | 19,556 |
There was no changewere 0 significant changes in the amount of the allowance for doubtful accounts for the three months ended March 31, 2021.2022.
| MAJOR CUSTOMERS |
During the three months ended March 31, 2022, no customer accounted for 10% or more of our consolidated revenue. During the three months ended March 31, 2021, Texas Instruments Incorporated accounted for 16% of our consolidated net revenues. While both of our segments sold to this customer, these revenues wererevenue. This revenue was primarily generated by our EMSElectronic Test segment. No other customers accounted for 10% or more of our consolidated net revenuesrevenue during the three months ended March 31, 2021. During the three months ended March 31, 2020, no customer accounted for 10% or more of our consolidated net revenues.
| INVENTORIES |
Inventories held at March 31, 2021 2022 and December 31, 2020 2021 were comprised of the following:
March 31, | December 31, | March 31, 2022 | December 31, 2021 | |||||||||||||
Raw materials | $ | 5,980 | $ | 5,371 | $ | 11,179 | $ | 10,403 | ||||||||
Work in process | 992 | 1,085 | 1,562 | 1,250 | ||||||||||||
Inventory consigned to others | 44 | 45 | 44 | 44 | ||||||||||||
Finished goods | 1,196 | 975 | 2,128 | 1,166 | ||||||||||||
Total inventories | $ | 8,212 | $ | 7,476 | $ | 14,913 | $ | 12,863 |
| LEASES |
As previously discussed in Note 2, we account for our leases in accordance with the guidance in ASC Topic 842.We lease our offices, warehouse facilities and certain equipment under non-cancellable operating leases whichthat expire at various dates through 2031. Total operating lease and short-term lease costs for the three months ended March 31, 2021 2022 and 20202021, respectively, were as follows:
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Operating lease cost | $ | 324 | $ | 392 | $ | 326 | $ | 324 | ||||||||
Short-term lease cost | $ | 8 | $ | 12 | $ | 30 | $ | 8 |
The following is additional information about our leases as of March 31, 2021:2022:
Range of remaining lease terms (in years) | 0.1 | to | 10.0 | |||
Weighted average remaining lease term (in years) | 6.4 | |||||
Weighted average discount rate | 4.3 | % |
Range of remaining lease terms (in years) | 1.0 | to | 9.1 |
Weighted average remaining lease term (in years) | 5.5 | ||
Weighted average discount rate | 4.2% |
Maturities of lease liabilities as of March 31, 2021 2022 were as follows:
2021 (remainder) | $ | 1,074 | ||||||
2022 | 1,402 | $ | 1,227 | |||||
2023 | 1,413 | 1,636 | ||||||
2024 | 1,394 | 1,573 | ||||||
2025 | 723 | 735 | ||||||
2026 | 467 | |||||||
Thereafter | 1,845 | 1,378 | ||||||
Total lease payments | $ | 7,851 | $ | 7,016 | ||||
Less imputed interest | (938 | ) | (696 | ) | ||||
Total | $ | 6,913 | $ | 6,320 |
Supplemental Cash Flow Information
Total amortization of ROU assets for the three months ended March 31, 2021 2022 and 20202021 was $309 and $280, and $325, respectively.
During the three months ended March 31, 2022, we executed an amendment to the lease for our facility in Singapore which extended the term for a period of 24 months commencing on April 1, 2022 and expiring on March 31, 2024. At the effective date of this modification, we recorded a non-cash increase in our ROU assets and operating lease liabilities of approximately $51.
| DEBT |
Letters of Credit
We have issued letters of credit as the security deposits for certain of our domestic leases. These letters of credit are secured by pledged certificates of deposit which are classified as Restricted Certificates of Deposit on our balance sheets. The terms of our leases require us to renew these letters of credit at least 30 days prior to their expiration dates for successive terms of not less than one year until lease expiration.
Our outstanding letters of credit at March 31, 2021 2022 and December 31, 2020 2021 consisted of the following:
Letters of Credit | L/C | Lease | Letters of Credit | ||||||||||||||||||||||||
Facility | Original L/C | L/C | Lease | March 31, | December 31, | Original L/C | Expiration | Expiration | Mar. 31, | Dec. 31, | |||||||||||||||||
Mt. Laurel, NJ | 3/29/2010 | 4/30/2022 | 4/30/2031 | $ | 90 | $ | 90 | 3/29/2010 | 4/30/2023 | 4/30/2031 | $ | 50 | $ | 50 | |||||||||||||
Mansfield, MA | 10/27/2010 | 12/31/2024 | 12/31/2024 | 50 | 50 | 10/27/2010 | 12/31/2024 | 12/31/2024 | 50 | 50 | |||||||||||||||||
$ | 140 | $ | 140 | $ | 100 | $ | 100 |
Line of Credit Facility
As discussed more fully in Note 10 to our consolidated financial statements in our 2020 Form 10-K, on April 10, 2020,On October 15, 2021 (the “Closing Date”), we entered into aan Amended and Restated Loan and Security Agreement (the “Agreement”“October 2021 Agreement”) with M&T Bank (“M&T”). UnderThe October 2021 Agreement includes a $25,000 non-revolving delayed draw term note (the “Term Note”) and a $10,000 revolving credit facility. The October 2021 Agreement has a five year contract period that began on the termsClosing Date and expires on October 15, 2026 (the “Contract Period”), and draws under the Term Note will be permissible for two years. As of March 31, 2022, we had not borrowed any amounts under the Agreement, M&T has provided us with a $7,500 revolving credit facility, and we had $4,500 available under our Term Note. Our borrowings under the Term Note are discussed below. Interest expense for the three months ended March 31, 2022 was $137. There was no interest expense in the three months ended March 31, 2021.
The principal balance of the revolving credit facility and the principal balance of any amount drawn under the Term Note will accrue interest based on the secured overnight financing rate for U.S. government securities (“SOFR”) or a bank-defined base rate plus an applicable margin, depending on leverage. Each draw under the Term Note will have an option for us of either (i) up to a five year amortizing term loan with a balloon due at maturity, or (ii) up to a five year term with up to seven years amortization with a balloon due at maturity. Any amortization greater than five years will be subject to an excess cash flow recapture. The October 2021 Agreement also allows us to enter into hedging contracts with M&T, including interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, or any other agreements or that are designed to protect us against fluctuations in interest rates or currency exchange rates.
The October 2021 Agreement contains customary default provisions, including but not limited to the failure by us to repay obligations when due, violation of provisions or representations provided in the October 2021 Agreement, bankruptcy by us, suspension of our business or any of our subsidiaries and certain material judgments. After expiration of the Contract Period or if a continued event of default occurs, interest will accrue on the principal balance at a rate of 2% in excess of the then applicable non-default interest rate. The October 2021 Agreement includes customary affirmative, negative and financial covenants, including a maximum ratio of consolidated funded debt to consolidated EBITDA and a fixed charge coverage ratio. Our obligations under the October 2021 Agreement are secured by liens on substantially all of our tangible and intangible assets that are owned as of the Closing Date or acquired thereafter.
On October 28, 2021, we drew $12,000 under the Term Note to finance the acquisition of Videology as discussed above. We also entered into an interest rate swap agreement with M&T as of this date which is guaranteed by our subsidiaries. This facility was putdesigned to protect us against fluctuations in place to provide us with additional liquidity in response tointerest rates during the current business environment, asfive year repayment and amortization period. As a result, the annual interest rate we expect to pay for this draw under the Term Note is fixed at approximately 3.2% based on current leverage.
On December 29, 2021, we drew $8,500 under the Term Note to finance the acquisition of Acculogic as discussed above. We did not enter into an interest rate swap agreement with M&T related to this draw. The annual interest rate we expect to pay for this draw under the Term Note is variable. At March 31, 2022 it was approximately 2.2% based on current leverage. Effective April, 1 2022 this rate increased to approximately 2.4%.
The following table sets forth the maturities of long-term debt for each of the COVID-19 pandemic. This facility, which had no outstanding balance, was set to mature on April 9, 2021. As discussed in Note 14, we modified this facility on April 10, 2021 and extended it as modified through April 9, 2024.next five years:
2022 (remainder) | $ | 3,217 | ||
2023 | 4,100 | |||
2024 | 4,100 | |||
2025 | 4,100 | |||
2026 | 3,700 | |||
$ | 19,217 |
| STOCK-BASED COMPENSATION PLAN |
As of March 31, 2021, 2022, we had unvested restricted stock awards and stock options outstanding which were granted under stock-based compensation plans that are described more fully in Note 1315 to the consolidated financial statements in our 20202021 Form 10-K.
10-K.
Our unvested restricted stock awards and stock options are accounted for based on their grant date fair value. As of March 31, 2021,2022, total compensation expense to be recognized in future periods is $2,787.$3,232. The weighted average period over which this expense is expected to be recognized is 2.82.4 years.
