8-K: inTEST Corporation Reports Mixed Q1 Results, Adjusts Full-Year Outlook

inTEST Corporation's first quarter revenue reached $29.8 million, showing sequential growth but a year-over-year decline, with adjusted full-year revenue expectations lowered to $140-$150 million.

Summary

• inTEST Corporation reported first quarter 2024 revenue of $29.8 million, a 7% increase sequentially, which includes $1.4 million from the Alfamation acquisition.
• Compared to the same period last year, overall sales decreased, but growth in industrial and defense/aerospace markets partially offset the decline in semiconductor sales.
• Earnings per diluted share were $0.05, while adjusted earnings per diluted share were $0.10.
• The company generated $2.1 million in cash from operations, with cash at the end of the quarter at $27.3 million, reflecting the $19 million used for the Alfamation acquisition.
• Full-year revenue expectations have been adjusted to $140 million to $150 million, representing an 18% growth over 2023 at the midpoint.
• The company experienced a slowdown in order trends, with some expected opportunities being delayed or reduced, leading to a moderation of the full-year outlook.
• inTEST has a record backlog of $55.5 million, which includes $22.8 million from the Alfamation acquisition.
• Second quarter revenue is expected to be between $34 million and $36 million, with a gross margin of 44% to 45%.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While there are positives like sequential revenue growth and a record backlog, the year-over-year decline, reduced guidance, and order delays temper the overall outlook. The company is facing challenges in the semiconductor market and is working to diversify, but the near-term visibility is limited.

Positives

• Sequential revenue increased by 7%, driven by the Alfamation acquisition and growth in defense/aerospace and semiconductor markets.
• The company generated $2.1 million in cash from operations.
• The backlog reached a record $55.5 million, boosted by the Alfamation acquisition.
• The company has extended the maturity of its debt facilities to 2031, providing financial flexibility.
• The company is seeing growth in diversified markets such as industrial and defense/aerospace.

Negatives

• Year-over-year revenue declined by $2.1 million, primarily due to a $2.7 million decrease in semiconductor sales.
• Gross margin contracted by 340 basis points compared to the prior year, partly due to the Alfamation acquisition.
• Operating income decreased significantly by 86% year-over-year.
• First quarter orders declined by 26% compared to the prior year, with a 44% drop in semiconductor orders.
• Approximately $5 million in expected orders were delayed or reduced by customers.
• Full-year revenue guidance was lowered from $145-$155 million to $140-$150 million.

Risks

• The semiconductor market is experiencing tempered conditions, impacting sales and order volumes.
• The company is facing challenges in converting opportunities to orders, with a slowing rate of conversion.
• The Alfamation acquisition, while contributing to revenue, has diluted gross margins.
• The company is experiencing increased operating expenses due to acquisition-related costs and higher professional fees.
• There is limited near-term visibility, making it difficult to predict future performance accurately.
• The company is exposed to macroeconomic conditions and customer capital expenditure decisions.

Future Outlook

The company expects second quarter revenue to be between $34 million and $36 million, with a gross margin of 44% to 45%. Full-year revenue is now expected to be between $140 million and $150 million. The company anticipates continued growth in 2024, aided by the Alfamation acquisition, despite limited near-term visibility.

Management Comments

• Nick Grant, President and CEO, stated that first quarter results reflect the tempered semiconductor market conditions seen exiting 2023.
• He noted that while sales were up sequentially, margins were impacted by the timing of the acquisition, sales mix, and higher professional fees.
• He mentioned a sudden shift in order trends, with some opportunities being delayed or reduced.
• He highlighted the record backlog of $55.5 million, which includes $22.8 million from Alfamation.
• He expressed confidence in the long-term outlook and the company's strategy to become a global leader in test and process technologies.

Industry Context

The announcement reflects the ongoing challenges in the semiconductor industry, with slower demand impacting capital investments. However, inTEST is diversifying into other markets like industrial and defense/aerospace to mitigate the impact of the semiconductor downturn. The acquisition of Alfamation is a strategic move to expand into automotive/EV and other sectors.

Comparison to Industry Standards

• Compared to companies like Teradyne and Advantest, which also serve the semiconductor test equipment market, inTEST's results show a similar trend of reduced demand in the semiconductor sector.
• However, inTEST's diversification strategy into industrial and defense/aerospace markets is a differentiating factor compared to companies more heavily reliant on semiconductor sales.
• The gross margin contraction is a common challenge in the industry, especially with acquisitions and changing product mixes, similar to what other companies have reported.
• The backlog increase, driven by the Alfamation acquisition, is a positive sign, but the company needs to convert this backlog into revenue effectively, which is a challenge faced by many companies in the sector.

Stakeholder Impact

• Shareholders may be concerned about the reduced full-year revenue guidance and the decline in profitability.
• Employees may be affected by the company's efforts to manage costs and integrate the acquisition.
• Customers may experience delays or changes in order fulfillment due to the current market conditions.
• Suppliers may be impacted by changes in the company's order patterns.
• Creditors may be impacted by the company's debt levels and financial performance.

Next Steps

• The company will host a conference call and webcast to discuss the financial results and corporate strategy.
• The company will focus on converting its record backlog into revenue.
• The company will continue to integrate the Alfamation acquisition.
• The company will continue to pursue its 5-Point Strategy.
• The company will continue to monitor market conditions and customer forecasts.

Key Dates

Keywords

inTEST Corporation, Alfamation, semiconductor, revenue, backlog, acquisition, financial results, earnings, orders, gross margin, defense, aerospace, industrial