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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023 or

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

 

Commission File Number 1-36117

inTEST Corporation
(Exact Name of Registrant as Specified in its Charter)

 

Delaware
(State or other jurisdiction of incorporation or organization)

22-2370659
(I.R.S. Employer Identification Number)

 

804 East Gate Drive, Suite 200
Mt. Laurel, New Jersey 08054
(Address of principal executive offices, including zip code)

(856) 505-8800
(Registrant's Telephone Number, including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class
Common Stock, par value $0.01 per share

Trading Symbol

INTT

Name of Each Exchange on Which Registered
NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒      No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒      No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☐

Accelerated filer  ☐ 

Non-accelerated filer   ☒ 

Smaller reporting company  

Emerging growth company   

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes       No ☒

 

Number of shares of Common Stock, $0.01 par value, outstanding as of the close of business on May 1, 2023:   11,131,366

 

 

 

 

 

inTEST CORPORATION

 

TABLE OF CONTENTS

 

 

Page

PART I.

FINANCIAL INFORMATION

 
     

Item 1.

Financial Statements

 
     
 

Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022

1

 

Unaudited Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022

2

 

Unaudited Consolidated Statements of Comprehensive Earnings for the three months ended March 31, 2023 and 2022

3

 

Unaudited Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2023 and 2022

4

 

Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022

5

 

Notes to Consolidated Financial Statements

6

     

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

22
     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29
     

Item 4.

Controls and Procedures

29
     

PART II.

OTHER INFORMATION

 
     

Item 1.

Legal Proceedings

29
     

Item 1A.

Risk Factors

29
     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30
     

Item 3.

Defaults Upon Senior Securities

30
     

Item 4.

Mine Safety Disclosures

30
     

Item 5.

Other Information

30
     

Item 6.

Exhibits

30
   

SIGNATURES

31

 

 

 

 

 

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

inTEST CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

 

  

March 31,

  

December 31,

 
  

2023

  

2022

 

 

 

(Unaudited)

     
ASSETS        

Current assets:

        

Cash and cash equivalents

 $15,428  $13,434 

Restricted cash

  516   1,142 

Trade accounts receivable, net of allowance for credit losses of $497 and $496, respectively

  20,991   21,215 

Inventories

  24,489   22,565 

Prepaid expenses and other current assets

  2,445   1,695 

Total current assets

  63,869   60,051 

Property and equipment:

        

Machinery and equipment

  6,742   6,625 

Leasehold improvements

  3,424   3,242 

Gross property and equipment

  10,166   9,867 

Less: accumulated depreciation

  (6,959

)

  (6,735

)

Net property and equipment

  3,207   3,132 

Right-of-use assets, net

  5,506   5,770 

Goodwill

  21,636   21,605 

Intangible assets, net

  18,046   18,559 

Deferred tax assets

  684   280 

Restricted certificates of deposit

  100   100 

Other assets

  468   569 

Total assets

 $113,516  $110,066 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current liabilities:

        

Current portion of Term Note

 $4,100  $4,100 

Current portion of operating lease liabilities

  1,714   1,645 

Accounts payable

  7,801   7,394 

Accrued wages and benefits

  3,257   3,907 

Accrued professional fees

  743   884 

Customer deposits and deferred revenue

  5,448   4,498 

Accrued sales commissions

  1,249   1,468 

Domestic and foreign income taxes payable

  2,273   1,409 

Other current liabilities

  1,611   1,564 

Total current liabilities

  28,196   26,869 

Operating lease liabilities, net of current portion

  4,338   4,705 

Term Note, net of current portion

  11,017   12,042 

Contingent consideration

  1,042   1,039 

Other liabilities

  425   455 

Total liabilities

  45,018   45,110 

Commitments and Contingencies

          

Stockholders' equity:

        

Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued or outstanding

  -   - 

Common stock, $0.01 par value; 20,000,000 shares authorized; 11,168,080 and 11,063,271 shares issued, respectively

  112   111 

Additional paid-in capital

  32,673   31,987 

Retained earnings

  35,671   32,854 

Accumulated other comprehensive earnings

  289   218 

Treasury stock, at cost; 36,329 and 34,308 shares, respectively

  (247

)

  (214

)

Total stockholders' equity

  68,498   64,956 

Total liabilities and stockholders' equity

 $113,516  $110,066 

 

See accompanying Notes to Consolidated Financial Statements.