The following table shows the allocation ofsummarizes the compensation expense we recorded during the three months ended March 31, 2021 2022 and 2020, respectively,2021 related to stock-based compensation:unvested shares of restricted stock and stock options:
Three Months Ended | Three Months Ended | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Cost of revenues | $ | - | $ | - | ||||||||||||
Cost of revenue | $ | 11 | $ | 0 | ||||||||||||
Selling expense | 3 | 3 | 7 | 3 | ||||||||||||
Engineering and product development expense | 10 | 10 | 19 | 10 | ||||||||||||
General and administrative expense | 256 | 174 | 335 | 256 | ||||||||||||
$ | 269 | $ | 187 | $ | 372 | $ | 269 |
There was no stock-based0 compensation expense capitalized in the three months ended March 31, 2021 2022 or 2020.2021.
Stock Options
We record compensation expense for stock options based on the fair market value of the options as of the grant date. No option may be granted with an exercise period in excess of ten years from the date of grant. Generally, stock options will be granted with an exercise price equal to the fair market value of our stock on the date of grant and will vest over four years.
The fair value for stock options granted during the three months ended March 31, 2022 and 2021 was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
2022 | 2021 | |||||||
Risk-free interest rate | 1.81 | % | 1.00 | % | ||||
Dividend yield | 0.00 | % | 0.00 | % | ||||
Expected common stock market price volatility factor | .54 | .49 | ||||||
Weighted average expected life of stock options (years) | 6.25 | 6.25 |
The per share weighted average fair value of stock options issued during the three months ended March 31, 2022 and 2021 was $5.19 and $5.09, respectively.
The following table summarizes the activity related to stock options for the three months ended March 31, 2022:
Number | Weighted | |||||||
Options outstanding, January 1, 2022 (59,195 exercisable) | 408,869 | 9.07 | ||||||
Granted | 38,540 | 9.76 | ||||||
Exercised | 0 | 0 | ||||||
Canceled | 0 | 0 | ||||||
Options outstanding, March 31, 2022 (101,670 exercisable) | 447,409 | 9.13 |
Restricted Stock Awards
We record compensation expense for restricted stock awards based on the quoted market price of our stock at the grant date and amortize the expense over the vesting period. Restricted stock awards generally vest over four years for employees and over one year for our independent directors (25% at each of March 31, June 30, September 30, and December 31 of the year in which they were granted).
Since August 2020, we have increasingly granted performance-based restricted stock awards where the ultimate number of shares that vest can vary between 0% and 150% of the amount of the original award and is based on the achievement of specified performance metrics. Vesting for these awards is generally cliff vesting at the end of the period over which the performance metrics are measured. Compensation expense for these awards is recorded on a straight-line basis over the vesting period and is based on the expected final vesting percentage, which is re-assessed at the end of each reporting period and adjusted with a catch-up adjustment, as needed. Our initial assumption at the grant date of these awards is that the award will vest at the 100% level. The awards granted prior to January 1, 2022 are discussed in more detail in Note 15 to the consolidated financial statement in our 2021 Form 10-K. There have been no significant changes to our assumptions related to the expected vesting percentages for these awards as of March 31, 2022.
On August 24, 2020, March 9, 2022, our new PresidentChief Executive Officer ("CEO") and CEOChief Financial Officer ("CFO") received two restricted stock awards totaling 141,61020,493 shares valued at $650$200 as of the date of grant, which was also his hire date. Of the totalgrant. These shares awarded, 66,448 shares vest over 4 years (25% at each anniversary) and 75,162 vest on the third anniversary of the grant date at a vesting percentage that could range from 0% to 150% of the number of shares awarded on August 24, 2020. March 9, 2022. The final vesting percentage will be based on the achievement of certain performance metrics, including net revenue compound annual growth rate and diluted earnings per share excluding amortization of intangibles, for specified time periods as determined by the Compensation Committee of our Board of Directors. As of March 31, 2021, 2022, we have estimated that these shares will vest at 100% of the original amount awarded and are recording expense based on this estimate on a straight-line basis over the three-year vesting period. Our estimate of the final expected vesting percentage is reassessed and adjusted, as needed, at the end of each reporting period.
On March 10, 2021 we issued restricted stock awards totaling 18,000 shares to members of the senior management within our operating segments. These shares will vest on the third anniversary of the grant date at a vesting percentage that could range from 0% to 150% of the number of shares awarded on March 10, 2021. The final vesting percentage will be based on the achievement of certain performance metrics related to the operating results of the business units for which these members of management are responsible. As of March 31, 2021, we have estimated that these shares will vest at 100% of the original amount awarded and are recording expense based on this estimate on a straight-line basis over the three-year vesting period. Our estimate of the final expected vesting percentage is reassessed and adjusted, as needed, at the end of each reporting period.amount.
The following table summarizes the activity related to unvested shares of restricted stock awards for the three months ended March 31, 2021:2022:
Number | Weighted | Number | Weighted | |||||||||||||
Unvested shares outstanding, January 1, 2021 | 237,155 | $ | 4.93 | |||||||||||||
Unvested shares outstanding, January 1, 2022 | 262,533 | 7.16 | ||||||||||||||
Granted | 81,468 | 10.62 | 79,489 | 10.03 | ||||||||||||
Vested | (22,200 | ) | 8.56 | (18,467 | ) | 9.21 | ||||||||||
Forfeited | - | - | 0 | 0 | ||||||||||||
Unvested shares outstanding, March 31, 2021 | 296,423 | 6.22 | ||||||||||||||
Unvested shares outstanding, March 31, 2022 | 323,555 | 7.69 |
The total fair value of the sharesrestricted stock awards that vested during the three months ended March 31, 2021 2022 and 20202021 was $244$188 and $155,$244, respectively, as of the vesting dates of these shares.
awards.
(13) | EMPLOYEE STOCK PURCHASE PLAN |
The inTEST Corporation Employee Stock OptionsWe record compensation expensePurchase Plan (the “ESPP”) was adopted by the Board in April 2021 subject to approval by our stockholders, which occurred on June 23, 2021 at our Annual Meeting of Stockholders. The ESPP provides our eligible employees with an opportunity to purchase common stock through accumulated payroll deductions at a discounted purchase price. The ESPP became effective on October 1, 2021.
The ESPP provides that an aggregate of up to 250,000 shares of our common stock will be available for issuance under the ESPP. The shares of our common stock options basedpurchasable under the ESPP will be shares of authorized but unissued or reacquired shares, including shares repurchased by us on the fair value of the options as of the grant date. No option may be granted with an exercise period in excess of ten years from the date of grant. Generally, stock options will be granted with an exercise price equal to the fair market valueopen market.
On March 31, 2022, employees purchased 5,245 shares of our stock through the ESPP at a cost of $56. The closing market price on the date of grant and will vest over four years.
the purchase was $10.73. The fair value for stock options granted duringprice paid by employees was $9.12 which represented a 15% discount. The total amount of the three months ended discount of $8 was recorded as compensation expense in our consolidated statements of operations. From the effective date of the ESPP through March 31, 2021 and 2020 was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
2021 | 2020 | |||||||
Risk-free interest rate | 1.00 | % | 0.48 | % | ||||
Dividend yield | 0.00 | % | 0.00 | % | ||||
Expected common stock market price volatility factor | .49 | .43 | ||||||
Weighted average expected life of stock options (years) | 6.25 | 6.25 |
The per share weighted average fair value of stock options issued during the three months ended March 31, 2021 and 2020 was $5.09 and $1.55, respectively.The following table summarizes the activity related to stock options for the three months ended March 31, 2021:
Number | Weighted | |||||||
Options outstanding, January 1, 2021 (204,630 exercisable) | 438,200 | $ | 6.25 | |||||
Granted | 164,800 | 10.62 | ||||||
Exercised | (99,740 | ) | 7.19 | |||||
Forfeited | - | - | ||||||
Options outstanding, March 31, 2021 (144,265 exercisable) | 503,260 | 7.49 |
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On July 31, 2019, our Board of Directors authorized the repurchase of up to $3,000 of our common stock from time to time on the open market, in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or in privately negotiated transactions pursuant to a newly authorized stock repurchase plan (the “2019 Repurchase Plan”). Repurchases may be made under a Rule 10b5-1 plan entered into with RW Baird & Co., which would permit shares to be repurchased when we might otherwise be precluded from doing so under insider trading laws and our internal trading windows. The 2019 Repurchase Plan does not obligate us to purchase any particular amount of common stock and may be suspended or discontinued at any time without prior notice. The 2019 Repurchase Plan is funded using our operating cash flow or available cash. Purchases began on September 18, 2019 under this plan. On March 2, 2020, we suspended repurchases under the 2019 Repurchase Plan. For the term of the 2019 Repurchase Plan through March 31, 2021, we have repurchased 2022, a total of 243,0759,236 shares of stock have been purchased by employees through the ESPP at a cost of $1,216, which includes fees paid$91. We have recorded a total of $16 of compensation expense in our consolidated statements of operations related to our broker of $6. All of the repurchased shares were retired.these shares.
| EMPLOYEE BENEFIT PLANS |
We have defined contribution 401(k)401(k) plans for our employees who work in the U.S. All permanent employees of inTEST Corporation, inTEST EMS LLC, Temptronic Corporation and inTEST Silicon Valley CorporationVideology who are at least 18 years of age are eligible to participate in the inTEST Corporation Incentive Savings Plan. We match employee contributions dollar for dollar up to 10% of the employee's annual compensation, with a maximum limit of $5. Employer contributions vest ratably over four years. Matching contributions are discretionary. For the three months ended March 31, 2021 2022 and 2020,2021 we recorded $216 and $171 of expense under the plan was $171 and $165,for matching contributions, respectively.
