inTEST (INTT) - 2021 Q4 - Annual Report

PART I Business inTEST Corporation, a global test and process solutions provider, targets $200-$250 million revenue by 2025, driven by strategic acquisitions and strong Semi Market growth - The company launched a 5-Point Strategy in 2021, aiming for $200 million to $250 million in annual revenue by 2025 through organic growth and acquisitions[23] - Three strategic acquisitions in 2021 expanded technology, diversified markets, and increased European presence: Z-Sciences (North Sciences) for ultra-cold storage, Videology for digital imaging, and Acculogic for robotics-based test equipment[29][30][31][32] Revenue by Market (2021 vs. 2020) | Market | 2021 Revenue ($ in thousands) | 2021 % of Total | 2020 Revenue ($ in thousands) | 2020 % of Total | YoY Change $ | YoY Change % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Multimarket | $29,941 | 35.3% | $26,953 | 50.1% | $2,988 | 11.1% | | Semi Market | $54,937 | 64.7% | $26,870 | 49.9% | $28,067 | 104.5% | - The company operates through two segments: Thermal Products (thermal test, induction heating, digital imaging, ultra-cold storage) and Electromechanical Semiconductor Products (EMS) (semiconductor test products, robotics-based electronic test equipment)[55][57] - Texas Instruments accounted for 13% of consolidated revenue in 2021, with the top ten customers representing approximately 43% of total revenue[91] - Unfilled orders backlog significantly increased to $34.1 million at year-end 2021 from $11.5 million in 2020, with most expected for 2022 delivery[108] Risk Factors The company faces risks from acquisitions, semiconductor market cyclicality, supply chain, customer concentration, and geopolitical events - The company's acquisition-based growth strategy carries financial and management risks, including challenges in identifying targets, integrating operations, or realizing expected benefits[114][116] - Business performance is highly dependent on the cyclical capital expenditures of semiconductor manufacturers, leading to significant fluctuations in operating results[126] - Global supply chain constraints, including material price increases and availability issues, pose risks to revenues and earnings if costs cannot be passed to customers[129] - A significant portion of sales comes from a concentrated customer base, with Texas Instruments accounting for 13% of 2021 revenue and the top ten customers for 43%, posing a risk if a major customer is lost[137] - The Ukraine conflict risks supply chain disruption, especially for a sole-source supplier in Belarus for the Acculogic business, potentially impacting revenue and earnings[141] - The COVID-19 pandemic continues to pose risks, including impacts on customers/suppliers, employee infections, and factory shutdowns, potentially affecting business operations and financial results[146][149] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[155] Properties As of December 31, 2021, inTEST Corporation leased twelve facilities worldwide, with principal locations in Mansfield, MA, Mt. Laurel, NJ, and Rochester, NY Principal Leased Facilities (as of Dec 31, 2021) | Location | Lease Expiration | Approx. Square Footage | Principal Uses | | :--- | :--- | :--- | :--- | | Mansfield, MA | Dec 2024 | 52,700 | Thermal segment operations (principal facility for iTS) | | Mt. Laurel, NJ | Apr 2031 | 33,650 | Corporate headquarters and EMS segment operations | | Fremont, CA | Nov 2025 | 15,746 | EMS segment sales and engineering | | Rochester, NY | Apr 2028 | 79,150 | Thermal segment operations (principal facility for Ambrell) | Legal Proceedings The company states it is not currently involved in any material legal proceedings - The company is not currently a party to any material legal proceedings[157] Mine Safety Disclosures This section is not applicable to the company - Not applicable[158] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities inTEST Corporation's common stock trades on the NYSE American under "INTT", with no dividends paid in 2020 or 2021, and a suspended stock repurchase plan - The company's common stock is traded on the NYSE American LLC under the symbol "INTT"[160] - No dividends were paid in 2021 or 2020, and the company does not currently plan to pay cash dividends, instead opting to reinvest earnings for business expansion and potential acquisitions[161] - The 2019 stock repurchase plan was suspended on March 2, 2020, after repurchasing 243,075 shares at a cost of $1.2 million[163] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong 2021 performance to increased Semi Market demand and Multimarket growth, with total revenue up 58% to $84.9 million, improved gross margin, and significant backlog growth, supported by new credit facilities for acquisitions Orders by Segment and Market (2021 vs. 2020) | Category | 2021 ($ in thousands) | 2020 ($ in thousands) | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | By Segment | | | | | | Thermal | $68,420 | $43,014 | $25,406 | 59% | | EMS | $33,522 | $16,726 | $16,796 | 100% | | Total | $101,942 | $59,740 | $42,202 | 71% | | By Market | | | | | | Semi Market | $68,457 | $32,383 | $36,074 | 111% | | Multimarket | $33,485 | $27,357 | $6,128 | 22% | | Total | $101,942 | $59,740 | $42,202 | 71% | Revenue by Segment and Market (2021 vs. 2020) | Category | 2021 ($ in thousands) | 2020 ($ in thousands) | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | By Segment | | | | | | Thermal | $52,369 | $40,209 | $12,160 | 30% | | EMS | $32,509 | $13,614 | $18,895 | 139% | | Total | $84,878 | $53,823 | $31,055 | 58% | | By Market | | | | | | Semi Market | $54,937 | $26,870 | $28,067 | 104% | | Multimarket | $29,941 | $26,953 | $2,988 | 11% | | Total | $84,878 | $53,823 | $31,055 | 58% | - Gross margin increased to 49% in 2021 from 45% in 2020, primarily due to better absorption of fixed operating costs on higher revenue, partially offset by higher component material costs from supply chain challenges[193] - General and administrative expenses rose by $4.4 million (39%) in 2021, driven by $1.9 million in transaction expenses for acquisitions and financing activities, higher bonuses, and increased stock-based compensation[196] - The company secured a new credit facility in October 2021, including a $25 million term note and a $10 million revolver, drawing $20.5 million from the term note to finance the acquisitions of