 

 

-1-

 

 

 

inTEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)

(Unaudited)

 

   

Three Months Ended
March 31,

 
   

2023

   

2022

 
                 

Revenue

  $ 31,919     $ 24,081  

Cost of revenue

    16,867       13,068  

Gross profit

    15,052       11,013  
                 

Operating expenses:

               

Selling expense

    4,455       3,456  

Engineering and product development expense

    1,904       1,924  

General and administrative expense

    5,175       4,831  

Total operating expenses

    11,534       10,211  
                 

Operating income

    3,518       802  

Interest expense

    (182

)

    (137

)

Other income (expense)

    58       (10

)

                 

Earnings before income tax expense

    3,394       655  

Income tax expense

    577       78  
                 

Net earnings

  $ 2,817     $ 577  
                 

Earnings per common share – basic

  $ 0.26     $ 0.05  
                 

Weighted average common shares outstanding – basic

    10,755,729       10,617,271  
                 

Earnings per common share – diluted

  $ 0.25     $ 0.05  
                 

Weighted average common shares and common share equivalents outstanding – diluted

    11,088,664       10,842,592  

 

See accompanying Notes to Consolidated Financial Statements.

 

-2-

 

 

 

inTEST CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)

(Unaudited)

 

   

Three Months Ended
March 31,

 
   

2023

   

2022

 
                 

Net earnings

  $ 2,817     $ 577  
                 

Unrealized gain (loss) on interest rate swap agreement

    (99

)

    289  

Foreign currency translation adjustments

    170       (116

)

                 

Comprehensive earnings

  $ 2,888     $ 750  

 

See accompanying Notes to Consolidated Financial Statements

 

-3-

 

 

 

inTEST CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands, except share data)

(Unaudited)

 

   

Three Months Ended March 31, 2023

 
                                                         
                                   

Accumulated

                 
                   

Additional

           

Other

           

Total

 
   

Common Stock

   

Paid-in

   

Retained

   

Comprehensive

   

Treasury

   

Stockholders'

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Earnings

   

Stock

   

Equity

 
                                                         

Balance, January 1, 2023

    11,063,271     $ 111     $ 31,987     $ 32,854     $ 218     $ (214

)

  $ 64,956  
                                                         

Net earnings

    -       -       -       2,817       -       -       2,817  

Other comprehensive earnings

    -       -       -       -       71       -       71  

Amortization of deferred compensation related to stock-based awards

    -       -       474       -       -       -       474  

Issuance of unvested shares of restricted stock

    90,588       1       (1

)

    -       -       -       -  

Forfeiture of unvested shares of restricted stock

    (13,271

)

    -       -       -       -       -       -  

Stock options exercised

    25,200       -       165       -       -       -       165  

Shares issued under Employee Stock Purchase Plan

    2,292       -       48       -       -       -       48  

Shares surrendered to satisfy tax liability at vesting of stock-based awards

    -       -       -       -       -       (33

)

    (33

)

                                                         

Balance, March 31, 2023

    11,168,080     $ 112     $ 32,673     $ 35,671     $ 289     $ (247

)

  $ 68,498  

 

   

Three Months Ended March 31, 2022

 
                                                         
                                   

Accumulated

                 
                   

Additional

           

Other

           

Total

 
   

Common Stock

   

Paid-in

   

Retained

   

Comprehensive

   

Treasury

   

Stockholders'

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Earnings

   

Stock

   

Equity

 
                                                         

Balance, January 1, 2022

    10,910,460     $ 109     $ 29,931     $ 24,393     $ 594     $ (204

)

  $ 54,823  
                                                         

Net earnings

    -       -       -       577       -       -       577  

Other comprehensive earnings

    -       -       -       -       173       -       173  

Amortization of deferred compensation related to stock-based awards

    -       -       372       -       -       -       372  

Issuance of unvested shares of restricted stock

    79,489       1       (1

)

    -       -             -  

Shares issued under Employee Stock Purchase Plan

    5,245       -       56       -       -       -       56  
                                                         

Balance, March 31, 2022

    10,995,194     $ 110     $ 30,358     $ 24,970     $ 767     $ (204

)