All permanent employees of Ambrell are immediately eligible to participate in the Ambrell Corporation Savings & Profit Sharing Plan (the "Ambrell Plan") upon employment and are eligible for employer matching contributions after completing six months of service, as defined in the Ambrell Plan. The Ambrell Plan allows eligible employees to make voluntary contributions up to 100% of compensation, up to the federal government contribution limits. We will make a matching contribution of 50% of each employee's contributions up to a maximum of 10% of the employee's deferral with a maximum limit of $5. For the three months ended March 31, 2021 2022 and 2020,2021 we recorded $101 and $43 of expense under the plan was $43 and $17,for matching contributions, respectively.
| SEGMENT INFORMATION |
We have twoDuring the year ended December 31, 2021, we managed our business as 2 operating segments which were also our reportable segments and reporting units: Thermal and EMS,EMS. As previously discussed in Note 1, effective January 1, 2022, we reorganized our segments to better align with our plan to manage and report our business going forward. This change in our operating and reporting structure reflects the evolution of our business, particularly as a result of the broadening of our product portfolio through the acquisitions we completed in the fourth quarter of 2021, which are discussed more fully in Note 3. Accordingly, for 2022, we have three reportable segments which are also our reporting units. Thermalunits: Electronic Test (which includes the operations of Temptronic, Thermonics, Sigma, inTEST Thermal Solutions GmbH (Germany)our semiconductor test equipment, flying probe and in-circuit testers), inTEST Pte, Limited (Singapore)Environmental Technologies (which includes our thermal test, process and Ambrell. Sales of this segment consist primarily of temperature management systems which we design, manufacturestorage products) and market underProcess Technologies (which includes our Temptronic, Thermonics and Sigma product lines, and precision induction heating systems which are designed, manufactured and marketed by Ambrell. In addition, this segment provides post-warranty service and support. EMS includesvideo imaging products). Prior period information has been reclassified to be comparable to the operationscurrent period’s presentation.
Our management team, including our CEO who is also our Chief Operating Decision Maker as defined under U.S. GAAP, evaluates the performance of our manufacturing facilities in Mt. Laurel, New Jerseyoperating segments primarily on income from divisional operations which represents earnings before income tax expense and prior to the consolidation of manufacturing operations late in the fourth quarter of 2020, Fremont, California. Sales of this segment consist primarily of manipulator, docking hardwareexcludes other income (expense), corporate expenses and tester interface products, which we design, manufacture and market.acquired intangible amortization.
Three Months Ended | ||||||||
2022 | 2021 | |||||||
Revenue: | ||||||||
Electronic Test | $ | 8,778 | $ | 8,501 | ||||
Environmental Technologies | 6,993 | 6,198 | ||||||
Process Technologies | 8,310 | 4,857 | ||||||
Total revenue | $ | 24,081 | $ | 19,556 | ||||
Income from divisional operations: | ||||||||
Electronic Test | $ | 1,887 | $ | 2,987 | ||||
Environmental Technologies | 802 | 923 | ||||||
Process Technologies | 730 | 456 | ||||||
Total income from divisional operations | 3,419 | 4,366 | ||||||
Corporate expenses | (1,835 | ) | (1,482 | ) | ||||
Acquired intangible amortization | (782 | ) | (304 | ) | ||||
Other income (expense) | (147 | ) | (2 | ) | ||||
Earnings before income tax expense | $ | 655 | $ | 2,578 |
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
Identifiable assets: | ||||||||
Electronic Test | $ | 28,319 | $ | 26,251 | ||||
Environmental Technologies | 15,736 | 15,411 | ||||||
Process Technologies | 51,737 | 52,120 | ||||||
Corporate | 7,142 | 10,123 | ||||||
$ | 102,934 | $ | 103,905 |
We operate our business worldwide and sell our products both domestically and internationally. Both of our segments sell to semiconductor manufacturers, third-party test and assembly houses and ATE manufacturers. Thermal also sells into a variety of markets outside of the Semi Market, including the automotive, defense/aerospace, medical, industrial, telecommunications and other markets.
Three Months Ended | ||||||||
2021 | 2020 | |||||||
Net Revenues: | ||||||||
Thermal | $ | 11,055 | $ | 9,334 | ||||
EMS | 8,501 | 1,896 | ||||||
$ | 19,556 | $ | 11,230 | |||||
Earnings (loss) before income tax expense (benefit): | ||||||||
Thermal | $ | 103 | $ | (426 | ) | |||
EMS | 2,620 | (1,004 | ) | |||||
Corporate | (145 | ) | 37 | |||||
$ | 2,578 | $ | (1,393 | ) | ||||
Net earnings (loss): | ||||||||
Thermal | $ | 88 | $ | (350 | ) | |||
EMS | 2,248 | (824 | ) | |||||
Corporate | (124 | ) | 31 | |||||
$ | 2,212 | $ | (1,143 | ) |
March 31, | December 31, | |||||||
Identifiable assets: | ||||||||
Thermal | $ | 52,096 | $ | 50,782 | ||||
EMS | 13,671 | 9,667 | ||||||
Corporate | 1,359 | 1,581 | ||||||
$ | 67,126 | $ | 62,030 |
The following table provides information about our geographic areas of operation. Net revenues from unaffiliated customers areRevenue is based on the location to which the goods are shipped.
Three Months Ended | Three Months Ended | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Net revenues: | ||||||||||||||||
Revenue: | ||||||||||||||||
U.S. | $ | 5,747 | $ | 5,719 | $ | 9,234 | $ | 5,747 | ||||||||
Foreign | 13,809 | 5,511 | 14,847 | 13,809 | ||||||||||||
$ | 19,556 | $ | 11,230 | $ | 24,081 | $ | 19,556 |
March 31, | December 31, | |||||||
Property and equipment: | ||||||||
U.S. | $ | 2,245 | $ | 2,053 | ||||
Foreign | 293 | 297 | ||||||
$ | 2,538 | $ | 2,350 |
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
Property and equipment: | ||||||||
U.S. | $ | 2,433 | $ | 2,346 | ||||
Foreign | 371 | 342 | ||||||
$ | 2,804 | $ | 2,688 |
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On April 10, 2021, we amended our Agreement with M&T, with the execution of the Second Amendment to the Agreement (the “Second Amendment”). Under the terms of the Second Amendment, the maximum amount available under the revolving credit facility was increased from $7,500 to $10,000, and an unused facility fee of fifteen basis points per annum was added. This facility was amended to provide us with additional liquidity to operate our business, if needed. This facility will mature on April 9, 2024.
Item 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Risk Factors and Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q for the period ended March 31, 20212022 (this “Report”), including this management’s discussion and analysis (“MD&A”), contains statements that are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements do not convey historical information but relate to predicted or potential future events and financial results, such as statements of our plans, strategies and intentions, or our future performance or goals that are based upon management's current expectations. Our forward-looking statements can often be identified by the use of forward-looking terminology such as "believes," "expects," "intends," "may," “could,” "will," "should," "plans," “projects,” “forecasts,” “seeks,” “anticipates,” “goal,” “objective,” “target,” “estimate,” “future,” “outlook,” “vision,” or variations of such words or similar terminology. Investors and prospective investors are cautioned that such forward-looking statements are only projections based on current estimations. These statements involve risks and uncertainties and are based upon various assumptions. Such risks and uncertainties include, but are not limited to:
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● | our ability to | |
● | the possibility of future acquisitions or dispositions and the successful integration of any | |
● | the | |
● | indications of a change in the market cycles in the | |
● | developments and trends in the | |
● | our ability to convert backlog to sales and to ship product in a timely manner; | |
● | the loss of any one or more of our largest customers, or a reduction in orders by a major customer; | |
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| the availability of materials used to manufacture our products; | |
● | the impact of current global supply chain constraints or other interruptions in our supply chain caused by external | |
● | the impact of inflation on our business and financial condition; | |
● | the impact of COVID-19 on our business, liquidity, financial condition and results of operations; | |
● | the sufficiency of cash balances, lines of credit and net cash from operations; | |
● | stock price fluctuations; | |
● | the | |
| ability to borrow funds or raise capital to finance | |
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| the | |
● | effects of exchange rate fluctuations; | |
● | progress of product development programs; | |
● | the anticipated market for our products; | |
● | the availability of and retention of key personnel or our ability to hire personnel at anticipated costs; | |
● | general economic conditions both domestically and | |
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● | other risk factors included in Part I, Item 1A - "Risk Factors" in our |
Material changes to such risk factors may be reported in subsequent Quarterly Reports on Form 10-Q in Part II, Item 1A.
These risks and uncertainties, among others, could cause our actual future results to differ materially from those described in our forward-looking statements or from our prior results. Any forward-looking statement made by us in this Report is based only on information currently available to us and speaks to circumstances only as of the date on which it is made. We are not obligated to update these forward-looking statements, even though our situation may change in the future.
