Non Semiconductor Business contributes to profitability at inTEST

Zacks Small Cap Research

By Ken Nagy, CFA

On October 31, 2012, inTest Corporation (NasdaqCM: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 third quarter and nine months, ended September 30, 2012.

Revenues during the third quarter of 2012 were $10.799 million compared to revenues of $13.576 million for the three months ended June 30, 2012 and revenues of $11.681 million during the third quarter ended September 30, 2011.

Ten percent of third quarter 2012 net revenues were derived from non-semiconductor test compared to 14 percent of second quarter 2012 net revenues being 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 third quarter bookings were $8.7 million, down from its second quarter 2012 bookings of $11.8 million and from third quarter 2011 bookings of $10.5 million.

Still, 17 percent of the Company’s third quarter 2012 bookings were derived from non-semiconductor test which was solidly above the 10 percent from the second quarter 2012 and which was the Company’s highest percentage recorded this year.

Gross margin during the third quarter fell to 44.1 percent compared to 45.6 percent from the second quarter fiscal 2012 and 52.5 percent for the three months ended September 30, 2011.

The quarter over quarter reduction in gross margin was driven by a less favorable absorption of the Company’s fixed manufacturing cost in the third quarter of 2012 which increased to 15% of revenues in the third quarter from 13% of revenues in the second quarter.

However, while inTest’s fixed manufacturing cost increased as a percentage of revenue quarter over quarter, they actually declined in absolute dollar terms.by $200,000, primarily as a result of reductions in temporary staffing levels in its thermal products segment.

inTest reported second quarter 2012 net income of  $664,000 compared to a second quarter 2012 net income of $1.334 and net income of $5.182 million for the three months ended September 30,2011.

Contributing to the profitability was the Company’s non-semi component growing by 7% quarter over quarter.

The year over year drop in net income was primarily due to lower gross margin as well as third quarter 2011 net earnings including a $2.9 million reversal of valuation allowance against the Company's deferred tax assets.

Based on a weighted average number of diluted shares outstanding of 10.360 million, diluted net income per share resulted in net income of $0.06 per share for the quarter.  This compared to diluted net income per share of $0.13 on a weighted average number of diluted shares of 10.360 million during the three months, ended June 30, 2012 and diluted net income per share of $0.50 on a weighted average number of diluted shares of 10.297 million during the third quarter ended September 30, 2011.

inTest’s balance sheet  continued to improve during the third  quarter with cash and equivalents of $14.700 million, working capital of $20.959 million and no debt.  This compares to $11.699 million in cash and equivalents and working capital of $19.958 million for the period ended June 30, 2012.

The Company’s cash balance now exceeds the level of December 31, 2011, prior to inTest’s closing on the acquisition of Thermonics in January 2012. Management currently expects this strong cash generation to continue with cash and cash equivalents increasing sequentially at December 31, 2012.

While industry conditions became increasingly challenging throughout the third quarter as a result of a number of capital equipment suppliers and semiconductor companies delaying certain capital expenditures, inTEST remained profitable and delivered third quarter financial results that exceeded its guidance for both revenue and earnings per share.

While the Company’s long-term objective is to grow and evolve inTEST Corporation into a broad-based industrial test company as it executes on its differentiated product strategy, due to the softening economy, the Company strategically repositioned its sales force by integrating its sales channel and consolidating products in its Thermal division.

Similarly, the Company continues to maintain fiscal discipline and cost controls and is benefitting from the restructuring activities that it undertook in the 2008 - 2009 timeframe, coupled with the recently concluded sales channel integration and Thermal product consolidation.

Likewise, management intends to continue to leverage the Thermal division and Sigma Systems acquisition and expects that on an overall basis, non-semiconductor related products will play an even greater role in the Company’s success as it diversifies its end market penetration.

As a result, management is confident in its long-term growth prospects and believes inTEST is well positioned to capture new opportunities as industry conditions improve.

Management reported that it anticipates that net revenues for the fourth quarter ending December 31, 2012 is expected to be in the range of $8.5 to $9.5 million and that net earnings are projected to be in the range from a net loss of  $(0.02) per diluted share to net income of $0.04 per diluted share.

To access a free copy of the most recent INTT research report, CLICK HERE.

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