  $ 56,001  

 

See accompanying Notes to Consolidated Financial Statements

 

-4-

 

 

 

inTEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

(Unaudited)

 

   

Three Months Ended
March 31,

 
   

2023

   

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net earnings

  $ 2,817     $ 577  

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

               

Depreciation and amortization

    1,176       1,279  

Provision for excess and obsolete inventory

    135       123  

Foreign exchange (gain) loss

    (18

)

    40  

Amortization of deferred compensation related to stock-based awards

    474       372  

Discount on shares sold under Employee Stock Purchase Plan

    8       8  

Proceeds from sale of demonstration equipment, net of gain

    6       19  

Deferred income tax benefit

    (404

)

    (438

)

Changes in assets and liabilities:

               

Trade accounts receivable

    291       (832

)

Inventories

    (2,038

)

    (2,177

)

Prepaid expenses and other current assets

    (740

)

    (374

)

Other assets

    2       (8

)

Operating lease liabilities

    (423

)

    (346

)

Accounts payable

    403       1,592  

Accrued wages and benefits

    (654

)

    (1,179

)

Accrued professional fees

    (142

)

    (520

)

Customer deposits and deferred revenue

    921       (608

)

Accrued sales commissions

    (221

)

    (20

)

Domestic and foreign income taxes payable

    864       (395

)

Other current liabilities

    43       40  

Other liabilities

    (16

)

    60  

Net cash provided by (used in) operating activities

    2,484       (2,787

)

                 

CASH FLOWS FROM INVESTING ACTIVITIES

               

Purchase of property and equipment

    (334

)

    (335

)

Net cash used in investing activities

    (334

)

    (335

)

                 

CASH FLOWS FROM FINANCING ACTIVITIES

               

Repayments of Term Note

    (1,025

)

    (883

)

Proceeds from shares sold under Employee Stock Purchase Plan

    40       48  

Proceeds from stock options exercised

    165       -  

Acquisition of treasury stock – shares surrendered by employees to satisfy tax liability

    (33

)

    -  

Net cash used in financing activities

    (853

)

    (835

)

                 

Effects of exchange rates on cash

    71       (27

)

                 

Net cash provided by (used in) all activities

    1,368       (3,984

)

Cash, cash equivalents and restricted cash at beginning of period

    14,576       21,195  

Cash, cash equivalents and restricted cash at end of period

  $ 15,944     $ 17,211  
                 

Cash payments for:

               

Domestic and foreign income taxes

  $ 118     $ 966  

 

See accompanying Notes to Consolidated Financial Statements.

 

-5-

 

 

inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

 

(1)

NATURE OF OPERATIONS

 

We are a global supplier of innovative test and process technology solutions for use in manufacturing and testing across a wide range of markets including automotive, defense/aerospace, industrial, life sciences, security and semiconductor. We have three operating segments which are also our reportable segments and reporting units: Electronic Test, Environmental Technologies and Process Technologies.

 

The consolidated entity is comprised of inTEST Corporation and our wholly-owned subsidiaries. We manufacture our products in the U.S., Canada and the Netherlands. Marketing and support activities are conducted worldwide from our facilities in the U.S., Canada, Germany, Singapore, the Netherlands and the U.K. We operate our business worldwide and sell our products both domestically and internationally.

 

All of our operating segments have multiple products that we design, manufacture and market to our customers. Due to a number of factors, our products have varying levels of gross margin. The mix of products we sell in any period is ultimately determined by our customers' needs. Therefore, the mix of products sold in any given period can change significantly from the prior period. In addition, we sell our products to a variety of different types of customers with varying levels of discounts and commission expense. As a result of changes in both the mix of products sold as well as customer mix in any given period, our consolidated gross margin can vary significantly from period to period.

 

The semiconductor market (“semi” or the “semi market”) which includes both the broader semiconductor market, as well as the more specialized automated test equipment (“ATE”) and wafer production sectors within the broader semiconductor market, has historically been the largest single market in which we operate. The semi market is characterized by rapid technological change, competitive pricing pressures and cyclical as well as seasonal market patterns. The semi market is also subject to periods of significant expansion or contraction in demand. In addition to the semi market, we sell into a variety of other markets. Our intention is to continue diversifying our markets, our product offerings within the markets we serve and our customer base across all of our markets with the goal of reducing our dependence on any one market, product or customer. In particular, we are seeking to reduce the impact of volatility in the semi market on our results of operations.