Overview
This MD&A should be read in conjunction with the accompanying consolidated financial statements. In addition, please refer to the discussion of our business and markets contained in Part 1, Item 1 of our 2021 Form 10-K.
We are a global supplier of innovative test and process solutions for use in manufacturing and testing across a wide range of markets including automotive, defense/aerospace, industrial, medical, semiconductorlife sciences, security and telecommunications. We managesemiconductor. During the year ended December 31, 2021, we managed our business as two operating segments:segments which were also our reportable segments and reporting units: Thermal Products ("Thermal") and EMS. Our Thermal segment designs, manufacturesElectromechanical Solutions ("EMS"). Effective January 1, 2022, we reorganized our operating segments to better align with our plan to manage and sellsreport our business going forward. This change in our operating and reporting structure reflects the evolution of our business, particularly as a result of the broadening of our product portfolio through the acquisitions we completed in the fourth quarter of 2021, which are discussed more fully in Note 3. Accordingly, for 2022, we have three reportable segments which are also our reporting units: Electronic Test (which includes our semiconductor test equipment, flying probe and in-circuit testers), Environmental Technologies (which includes our thermal test, process and thermal process products whilestorage products) and Process Technologies (which includes our EMS segment designs, manufacturesinduction heating and sells our semiconductor test products.
Our EMS segment sells its productsvideo imaging products). Prior period information has been reclassified to semiconductor manufacturers and third-party test and assembly houses (end user sales) andbe comparable to ATE manufacturers (“OEM sales”), who ultimately resell our equipment with theirs to both semiconductor manufacturers and third-party test and assembly houses. These sales all fall within the ATE sector of the broader semiconductor market. Our Thermal segment sells its products to many of these same types of customers; however, it also sells to customers in the wafer processing sector within the broader semiconductor market and to customers in a variety of other markets outside the semiconductor market, including the automotive, defense/aerospace, industrial (including consumer products packaging, fiber optics and other sectors within the broader industrial market), medical and telecommunications markets.current period’s presentation.
BothAll of our operating segments have multiple products that we design, manufacture and market to our customers. Due to a number of factors, our products have varying levels of gross margin. These factors include, for example, the amount of engineering time required to develop the product, the market or customer to which we sell the product and the level of competing products available from other suppliers. The needs of our customers ultimately determine the products that we sell in a given time period. Therefore, the mix of products sold in a given period can change significantly when compared against the prior period. As a result, our consolidated gross margin may be significantly impacted by a change in the mix of products sold in a particular period.
Markets
We refer toAs discussed further in Part 1, Item 1 “Markets” of our 2021 Form 10-K, we are focused on specific target markets which include automotive, defense/aerospace, industrial, life sciences, security as well as both the front-end and back-end of the semiconductor manufacturing industry (“semi” or “semi market”). The semi market, includingwhich includes both the broader semiconductor market, as well as the more specialized semiconductor ATE and wafer processing sectors within the broader semiconductor market, as the “Semi Market.” All other markets are designated as “Multimarket.” Business within our Thermal segment can fall into either the Semi Market or Multimarket, depending upon how our customers utilize our products or upon their respective applications.
While the Semi Market represents the historical roots of inTEST and remains a very important component of our business, Multimarket is where we have focused our strategic growth efforts in the last several years. Our goal was to grow our business, both organically and through acquisition, in these markets as we believe these markets havehas historically been lessthe largest single market in which we operate. The semi market is characterized by rapid technological change, competitive pricing pressures and cyclical thanmarket patterns and is subject to periods of significant expansion or contraction in demand. Our intention is to continue diversifying our markets, our product offerings within the Semi Market. Moving forward, with the launch ofmarkets we serve and our new strategic plan which is discussed in Part 1, Item 1 under “Our Strategies” in our 2020 Form 10-K, we intend to broaden our strategic growth efforts to target both organic and inorganic growth incustomer base across all of our currently served markets which includeswith the Semi Market. Our goal isof reducing our dependence on any one market, product or customer. In particular, we are seeking to further expand our existing product lines, strengthen our positions in served markets and drive expansion into new markets.
Prior to our acquisitionreduce the impact of Ambrell in May 2017, we offered only highly specialized engineering solutions used for testing applications in Multimarket, the demand for which is limited and which varies significantly from period to period. Our acquisition of Ambrell not only provided expansion into new markets but also broadened our product offerings to include products sold into process or manufacturing applications. Historically, Ambrell sold its precision induction heating systems almost exclusively to customersvolatility in the industrialsemi market but since 2018, has also had significant sales into the Semi Market. Overall, however, the acquisitionon our results of Ambrell has helped to diversify our customer base.operations.
The portion of our business that is derived from the Semi Marketsemi market is substantially dependent upon the demand for ATE by semiconductor manufacturers and companies that specialize in the testing of integrated circuits or,(“ICs”) and, for Ambrell,our induction heating products, the demand for wafer processing equipment. Demand for ATE or wafer processing equipment is primarily driven by semiconductor manufacturers that are opening new, or expanding existing, semiconductor fabrication facilities or upgrading equipment, which in turn is dependent upon the current and anticipated market demand for semiconductorsICs and products incorporating semiconductors.ICs. Such market demand can be the result of market expansion, development of new technologies or redesigned products to incorporate new features, or the replacement of aging equipment. In addition, we continue to focus on design improvements and new approaches for our own products that contribute to our net revenues as our customers adopt these new products.
In the past, the Semi Marketsemi market has been highly cyclical with recurring periods of oversupply, which often severely impact the Semi Market'ssemi market's demand for the products we manufacture and sell into the market. This cyclicality can cause wide fluctuations in both our orders and net revenuesrevenue and, depending on our ability to react quickly to these shifts in demand, can significantly impact our results of operations. Market cycles are difficult to predict and, because they are generally characterized by sequential periods of growth or declines in orders and net revenuesrevenue during each cycle, year over year comparisons of operating results may not always be as meaningful as comparisons of periods at similar points in either up or down cycles. These periods of heightened or reduced demand can shift depending on various factors impacting both our customers and the markets that they serve. In addition, during both downward and upward cycles in the Semi Market,semi market, in any given quarter, the trend in both our orders and net revenuesrevenue can be erratic. This can occur, for example, when orders are canceled or currently scheduled delivery dates are accelerated or postponed by a significant customer or when customer forecasts and general business conditions fluctuate during a quarter.
Third party market share statistics are not available for the products we manufacture and sell into the Semi Market; therefore, comparisons of period over period changes in our market share are not easily determined. AsWhile a result, it is difficult to ascertain if Semi Market volatility in any period is the result of macro-economic or customer-specific factors impacting Semi Market demand, or if we have gained or lost market share to a competitor during the period.
While approximately halfsignificant portion of our orders and net revenuesrevenue are derived from the Semi Market,semi market, and our operating results generally follow the overall trend in the Semi Market,semi market, in any given period we may experience anomalies that cause the trend in our net revenuesrevenue from the semi market to deviate from the overall trend in the Semi Market.market. We believe that these anomalies may be driven by a variety of factors within the Semi Market,semi market, including, for example, changing product requirements, longer periods between new product offerings by OEMs and changes in customer buying patterns. In addition, in recent periods, we have seen instances when demand within the Semi Marketsemi market is not consistent for each of our operating segments or for any given product within a particular operating segment. This inconsistency in demand can be driven by a number of factors but, in most cases, we have found that the primary reason is unique customer-specific changes in demand for certain products driven by the needs of their customers or markets served. Recently this has become more pronounced for our sales into the wafer processing sector within the broader semiconductor market due to the limited market penetration we have into this sector and the variability of orders we have experienced from the few customers we support. These shifts in market practices and customer-specific needs have had, and may continue to have, varying levels of impact on our operating results and are difficult to quantify or predict from period to period. Management has taken, and will continue to take, such actions it deems appropriate to adjust our strategies, products and operations to counter such shifts in market practices as they become evident.
As previously mentioned, as part of our ongoing strategy to grow our business, we continue to diversify our served markets to address the thermal test and thermal process requirements of several markets outside the Semi Market. These include the automotive, defense/aerospace, industrial, medical, telecommunications and other markets, which we refer to as Multimarket. We believe that these markets are usually less cyclical than the Semi Market. While market share statistics exist for some of these markets, due to the nature of our highly specialized product offerings in these markets, we do not expect broad market penetration in many of these markets and therefore do not anticipate developing meaningful market shares in most of these markets.
In addition, because of our limited market share, our Multimarket orders and net revenues in any given period do not necessarily reflect the overall trends in the markets within Multimarket. Consequently, we are continuing to evaluate buying patterns and opportunities for growth in Multimarket that may affect our performance. The level of our Multimarket orders and net revenues has varied in the past, and we expect will vary significantly in the future, as we work to build our presence in Multimarket and establish new markets for our products.
