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For inTEST & Thermal the Future is Here!

Zacks Equity Research

By Ken Nagy, CFA

Over the last few years that I have covered inTEST Corporation (Nasdaq-small:INTT), it has been transforming itself through the strategic diversification of its Thermal products segment.

The idea of the transformation is that a diversification strategy outside of inTest’s traditional semiconductor markets should help to mitigate the cyclicality tied to that industry and give the company several exciting new opportunities with multiple new customers.

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.

In Short, traditional semiconductor markets are quite volatile. inTEST has been building this business to ensure their earnings are not.  It worked!

For proof of what has taken place, look no further than yesterday’s first quarter earnings release.  While industry conditions remain challenging as a result of a number of capital equipment suppliers and semiconductor companies delaying certain capital expenditures, inTEST maintained profitability, generated cash, and continues to carry no debt.

Solid Quarter

On May 1, 2013, inTEST Corporation, reported financial results for its fiscal 2013 first quarter, ended March 31, 2013.

Revenues during the first quarter 2013 were $8.973 million, at the top end of management’s guidance. This compares to revenues of $8.270 million for the three months ended December 31, 2012 and revenues of $10.731 million during the first quarter ended March 31, 2012.

In addition to sequential consolidated revenue growth, revenues in each of inTest’s operating segments grew sequentially as well.

19 percent of first quarter 2013 net revenues were derived from non-semiconductor test compared to 15 percent of fourth quarter 2012 net revenues being derived from non-semiconductor test. Sequentially, first quarter non-semiconductor test net revenues increased 31 percent.

inTEST reported first quarter bookings were $7.7 million, down from fourth quarter 2012 bookings of $9.3 million and from first quarter 2012 bookings of $12.9 million.

Similarly, 16 percent of the Company’s first quarter 2013 bookings were derived from non-semiconductor test compared to 20 percent from the fourth quarter.

Backlog at the end of the first quarter was $2.9 million, down from $4.2 million at the end of the fourth quarter.

Gross margin during the first quarter jumped to 45.8 percent compared to 42.4 percent from the fourth quarter fiscal 2012 and 42.8 percent for the three months ended March 31, 2012.

The increase in gross margin was driven by a more favorable absorption of fixed manufacturing cost in the first quarter of 2013, which decreased from 20 percent of revenues in the fourth quarter to 16 percent of revenues in the first quarter.

inTEST reported first quarter 2013 net income of  $292,000 compared to fourth quarter 2012 net income 201,000 and a net loss of $43,000 for the three months ended March 31,2012.

Based on a weighted average number of diluted shares outstanding of 10.366 million, diluted net income per share resulted in net income of $0.03 per share for the quarter.  This compared to diluted net income per share of $0.02 on a weighted average number of diluted shares of 10.344 million during the three months, ended December 31, 2012 and a diluted net loss per share of $0.00 on a weighted average number of diluted shares of 10.205 million during the first quarter ended March 31, 2012.

inTEST’s balance sheet  remained solid during the first quarter with cash and equivalents of $15.384 million and working capital of $21.572 million.  This compares to $15.576 million in cash and equivalents and working capital of $21.000 million for the period ended December 31, 2012.

Furthermore, management currently expects cash generation to continue with cash and cash equivalents increasing sequentially throughout 2013.

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 last year.

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 past sales channel integration and Thermal product consolidation. 

The Company has added 5 companies to its operations in the last 15 years which have bolstered its growth opportunities. Last year, inTEST acquired Thermonics, which further enhanced its presence in the ATE industry, while at the same time, providing additional leverage into growth industries outside of the semi industry.

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.

Correspondingly, management reported that it anticipates that net revenues for the second quarter ending June 30, 2013 will be in the range of $9.5 million to $10.5 million and that net earnings will range from $0.05 to $0.09 per diluted share. 

Similarly, management has been encouraged by the fact that it saw strengthening in the business early in the second quarter of 2013 and expects a recovery in the second half of 2013.

Likewise, inTEST has been profitable for the past 14 quarters, including a breakeven quarter in Q1 of 2012, and continues to generate cash which management expects to continue both trends through 2013. 

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