 

Our Electronic Test segment sells its products to semiconductor manufacturers and third-party test and assembly houses (end user sales) and to ATE manufacturers (original equipment manufacturer (“OEM”) sales), who ultimately resell our equipment with theirs to both semiconductor manufacturers and third-party test and assembly houses. These sales all fall within the ATE sector of the semi market. With the acquisition of Acculogic in December 2021, our Electronic Test segment also sells its products to customers in markets outside the semi market including the automotive, defense/aerospace, industrial and life sciences markets. Our Environmental Technologies segment sells its products to end users and OEMs within the ATE sector of the semi market. It also sells its products to customers in a variety of other markets other than the semi market, including the automotive, defense/aerospace, industrial and life sciences markets. Our Process Technologies segment sells its products to customers in the wafer production sector within the semi market. It also sells its products to customers in a variety of other markets other than the semi market, including the automotive, defense/aerospace, industrial, life sciences and security markets.

 

Our financial results are affected by a wide variety of factors, including, but not limited to, general economic conditions worldwide and in the markets in which we operate, economic conditions specific to the semi market and the other markets we serve, downward pricing pressures from customers, our reliance on a relatively few number of customers for a significant portion of our sales and our ability to safeguard patented technology and intellectual property in a rapidly evolving market. In addition, we are exposed to the risk of obsolescence of our inventory depending on the mix of future business and technological changes within the markets that we serve. Part of our strategy for growth includes potential acquisitions that may cause us to incur substantial expense in reviewing and evaluating potential transactions. We may or may not be successful in locating suitable businesses to acquire and in closing acquisitions of businesses we pursue. In addition, we may not be able to successfully integrate any business we do acquire with our existing business and we may not be able to operate the acquired business profitably. As a result of these or other factors, we may experience significant period-to-period fluctuations in future operating results.

 

- 6-

 
 

(2)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Use of Estimates

 

The accompanying consolidated financial statements include our accounts and those of our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Certain of our accounts, including contingent consideration, inventories, long-lived assets, goodwill, identifiable intangibles and deferred tax assets and liabilities, including related valuation allowances, are particularly impacted by estimates.

 

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations, and changes in cash flows for the interim periods presented. Certain footnote information has been condensed or omitted from these consolidated financial statements. Therefore, these consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in our Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”) filed on March 22, 2023 with the Securities and Exchange Commission.

 

Reclassification

Certain prior period amounts have been reclassified to be comparable with the current period's presentation.

 

 

Subsequent Events

We have made an assessment of our operations and determined that there were no material subsequent events requiring adjustment to, or disclosure in, our consolidated financial statements for the three months ended March 31, 2023.

 

Business Combinations

Acquired businesses are accounted for using the purchase method of accounting, which requires that the purchase price be allocated to the net assets acquired at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Fair values of intangible assets are estimated by valuation models prepared by our management and third-party advisors. The assets purchased and liabilities assumed have been reflected in our consolidated balance sheets, and the operating results are included in the consolidated statements of operations and consolidated statements of cash flows from the date of acquisition. Any change in the fair value of acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, will be recognized in the consolidated statement of operations in the period of the estimated fair value change. Acquisition-related transaction costs, including legal and accounting fees and other external costs directly related to the acquisition, are recognized separately from the acquisition and expensed as incurred in general and administrative expense in the consolidated statements of operations.

 

Cash, Cash Equivalents and Restricted Cash

 

Short-term investments that have maturities of three months or less when purchased are considered to be cash equivalents and are carried at cost, which approximates fair value. Our cash balances, which are deposited with highly reputable financial institutions, at times may exceed the federally insured limits. We have not experienced any losses related to these cash balances and believe the credit risk to be minimal.