Restructuring and Other ChargesAcquisitions
On September 21, 2020, we notified employees inA key element to our Fremont, California facility of a plan to consolidate all manufacturingstrategy for our EMS segment into our manufacturing operations located in Mt. Laurel, New Jersey. The consolidation was substantially completed during the fourth quarter of 2020 and resulted in the termination of certain employees at the Fremont location. Prior to the consolidation, our interface products were manufactured in the Fremont facility, and our manipulator and docking hardware products were manufactured in the Mt. Laurel facility. The consolidation was undertaken to better serve customersgrowth is through streamlined operations and reduce the fixed annual operating costs for the EMS segment. A small engineering and sales office will be maintained in northern California. The costs related to these actions are included in restructuring and other charges on our consolidated statement of operations and areacquisitions. As discussed in more detailfully in Note 3 to our consolidated financial statements in this Report, during 2021, we completed three acquisitions that expanded our technology offerings, diversified our markets and customers and expanded our reach into Europe.
On October 6, 2021, we acquired substantially all of the assets of Z-Sciences (now North Sciences), a developer of ultra-cold storage solutions for the life sciences cold chain market. This small, tuck-in transaction enhances our technology, adds new talent, and provides a low-cost entry into this fast growing, fragmented market. This business is included in our 2020 Form 10-K.Environmental Technologies segment.
The EMS facility consolidation resulted in the termination of certain employees at the Fremont location, includingOn October 28, 2021, we acquired substantially all of the assets of Videology, a global designer, developer and manufacturer of OEM digital streaming and image capturing solutions. The acquisition expanded our interface product line assembly staff who were located at that facility. As a result of transitioningprocess technology offerings, diversified our interface manufacturing operations to New Jersey, we have hired new production staff for this product linereach into key target markets and broadened our customer base. This business is included in our Mt. Laurel facility. These new employees are being trained to assembleProcess Technologies segment.
On December 21, 2021, we acquired Acculogic, a global manufacturer of robotics-based electronic production test equipment and application support services. The acquisition expanded our products which may impact customer shipmentsglobal reach and quality ofenhanced our interface products over the next several months. In addition, we have recently experienced difficulty in hiring personnel at the costs projectedproduct portfolio with leading technologies and automation services. This business is included in our forecasts. This has resulted in the need to increase the labor rates offered for certain positions. If we cannot find savings in other areas or increase the price for which we sell our products in an amount sufficient to cover these additional labor costs, we may experience reduced margins in future periods. See “Risks Related to Our Business Operations” in Item 1A “Risk Factors” of our 2020 Form 10-K.Electronic Test segment.
Orders and Backlog
The following table sets forth, for the periods indicated, a breakdown of the orders received by operating segment and market (in thousands).
Three Months Ended March 31, | Change | Three Months Ended December 31, | Change | |||||||||||||||||||||||||
2022 | 2021 | $ | % | 2021 | $ | % | ||||||||||||||||||||||
Orders: | ||||||||||||||||||||||||||||
Electronic Test | $ | 9,297 | $ | 10,484 | $ | (1,187 | ) | (11 | )% | $ | 5,324 | $ | 3,973 | 75 | % | |||||||||||||
Environmental Technologies | 6,914 | 5,644 | 1,270 | 23 | % | 6,468 | 446 | 7 | % | |||||||||||||||||||
Process Technologies | 8,852 | 9,102 | (250 | ) | (3 | )% | 18,667 | (9,815 | ) | (53 | )% | |||||||||||||||||
$ | 25,063 | $ | 25,230 | $ | (167 | ) | (1 | )% | $ | 30,459 | $ | (5,396 | ) | (18 | )% | |||||||||||||
Semi | $ | 12,382 | $ | 17,185 | $ | (4,803 | ) | (28 | )% | $ | 21,386 | $ | (9,004 | ) | (42 | )% | ||||||||||||
Industrial | 3,222 | 2,526 | 696 | 28 | % | 2,504 | 718 | 29 | % | |||||||||||||||||||
Auto/EV | 2,619 | 1,168 | 1,451 | 124 | % | 1,413 | 1,206 | 85 | % | |||||||||||||||||||
Life Sciences | 1,216 | 952 | 264 | 28 | % | 654 | 562 | 86 | % | |||||||||||||||||||
Defense/Aerospace | 1,851 | 1,110 | 741 | 67 | % | 862 | 989 | 115 | % | |||||||||||||||||||
Security | 153 | - | 153 | n/a | 1,620 | (1,467 | ) | (91 | )% | |||||||||||||||||||
Other | 3,620 | 2,289 | 1,331 | 58 | % | 2,020 | 1,600 | 79 | % | |||||||||||||||||||
$ | 25,063 | $ | 25,230 | $ | (167 | ) | (1 | )% | $ | 30,459 | $ | (5,396 | ) | (18 | )% |
Three | Change | Three Ended | Change | |||||||||||||||||||||||||
2021 | 2020 | $ | % | 2020 | $ | % | ||||||||||||||||||||||
Orders: | ||||||||||||||||||||||||||||
Thermal | $ | 14,746 | $ | 10,499 | $ | 4,247 | 40 | % | $ | 11,065 | $ | 3,681 | 33 | % | ||||||||||||||
EMS | 10,484 | 3,277 | 7,207 | 220 | % | 6,554 | 3,930 | 60 | % | |||||||||||||||||||
$ | 25,230 | $ | 13,776 | $ | 11,454 | 83 | % | $ | 17,619 | $ | 7,611 | 43 | % | |||||||||||||||
Semi Market | $ | 17,174 | $ | 6,692 | $ | 10,482 | 157 | % | $ | 11,129 | $ | 6,045 | 54 | % | ||||||||||||||
Multimarket | 8,056 | 7,084 | 972 | 14 | % | 6,490 | 1,566 | 24 | % | |||||||||||||||||||
$ | 25,230 | $ | 13,776 | $ | 11,454 | 83 | % | $ | 17,619 | $ | 7,611 | 43 | % |
Total consolidated orders for the three months ended March 31, 20212022 were $25.2$25.1 million compared to $13.8$25.2 million for the same period in 20202021 and $17.6$30.5 million for the three months ended December 31, 2020.2021. Orders from customers in Multimarketsemi for the three months ended March 31, 2021 were $8.1 million, or 32% of total consolidated orders, compared to $7.1 million, or 51% of total consolidated orders for the same period in 2020 and $6.5 million or 37% of total consolidated orders for the three months ended December 31, 2020.We believe that the increases in our consolidated orders during the three months ended March 31, 20212022 declined 28% compared to the same period in 20202021 and 42% compared to the three months ended December 31, 2020 primarily reflect2021. During the endfirst quarter of 2021, we experienced exceptionally strong demand from our back-end semi customers as the downturnmarket was in the Semi Market, where approximately halfa period of our business is derived. This downturn begansignificant expansion. Demand from these customers in the first quarter of 2019. We2021 has moderated, which we believe that the significant level of increase in orders from the Semi Market for these same time periods also reflects the impacttypical purchasing cycle in this market as customers complete the installation and set-up of the interruption of the normal recoveryequipment purchased throughout 2021. In addition, orders in the Semi Market cycle that was caused by the onsetfourth quarter of COVID-192021 included a $10.0 million order for our front-end semi solutions which we did not expect to repeat in the first halfquarter of 2020,2022. This order will ship over the next several quarters.
Orders for the three months ended March 31, 2022 as compared to both the same period in 2021 and the three months ended December 31, 2021 reflected strong demand from the automotive market, in particular for electric vehicle (“EV”) applications utilizing our induction heating technology and our newly acquired battery test solutions. Orders increased in life sciences as well, as increaseddriven by demand for semiconductors, generally, botha variety of which we believe are drivingour technology solutions including digital imaging and induction heating. Demand from the current shortagedefense/aerospace market for environmental technology solutions was also strong in the global supply of semiconductors (which are also referred to as “integrated circuits” or “ICs”). To a lesser extent, we also experienced an increase in orders from Multimarket, primarily from the industrial market.three months ended March 31, 2022.
At March 31, 2021,2022, our backlog of unfilled orders for all products was approximately $17.1$35.0 million compared with approximately $8.1$17.1 million at March 31, 20202021 and $11.5$34.1 million at December 31, 2020.2021. The amounts at March 31, 2022 and December 31, 2021 included approximately $7.6 million and $6.5 million, respectively, from acquired businesses. The significant increase in our backlog as compared to March 31, 2021 primarily reflects the aforementioned $10.0 million order received from one of our front-end semi market customers during the fourth quarter of 2021 and the impact of the acquired businesses. Our backlog includes customer orders which we have accepted, substantiallyessentially all of which we expect to deliver in 2021.2022, subject to supply chain constraints. While backlog is calculated on the basis of firm purchase orders, a customer may cancel an order or accelerate or postpone currently scheduled delivery dates. Our backlog may be affected by the tendency of customers to rely on short lead times available from suppliers, including us, in periods of depressed demand. In periods of increased demand, there is a tendency towards longer lead times that has the effect of increasing backlog. As a result, our backlog at a particular date is not necessarily indicative of sales for any future period.
Net RevenuesRevenue
The following table sets forth, for the periods indicated, a breakdown of the net revenuesrevenue by operating segment and market (in thousands).