Videology and Acculogic[178][201] Liquidity Overview (as of Dec 31) | Metric | 2021 ($ in thousands) | 2020 ($ in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $21,195 | $10,277 | | Working capital | $27,005 | $18,108 | Quantitative and Qualitative Disclosures About Market Risk This disclosure is not required for a smaller reporting company - Disclosure is not required for a smaller reporting company[226] Financial Statements and Supplementary Data This section incorporates the company's consolidated financial statements by reference, which are included at the end of the report - The consolidated financial statements are set forth in the report beginning at page F-1[227] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[228] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2021, and internal control over financial reporting was also effective, excluding recently acquired entities, with no material changes reported - The CEO and CFO concluded that as of the end of the period, the company's disclosure controls and procedures were effective at the reasonable assurance level[230] - Management's assessment of internal control over financial reporting concluded it was effective as of December 31, 2021, excluding the recently acquired entities (Z-Sciences, Videology, and Acculogic)[233][235] - No changes in internal control over financial reporting occurred during the period that materially affected, or are reasonably likely to materially affect, internal controls[231] Other Information The company reports no other information for this item - None[237] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2022 Annual Meeting of Stockholders proxy statement, and a Code of Ethics is available on its website - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[240] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[242] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2022 proxy statement, with 408,869 securities to be issued upon option exercise at a weighted-average price of $9.07, and 984,574 available for future issuance under equity plans as of December 31, 2021 - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[243] Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 408,869 | $9.07 | 984,574 | | Total | 408,869 | $9.07 | 984,574 | Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[246] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[247] PART IV Exhibits, Financial Statement Schedules This section lists the documents filed as part of the Annual Report on Form 10-K, including consolidated financial statements, the independent auditor's report, a financial statement schedule, and various exhibits - The documents filed as part of the report include consolidated financial statements, the independent auditor's report, Schedule II (Valuation and Qualifying Accounts), and exhibits required by Item 601 of Regulation S-K[249][250] Form 10-K Summary No Form 10-K summary is provided - None[251] Financial Statements Report of Independent Registered Public Accounting Firm RSM US LLP issued an unqualified opinion on inTEST Corporation's 2021 and 2020 consolidated financial statements, highlighting critical audit matters related to the accounting for 2021 business combinations and the annual goodwill valuation - RSM US LLP provided an unqualified opinion, stating the financial statements are presented fairly in conformity with U.S. GAAP[263] - The audit identified two Critical Audit Matters: Business Combination (accounting for Videology and Acculogic acquisitions due to subjective intangible asset valuation) and Valuation of Goodwill (annual impairment test due to significant judgments in the discounted cash flow model for the Thermal reporting unit)[267][268][272] Consolidated Financial Statements The 2021 consolidated financial statements show significant growth, with total assets increasing to $103.9 million, total liabilities to $49.1 million (due to a new term note), and net earnings of $7.3 million, a substantial improvement from a 2020 net loss Consolidated Balance Sheet Highlights (as of Dec 31) | Account ($ in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $21,195 | $10,277 | | Total current assets | $52,077 | $26,964 | | Goodwill | $21,448 | $13,738 | | Total assets | $103,905 | $62,030 | | Total current liabilities | $25,072 | $8,856 | | Term Note (current & long-term) | $20,100 | $- | | Total liabilities | $49,082 | $17,278 | | Total stockholders' equity | $54,823 | $44,752 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Account ($ in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Revenue | $84,878 | $53,823 | | Gross margin | $41,224 | $24,104 | | Operating income (loss) | $8,459 | $(1,217) | | Net earnings (loss) | $7,283 | $(895) | | Net earnings (loss) per share – diluted | $0.68 | $(0.09) | Notes to Consolidated Financial Statements The notes detail three 2021 acquisitions (Z-Sciences, Videology, Acculogic) that significantly increased goodwill and intangible assets, restructuring charges, a new credit facility with $20.1 million debt outstanding, strong EMS segment operating income, and doubled stock-based compensation expense - Details three acquisitions completed in Q4 2021: Z-Sciences acquired for $0.5 million (adding $0.1 million in goodwill), Videology acquired for $12.1 million (adding $4.6 million in goodwill and $5.2 million in intangible assets), and Acculogic acquired for approximately $9.3 million plus potential contingent consideration (adding a preliminary $2.9 million in goodwill and $5.1 million in intangible assets)[335][340][348] - Restructuring and other charges were $286,000 in 2021, primarily for finalizing the EMS manufacturing consolidation and former CFO retirement costs, a significant decrease from $1.3 million in 2020[197][361] - Goodwill increased from $13.7 million in 2020 to $21.4 million in 2021 due to the three acquisitions, with the Thermal segment holding $18.4 million and the EMS segment holding $3.1 million[374] - The company entered into a new credit facility in October 2021 and drew down $20.5 million to fund acquisitions, with $20.1 million of the Term Note outstanding as of December 31, 2021[401][404][405] Segment Operating Income (Loss) (Year Ended Dec 31) | Segment ($ in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Thermal | $2,759 | $325 | | EMS | $9,431 | $(1,113) | | Corporate | $(3,731) | $(429) | | Total | $8,459 | $(1,217) |