inTEST, Certainty in an Uncertain Environment

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inTEST,  Certainty in an Uncertain Environment

Ken Nagy, CFA

On August 1, 2012, inTest Corporation (INTT), an independent designer, manufacturer and marketer of semiconductor automatic test equipment interface solutions and temperature management products, reported financial results for its fiscal 2012 second quarter and six months, ended June 30, 2012.

Revenues during the second quarter of 2012 were $13.576 million compared to revenues of $10.731 million for the three months ended March 31, 2012 and revenues of $13.800 million during the second quarter ended June 30, 2011.

The Company’s second quarter revenues marked the second consecutive quarter of revenue growth which was driven by increasing demand for mobility products and increased overall test capacity on the part of our customers.

Likewise, 14 percent of second quarter 2012 net revenues were derived from non-semiconductor test.

Over the last few years inTest has been transforming itself through the strategic diversification of its Thermal products segment.

As a result the Company now addresses growth markets in both the semiconductor and non-semiconductor areas, which include automotive, consumer electronics, defense aerospace, telecommunications and most recently the nuclear market.

inTest further reported that second quarter bookings were $11.8 million, down from its first quarter 2012 bookings of $12.9 million and from second quarter 2011 bookings of $13.5 million.

10 percent of the Company’s second quarter 2012 bookings were derived from non-semiconductor test compared with 13 percent in the first quarter 2012.

Still, it should be noted that inTest’s Thermal segment bookings increased 19 percent over its first quarter while segment sales increased nearly 7 percent over sales from the segment’s first quarter.

The jump was due to a strong market in India and Korea during the quarter as India’s year over year bookings increased by 136 and bookings for Korea in the second quarter were for more than in all of 2011.
While the second quarter Mechanical segment’s bookings declined, segment sales increased 23% sequentially.
Furthermore, while the Company’s Electrical segment is historically its smallest segment, it was the most profitable in both a quarterly and year to date period with sales improving 89 percent sequentially and the outlook for segment bookings for the third quarter remaining strong.

Gross margin during the second quarter improved to 45.6 percent compared to 42.8 percent from the first quarter fiscal 2012. However, gross margin fell from 49.3 percent for the three months ended June 30, 2011.

inTest reported second quarter 2012 net income of  $1.334 million compared to a first quarter 2012 net loss of $43,000 and net income of $2.655 million for the three months ended June 30,2011.

The year over year drop in net income was primarily due to a year over year drop in gross margin as well as a $582,000 increase in income tax expense in the second quarter of 2012 over the second quarter of 2011.

Similarly, first quarter 2012 results reflect the effect of approximately $696,000 in non-recurring costs related to the acquisition of Thermonics, Inc. on January 16, 2012 which include restructuring costs of $359,000 (related to facility closure costs) and acquisition related expenses of $337,000.

Based on a weighted average number of diluted shares outstanding of 10.360 million, diluted net income per share resulted in net income of $0.13 per share for the quarter.  This compared to diluted net loss per share of $0.00 on a weighted average number of diluted shares of 10.205 million during the three months, ended March 31, 2012 and diluted net income per share of $0.26 on a weighted average number of diluted shares of 10.297 million during the second quarter ended June 30, 2011.

Revenues during the first half of 2012 were $24.307 million compared to revenues of $25.504 million for the six months ended June 30, 2011.

Gross margin during the first six months of 2012 dropped to 44.4 percent compared to 46.6 percent from the first half of fiscal 2011.

First half 2012 net income was $1.291 million compared to net income of $3.912 million for the six months ended June 30, 2011.

Here again, the year over year drop in net income was primarily due to the drop in gross margin and a $973,000 increase in total operating expenses as well as $494,000 increase in income tax expense in the first half 2012 compared to the first six months of 2011.

inTest’s balance sheet improved sequentially during the second  quarter with cash and equivalents of $11.699 million and working capital of $19.958 million.  This compares to $10.101 million in cash and equivalents and working capital of $19.919 million for the period ended March 31, 2012.

Likewise, total stockholder’s equity improved sequentially by roughly $1.354 million to $27.584 million.

Management anticipates that cash and equivalents will increase sequentially for the balance of 2012.

Still, as a result of current uncertainty in the global economic environment and analysts reducing their forecasts for 2012 CAPEX industry to now decline 10 to 15 percent, inTest stated that it’s maintaining its fiscal discipline and cost controls.

Likewise, management continues to focus on leveraging its capabilities to serve its customers in its traditional semiconductor market and to further develop new markets addressed by inTEST Thermal Solutions.

Here again, over the past few years inTest has been attempting to transform itself through the strategic diversification of its Thermal Products segment, which remains the Company’s strongest segment, driven by mobility and opportunities in the telecom market.

inTest expects to continue to leverage its Thermal division and the Sigma Systems acquisition and expects that non-semiconductor related products will continue to play an even greater role its future success as it further diversifies end market penetration.

Similarly, in January 2012, Temptronic Corporation, a member of inTEST Corporation's Thermal Solutions Group, closed on the acquisition of Thermonics, Inc.

With a purchase price for the assets of approximately $3.8 million in cash (which included net working capital of approximately $1.1 million) , Thermonics is expected to further enhance inTEST's presence in the ATE industry as well as provide additional leverage into growth industries outside of the semiconductor industry.

Along the same lines, moving forward the Company expects non-semiconductor related products to play an even greater role in the Company's growth strategy and success.

Last, management reported that it anticipates that net revenues for the third quarter ended September 30, 2012 will be in the range of $9.5 to $10.5 million and that net earnings will be in the range of $0.00 to $0.04 per diluted share.

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