Three | Change | Three Ended | Change | |||||||||||||||||||||||||
2021 | 2020 | $ | % | 2020 | $ | % | ||||||||||||||||||||||
Net revenues: | ||||||||||||||||||||||||||||
Thermal | $ | 11,055 | $ | 9,334 | $ | 1,721 | 18 | % | $ | 10,675 | $ | 380 | 4 | % | ||||||||||||||
EMS | 8,501 | 1,896 | 6,605 | 348 | % | 4,200 | 4,301 | 102 | % | |||||||||||||||||||
$ | 19,556 | $ | 11,230 | $ | 8,326 | 74 | % | $ | 14,875 | $ | 4,681 | 31 | % | |||||||||||||||
Semi Market | $ | 13,320 | $ | 5,011 | $ | 8,309 | 166 | % | $ | 7,614 | $ | 5,706 | 75 | % | ||||||||||||||
Multimarket | 6,236 | 6,219 | 17 | - | % | 7,261 | (1,025 | ) | (14 | )% | ||||||||||||||||||
$ | 19,556 | $ | 11,230 | $ | 8,326 | 74 | % | $ | 14,875 | $ | 4,681 | 31 | % |
Three Months Ended March 31, | Change | Three Months Ended December 31, | Change | |||||||||||||||||||||||||
2022 | 2021 | $ | % | 2021 | $ | % | ||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||
Electronic Test | $ | 8,778 | $ | 8,501 | $ | 277 | 3 | % | $ | 6,851 | $ | 1,927 | 28 | % | ||||||||||||||
Environmental Technologies | 6,993 | 6,198 | 795 | 13 | % | 7,176 | (183 | ) | (3 | )% | ||||||||||||||||||
Process Technologies | 8,310 | 4,857 | 3,453 | 71 | % | 8,331 | (21 | ) | - | % | ||||||||||||||||||
$ | 24,081 | $ | 19,556 | $ | 4,525 | 23 | % | $ | 22,358 | $ | 1,723 | 8 | % | |||||||||||||||
Semi | $ | 13,390 | $ | 13,320 | $ | 70 | 1 | % | $ | 12,284 | $ | 1,106 | 9 | % | ||||||||||||||
Industrial | 2,799 | 1,427 | 1,372 | 96 | % | 2,172 | 627 | 29 | % | |||||||||||||||||||
Auto/EV | 2,756 | 1,327 | 1,429 | 108 | % | 2,697 | 59 | 2 | % | |||||||||||||||||||
Life Sciences | 699 | 643 | 56 | 9 | % | 409 | 290 | 71 | % | |||||||||||||||||||
Defense/Aerospace | 1,493 | 1,252 | 241 | 19 | % | 1,322 | 171 | 13 | % | |||||||||||||||||||
Security | 574 | - | 574 | n/a | 693 | (119 | ) | (17 | )% | |||||||||||||||||||
Other | 2,370 | 1,587 | 783 | 49 | % | 2,781 | (411 | ) | (15 | )% | ||||||||||||||||||
$ | 24,081 | $ | 19,556 | $ | 4,525 | 23 | % | $ | 22,358 | $ | 1,723 | 8 | % |
Total consolidated net revenuesrevenue for the three months ended March 31, 2021 were $19.62022 was $24.1 million compared to $11.2$19.6 million for the same period in 20202021 and $14.9$22.4 million for the three months ended December 31, 2020. We believe the increase in our consolidated net revenues compared to the same period in 2020 and the three months ended December 31, 2020 primarily reflects the aforementioned increase in demand from the Semi Market.
Net revenues from customers in Multimarket2021. Revenue for the three months ended March 31, 2022 included $4.0 million from the businesses we acquired during the fourth quarter of 2021, were $6.2as previously discussed. Acquired businesses accounted for $1.5 million or 32% of total consolidated net revenues,revenue during the fourth quarter of 2021.
Organic growth in revenue for the three months ended March 31, 2022 was 3% compared to $6.2 million, or 55% of total consolidated net revenues for the same period in 20202021 and $7.3 million or 49% of total consolidated net revenues forreflected demand from the automotive market, in particular EVs, as well as industrial markets. The acquired businesses contributed to growth in life sciences, security and other markets. Revenue from the semi market was relatively unchanged compared to the same period in 2021 as demand from front-end semi customers offset the decline in sales to the back-end semi customers which were exceptionally strong in the same period in 2021, as previously mentioned. Compared with the three months ended December 31, 2020. The reduced net revenues in Multimarket for2021, revenue excluding acquired businesses declined approximately 4% largely reflecting logistics and supply chain constraints that did not allow us to ship all of the orders we had planned to ship during the first quarter of 2021 compared to the fourth quarter of 20202022. The incremental increase from acquired businesses primarily reflect weaker demand from customers in the industrial market and, to a lesser extent, customers in the defense/aerospace and medical markets. These declines were partially offset by an increase in net revenues from customers in the automotive market. Net revenues from Multimarket customers were relatively flatreflects that we owned these businesses for the firstfull quarter of 2021 compared to the same period in 2020. Increases from the automotive market were offset by decreases in demand from customers in the industrial and defense/aerospace markets.
COVID-19 Pandemic
Demand from all of the marketswhile we serve was significantly affected by COVID-19 during the first half of 2020. The impact of COVID-19 on demand from the Semi Market was intensified during the first half of 2020 because our business operations were also being negatively affected by a global downturn in the Semi Market at that time. The Semi Market, from which approximately half of our orders and net revenues are derived, entered a cyclical downturn in the beginning of 2019. During the first quarter of 2020, before the spread of COVID-19, weonly had started to see indications that the downturn was coming to an end. These indications included increased quoting activity and order levels for the first quarter of 2020 compared to the fourth quarter of 2019. However, we believe COVID-19 delayed the recovery in the Semi Market as the increase in activity leveled off during late March 2020. Although we saw slightly increased order rates from our customers in the Semi Market during the second and third quarters of 2020, it was not until the fourth quarter of 2020 that we saw a significant increase in our orders from the Semi Market, which we believe indicates that we have now entered the next cyclical upturn. During the fourth quarter of 2020, our orders from the Semi Market increased 53% sequentially and were 141% higher thanrevenue in the fourth quarter of 2019,2021 from the low pointrespective dates of acquisition through December 31, 2021.
War in Ukraine and Global Supply Chain Constraints
The ongoing war between Russia and Ukraine continues to contribute to global inflationary pressures and the availability of certain raw materials produced in that region, further exacerbating global supply chain challenges that emerged after the onset of the prior cyclical downturn forCOVID-19 pandemic as described below. As discussed in Part 1, Item IA “Risk Factors” in our 2021 Form 10-K, Acculogic, which we acquired in December 2021, purchases certain material from a key sole-source supplier in Belarus, which is bordered by Russia to the productseast and northeast and Ukraine to the south. We estimate that we sell. This trendcurrently have a six to nine month supply of this material. Since February 2022, we have been working through the process of qualifying an alternate supplier for this material. Although we expect to have completed that qualification by the end of the second quarter of 2022, if we do not successfully identify and qualify an alternate vendor for this material, our revenue and earnings could be adversely affected in our orders fromfuture periods.
In addition, while we were able to mitigate a significant portion of the Semi Market continuedsupply chain and logistics challenges that we encountered in the first quarter of 2021 with a2022, we have approximately $1.0 million of products that we were not able to ship during the quarter because of such constraints. We expect to ship all of such products during the second quarter of 2022. However, we expect to continue to experience increased prices, lack of availability and logistics delays for the foreseeable future. The actions we are taking to mitigate these risks include qualifying new vendors as alternate sources in our supply chain, increasing our inventory of raw materials and ordering further 54% sequential increase from the levelin advance of when we expect to need materials than has been our practice in the fourth quarterpast. We are also increasing the prices that we charge our customers as a result of 2020. We believeincreased raw material expenses, and we are working with our customers to find alternate options for the shipment of products where they control aspects of the logistics process. However, the situation is evolving and shifting rapidly at times, and the success of our efforts to mitigate and address the impacts on our business may not be successful. As a result, we could see increases in our costs or reduced revenues which would impact the level of increaseour earnings in future periods.
Please refer to Part 1, Item 1A of our 2021 Form 10-K for further discussion of the risks associated with our business operations, including risks associated with foreign operations.
COVID-19 Pandemic
With respect to the COVID-19 pandemic, we are following the guidance of the Centers for Disease Control and Prevention and the local regulatory authorities in regions outside the U.S. While in most cases we are no longer requiring employees to wear masks indoors in our orders and net revenues from the Semi Market during the fourth quarterdomestic locations, in certain of 2020 and the first quarter of 2021 reflectsour facilities, where we have experienced a combination of increased demand in the market resulting from the interruption of the normal recovery in the Semi Market cycle caused by the onset of COVID-19 in the first half of 2020, as well as increased demand for semiconductors, generally. We believe this increase in demand is being driven both by changing technology as well as increased use of technology across all aspects of daily life, such as in devices that facilitate remote work and education, smart technology used in homes and businesses, therecent increase in the number of ICs usedemployees contracting the virus, we have re-instituted a mask requirement. We are encouraging all employees to receive COVID-19 vaccinations and boosters, if possible. We are continuing to conduct temperature screenings and encouraging all employees to maintain social distancing when appropriate. We are also continuing to allow employees to work remotely either part-time or full-time in circumstances when possible. We are still assessing the impact of the recent increase in cases in certain of our facilities and exploring alternatives to address the lost production time. With regard to the recent shutdowns in China, we are working with our customers to identify alternate plans for delivery of our products to this region. If the spread of COVID-19 or its variants continues to worsen, we may experience additional lost production time or further interruption in our ability to ship our products to our customers. In addition, if one or more of our significant customers or suppliers is impacted, or significant additional governmental regulations and restrictions are imposed, our business in the automotive industryfuture could be negatively impacted. We continue to monitor the situation closely and changes occurring in the telecommunications and mobility markets.
As of the date of this filing, all ofwill adjust our operations continue to be deemed “critical and essential business operations” under the various governmental COVID-19 mandates, which has allowed us to continue to operate our business with certain modifications. These modifications include a significant number of our employees working remotely. Such employees have been provided with the tools and technologyas necessary to do so. Additionally, we have implemented workplace safeguards designed to protect the health and well-being of our employees. Employees who remain in our facilitiesTo the extent that further governmental mandates or restrictions are following WHO and CDC recommended safety practices, as well as state and local directives. We have had occasions where one or more employees have contracted COVID-19 and entered our facilities while infected. To date, we have managed these occurrences with minimal disruption to our business while protecting other employees, but there can be no assurances that we can avoid similar occurrencesimplemented in the future, or, that in such cases, we can avoid significant disruption of our operations.
The aftermarket service and support that we provide to our customers has been, and we expect may continue to be, adversely impacted by COVID-19. Specifically, the travel restrictions that remain in place, coupled with limitations on visitors into customer facilities, have resulted in the reduction or suspension of in-person service and support activities. The net revenues associated with these aftermarket service and support activities typically range from 8% to 10% of our consolidated net revenues. Although these net revenues returned to a more typical range during the second half of 2020, they declined again in the first quarter of 2021. If the spread of COVID-19 or variations of the virus worsen, these revenues may continue to be reduced in future periods.
While the negative impact of COVID-19 on our business was reduced significantly in the second half of 2020 and the first quarter of 2021, the spread of the virus or variants of the virus could worsen and one or more of our significant customers or suppliers could be impacted, or significant additional governmental regulations and restrictions could be imposed, thus negatively impacting our business in the future. As a result of our current level of working capital as well as the availability of our revolving credit facility, which is discussed in Note 9 to our consolidated financial statements in this Report, we currently expect to have sufficient liquiditybe able to continue to operate our business throughout 2021. Our revolving credit facility, which had no outstanding balance, was setin a manner similar to mature on April 9, 2021. As discussed in Note 14 to our consolidated financial statements in this Report,how we modified this facility on April 10, 2021 and extended it as modified through April 9, 2024.have operated over the past year.
Results of Operations
The results of operations for all of our two operating segments are generally affected by the same factors described in the Overview and COVID-19 Pandemic section.section above. Separate discussions and analyses for each segment would be repetitive. The discussion and analysis that follows, therefore, is presented on a consolidated basis and includes discussion of factors unique to each segment where significant to an understanding of that segment.
Three Months Ended March 31, 20212022 Compared to Three Months Ended March 31, 20202021Net Revenues.Revenue. Net revenues were $19.6Revenue was $24.1 million for the three months ended March 31, 20212022 compared to $11.2$19.6 million for the same period in 2020,2021, an increase of $8.3$4.5 million, or 74%23%. We believe the significant increase in our net revenuesrevenue during the first quarter of 20212022 primarily reflects the current cyclical upturn in the Semi Market asfactors previously discussed in the Overview and COVID-19 Pandemic section.
Gross Margin. Our consolidated gross margin was 49%46% of net revenuesrevenue for the three months ended March 31, 20212022 as compared to 43%49% of net revenuesrevenue for the same period in 2020.2021. The increasedecrease in our gross margin as a percentage of net revenues primarily reflects a decrease in our fixed operating costs as a percentagecombination of net revenues. Although our fixed operating costs were relatively unchanged in absolute dollar terms, they declined from 22% of net revenues in the first quarter of 2020 to 13% of net revenues in the first quarter of 2021. This is a result of these costs being more fully absorbed by the higher net revenues levels in the first three months of 2021. Our accruals for excess and obsolete inventory declined in absolute dollar terms by $131,000, or 77%, and as a percentage of net revenues, from 2% in the first quarter of 2020 to less than 1% in the first quarter of 2021. The decreases in our fixed operating costs and excess and obsolete inventory charges were partially offset by an increase in our component material costs as a percentage of net revenues,revenue, reflecting changes in product and customer mix, and an increase in our direct labor as a percentage of revenue, reflecting an increase in the mixrelative labor component of products sold.
our cost structure. This increase reflects both the impact of the acquired businesses as well as increases in the average rates paid for labor as compared to the same period in 2021. The increase in labor rates reflects both inflation and merit increases given on April 1, 2021. To a lesser extent, there was also an increase in our fixed operating costs as a percent of revenue, reflecting both the impact of the acquired businesses as well as headcount investments in our legacy business.
Selling Expense. Selling expense was $2.4$3.5 million for the three months ended March 31, 20212022 compared to $2.1$2.4 million for the same period in 2020,2021 an increase of $351,000,$1.1 million, or 17%44%. The acquired businesses account for approximately $721,000 of this increase. The remaining increase primarily reflects higher levels of commissions inheadcount investments and increased travel across all our EMS segment as a result of the higher net revenue levels achieved for the three months ended March 31, 2021 compared to the same period in 2020. This increase wassegments. These increases were partially offset by a reductiondecrease in travel costs for the three months ended March 31, 2021 compared to the same periodcommission expense, reflecting changes in 2020. Our sales personnel have not yet returned to the level of travel that was typical prior to the onset of COVID-19.
customer mix.
Engineering and Product Development Expense. Engineering and product development expense was relatively unchanged at $1.3$1.9 million for both the three months ended March 31, 2022 compared to $1.3 million for the same period in 2021 an increase of $602,000, or 46%. The acquired businesses account for approximately $478,000 of this increase. The remaining increase primarily reflects headcount investments and 2020. Therean increase in supplies used in product development. These increases were no significant changespartially offset by a reduction in any of the components of engineering and product development expense.
legal fees related to our intellectual property.
General and Administrative Expense. General and administrative expense was $3.2$4.8 million for the three months ended March 31, 20212022 compared to $2.9$3.2 million for the same period in 2020,2021 an increase of $285,000,$1.7 million, or 10%53%. The acquired businesses account for approximately $1.3 million of this increase. The remaining increase primarily reflects higher levels of profit-based bonus accruals andheadcount investments as well as an increase in the value of stock-based compensation awards grantedprofessional fees paid to our senior management and Board of Directors. These increases were partially offset by a reduction in salary and benefits expense, reflecting headcount reductions. The reduction in headcount was primarily in our Thermal segment and, to a lesser extent, in our corporate staff. We also recorded a lower level of fees forvarious third party professionalsparties who assist us in compliance related matters during the first quarter of 2021 compared to the same period in 2020.with our strategic initiatives and regulatory compliance.
Restructuring and Other Charges. Charges. For the three months ended March 31, 2021, we recorded $55,000 in restructuring and other charges related to the consolidation of our EMS manufacturing operations. DuringThere were no similar charges in the same period in 2020, we recorded $8,000 in restructuring and other charges related to headcount reductions in our Corporate staff.three months ended March 31, 2022.
Income Tax Expense (Benefit).Expense. For the three months ended March 31, 2021,2022, we recorded income tax expense of $366,000$78,000 compared to an income tax benefitexpense of $250,000$366,000 for the same period in 2020.2021. Our effective tax rate was 14%12% for the three months ended March 31, 20212022 compared to 18%14% for the same period in 2020.2021. On a quarterly basis, we record income tax expense or benefit based on the expected annualized effective tax rate for the various taxing jurisdictions in which we operate our businesses.
Liquidity and Capital Resources
As discussed more fully in the Overview, our business and results of operations are substantially dependent upon the demand for ATE by semiconductor manufacturers and companies that specialize in the testing of ICs. The cyclical and volatile nature of demand for ATE makes estimates of future revenues,revenue, results of operations and net cash flows difficult.
Our primary historical source of liquidity and capital resources has been cash flow generated by our operations,operations. In 2021, we also utilized our new credit facility, which is discussed further in the Overview and webelow, to fund our acquisitions. We manage our businesses to maximize operating cash flows as our primary source of liquidity.liquidity for our short-term cash requirements, as discussed below. We use cash to fund growth in our operating assets, for new product research and development, for acquisitions and for stock repurchases. We currently anticipate that any additional long-term cash requirements related to our strategy would be funded through a combination of our cash and cash equivalents, our new credit facility or by issuing equity.
Credit Facility
As discussed in Note 11 to our consolidated financial statements in this Report, on October 15, 2021, we entered into the October 2021 Agreement with M&T. The October 2021 Agreement includes a $25 million Term Note and a $10 million revolving credit facility and replaces our prior credit facility with M&T. The October 2021 Agreement has a five-year contract period that expires on October 15, 2026 and draws under the Term Note will be permissible for two years. The principal balance of the revolving credit facility and the principal balance of any amount drawn under the Term Note will accrue interest based on the Secured Overnight Financing Rate or a bank-defined base rate plus an applicable margin, depending on leverage. The October 2021 Agreement includes customary affirmative, negative and financial covenants, including a maximum ratio of consolidated funded debt to consolidated EBITDA and a fixed charge coverage ratio. Our obligations under the October 2021 Agreement are secured by liens on substantially all of our tangible and intangible assets.
On October 28, 2021, we drew $12 million under the Term Note to finance the acquisition of Videology. We also entered into an interest rate swap agreement with M&T as of this date which is designed to protect us against fluctuations in interest rates during the five-year repayment and amortization period. As a result, the annual interest rate we expect to pay for this draw under the Term Note is fixed at approximately 3.2% based on current leverage.
On December 29, 2021, we drew $8.5 million under the Term Note to finance the acquisition of Acculogic. We did not enter into an interest rate swap agreement with M&T related to this draw. The annual interest rate we expect to pay for this draw under the Term Note is variable. At December 31, 2021, it was approximately 2.1% based on current leverage.
At March 31, 2022, there were no amounts borrowed under our revolving credit facility. This facility has a total borrowing availability of $10.0 million. At March 31, 2022 we had utilized $20.5 million of the availability under our Term Note and we had $4.5 million remaining available under our Term Note.
Liquidity
Our cash and cash equivalents and working capital were as follows (in thousands):
March 31, | December 31, | March 31, | December 31, | |||||||||||||
Cash and cash equivalents | $ | 10,195 | $ | 10,277 | $ | 17,211 | $ | 21,195 | ||||||||
Working capital | $ | 21,285 | $ | 18,108 | $ | 27,122 | $ | 27,005 |
As of March 31, 2021, $3.42022, $3.5 million, or 33%20%, of our cash and cash equivalents was held by our foreign subsidiaries. We currently expect our cash and cash equivalents, in combination with the borrowing capacity available under our revolving credit facility and the anticipated net cash to be provided by our operations in the next twelve months to be sufficient to support our short-term working capital requirements and other corporate requirements. Our revolving credit facility is discussed in Notes 1, 9 and 14Note 11 to our consolidated financial statements in this Report.statements.
Our material short-term cash requirements include payments due under our various lease agreements, recurring payroll and benefits obligations to our employees, and purchase commitments for materials that we use in the products we sell.sell and principal and interest payments on our debt. We estimate that our minimum short-term working capital requirements currently range between $5.0$8.0 million and $7.0$10.0 million. We also anticipate making investments in our business in the next twelve months including hiring of additional staff, updates to our website and other systems and investments related to our geographic and market expansion efforts. We expect our current cash and cash equivalents, in combination with the borrowing capacity available under our revolving credit facility and the anticipated net cash to be provided by our operations to be sufficient to support these additional investments as well as our current short-term cash requirements. However, should the impact of COVID-19 on our operations, including the disruption to our business that would be caused by any unanticipated facility closures or significantly reduced demand from our customers, be more significant than we currently expect, we may need additional financial resources, including additional debt or equity financings in the long-term. There can be no assurance that any such debt or equity financings would be available on favorable terms or rates or at all.
Our current strategy for growth strategy includes pursuing acquisition opportunities for complementary businesses, technologies or products. As discussed further in the Overview, on October 28, 2021, we acquired substantially all of the assets of Videology and on December 21, 2021, we completed the acquisition of Acculogic. We utilized $20.5 million under our new credit facility to finance these acquisitions. As previously discussed, we currently anticipate that any additional long-term cash requirements related to our acquisition strategy would be funded allthrough a combination of our cash and cash equivalents, the remaining availability under our new credit facility or in part through obtaining additional third-party debt orby issuing equity. If we were to obtain additional third-party debt, we do not currently know at what rates or on what terms any such debt would be available.
Cash Flows
Operating Activities.Activities. For the three months ended March 31, 2021,2022, we recorded net earnings of $2.2 million.$577,000. Net cash used in operations during this period was $337,000.$2.8 million. During the three months ended March 31, 2021,2022, we had non-cash charges of $740,000$1.3 million for depreciation and amortization which included $280,000$309,000 of amortization related to our ROU assets. Our operating lease liabilities declined $346,000 during this same period. During the three months ended March 31, 2021,2022, we also recorded $269,000$372,000 for amortization of deferred compensation expense related to stock-based awards. Accounts receivable increased $5.1 million$832,000 during the three months ended March 31, 2021,2022, reflecting the significant increase in net revenuesrevenue in the first quarter of 2022, while inventories and accounts payable increased $783,000$2.2 million and $1.2$1.6 million, respectively, also reflecting the increase in business levels. Customer deposits increased $799,000Accrued wages and benefits decreased $1.2 million during the three months ended March 31, 2022 reflecting the payment in March 2022 of profit-based bonuses accrued in 2021 primarily inon our Thermal segment.
results for the 2021 year.
Investing Activities.Activities. During the three months ended March 31, 2021,2022, purchases of property and equipment were $388,000,$335,000, primarily reflecting leasehold improvements to our facility in Mt. Laurel, New Jersey whichMansfield, Massachusetts for the space that our Videology subsidiary will be occupying in the second quarter of 2022. These improvements were funded using our working capital. We have no significant commitments for capital expenditures for the balance of 2021;2022; however, depending upon changes in market demand or manufacturing and sales strategies, we may make such purchases or investments as we deem necessary and appropriate. These additional cash requirements would be funded by our cash and cash equivalents, anticipated net cash to be provided by operations and our revolving credit facility.
Financing Activities. During the three months ended March 31, 2021,2022, we made principal payments on our Term Note totaling $883,000 and received $717,000$56,000 as a result of the exercise of options to acquire 99,740 sharespurchases of our stock. These optionsstock that were issued to certain current and formermade by our employees under our stock-based compensation plans which are discussed in Note 10the ESPP.
New or Recently Adopted Accounting Standards
See the Notes to our consolidated financial statements in this Report.
New or Recently Adopted Accounting StandardsSee the Notes to our consolidated financial statementsReport for information concerning the implementation and impact of new or recently adopted accounting standards.
Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues,revenue, expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, long-lived assets, goodwill, identifiable intangibles, contingent consideration liabilities and deferred income tax valuation allowances. We base our estimates on historical experience and on appropriate and customary assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Some of these accounting estimates and assumptions are particularly sensitive because of their significance to our consolidated financial statements and because of the possibility that future events affecting them may differ markedly from what had been assumed when the financial statements were prepared. As of March 31, 2021,2022, there have been no significant changes to the accounting estimates that we have deemed critical other than the change in accounting estimate that is discussed in Note 2 to our consolidated financial statements in this Report.critical. Our critical accounting estimates are more fully described in our 20202021 Form 10-K.
Off -Balance Sheet Arrangements
There were no off-balance sheet arrangements during the three months ended March 31, 20212022 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenuesrevenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
This disclosure is not required for a smaller reporting company.
Item 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Exchange Act. Because there are inherent limitations in all control systems, a control system, no matter how well conceived and operated, can provide only reasonable, as opposed to absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Our management, including the Chief Executive Officer (“CEO”)CEO and Chief Financial Officer (“CFO”),CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Accordingly, our management has designed the disclosure controls and procedures to provide reasonable assurance that the objectives of the control system were met.
CEO/CFO Conclusions about the Effectiveness of the Disclosure Controls and Procedures. As required by Rule 13a-15(b) of the Exchange Act, inTEST management, including our CEO and CFO, conducted an evaluation as of the end of the period covered by this Report, of the effectiveness of our disclosure controls and procedures including the impact of COVID-19. . Based on that evaluation, our CEO and CFO concluded that, as of the end of the period covered by this Report, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
During the period covered by this Report, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We will continue monitoring and assessing any impacts from COVID-19 on our internal controls.
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
From time to time we may be a party to legal proceedings occurring in the ordinary course of business. We are not currently involved in any material legal proceedings.
Item 1A. | Risk Factors |
Information regarding the primary risks and uncertainties that could materially and adversely affect our future performance or could cause actual results to differ materially from those expressed or implied in our forward-looking statements, appears in Part I, Item 1A - "Risk Factors" of our 20202021 Form 10-K filed with the Securities and Exchange Commission on March 23, 2021.2022. There have been no material changes from the risk factors set forth in our 20202021 Form 10-K.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
None.
Item 6. | Exhibits |
10.1 | ||
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31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a). | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a). | |
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Taxonomy Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
(1) | Previously filed by the Company as an exhibit to the Company’s Current Report on Form 8-K dated | |
(2) | Previously filed by the Company as an exhibit to the Company’s Current Report on Form 8-K dated | |
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| Indicates a management contract or compensatory plan, contract or |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
inTEST Corporation | ||
Date: | May 13, | /s/ Richard N. Grant, Jr. |
Richard N. Grant, Jr. | ||
Date: | May 13, | /s/ |
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