 

Restricted cash represents amounts deposited at our bank in the Netherlands to support a bank guarantee which one of the customers of our induction heating products required as a condition of paying a deposit on a large order they placed with us in 2022. At March 31, 2023 and December 31, 2022, the amount of the deposit, and, accordingly, the guarantee, was EUR 476, or $516, and EUR 1,067, or $1,142, respectively. The related order is Euro denominated. The amount of the deposit and related guarantee declines as shipments are made against the order.

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets and the consolidated statements of cash flows:

 

  

March 31,

2023

  

December 31,

2022

 

Cash and cash equivalents

 $15,428  $13,434 

Restricted cash

  516   1,142 
         

Total cash, cash equivalents and restricted cash

 $15,944  $14,576 

 

- 7-

 

Trade Accounts Receivable and Allowance for Credit Losses

 

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. We grant credit to customers and generally require no collateral. To minimize our risk, we perform ongoing credit evaluations of our customers' financial condition. As discussed below under “Effect of Recently Adopted Amendments to Authoritative Accounting Guidance”, effective January 1, 2023, we follow the guidance in Accounting Standards Codification (“ASC”) Topic 326 (Financial Instruments – Credit Losses) in developing our estimate of the allowance for credit losses related to our accounts receivable. The allowance for credit losses is our best estimate of the amount of expected credit losses in our existing accounts receivable. In establishing the amount of allowance for credit losses, we consider all information available as of the reporting date including information related to past events, such as historical loss rates and actual incurred losses, as well as current conditions that may indicate future risk of loss and any other factors of which we are aware, that we believe could impact the ultimate collectability of the related receivables in future periods.

Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We do not have any significant off-balance sheet credit exposure related to our customers. There was no bad debt expense recorded for the three months ended March 31, 2023 or 2022. Cash flows from accounts receivable are recorded in operating cash flows.

 

Fair Value of Financial Instruments

 

Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, our credit facility, interest rate swaps and our liabilities for contingent consideration. Our cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at cost which approximates fair value, due to the short maturities of the accounts. Our credit facility and our interest rate swap are discussed further below and in Note 9. Our liabilities for contingent consideration are accounted for in accordance with the guidance in ASC Topic 820 (Fair Value Measurement). ASC Topic 820 establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). Our contingent consideration liabilities are measured at fair value on a recurring basis using Level 3 inputs which are inputs that are unobservable and significant to the overall fair value measurement. These unobservable inputs reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. See Note 3 for further disclosures related to the fair value of our liabilities for contingent consideration.

 

Goodwill, Intangible and Long-Lived Assets

We have three reportable segments which are also our reporting units: Electronic Test, Environmental Technologies and Process Technologies.

 

We account for goodwill and intangible assets in accordance with ASC Topic 350 (Intangibles - Goodwill and Other). Finite-lived intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment annually at the beginning of the fourth quarter on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. Goodwill is considered to be impaired if the fair value of a reporting unit is less than its carrying amount. As a part of the goodwill impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If, as a result of our qualitative assessment, we determine that it is more-likely-than-not that the fair value of the reporting unit is greater than its carrying amount, a quantitative goodwill impairment test is not required. However, if, as a result of our qualitative assessment, we determine it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, or, if we choose not to perform a qualitative assessment, we are required to perform a quantitative goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. 

 

The quantitative goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The goodwill impairment assessment is based upon the income approach, which estimates the fair value of our reporting units based upon a discounted cash flow approach. This fair value is then reconciled to our market capitalization at year end with an appropriate control premium. The determination of the fair value of our reporting units requires management to make significant estimates and assumptions including the selection of control premiums, discount rates, terminal growth rates, forecasts of revenue and expense growth rates, income tax rates, changes in working capital, depreciation, amortization and capital expenditures. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charge.

 

- 8-

 

Indefinite-lived intangible assets are assessed for impairment annually at the beginning of the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. As a part of the impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If, as a result of our qualitative assessment, we determine that it is more-likely-than-not that the fair value of the indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required; otherwise, no further testing is required. The quantitative impairment test consists of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

 

Long-lived assets, which consist of finite-lived intangible assets, property and equipment and right-of-use (“ROU”) assets, are assessed for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. The cash flow estimates used to determine the impairment, if any, contain management's best estimates using appropriate assumptions and projections at that time. 

 

Revenue Recognition

We recognize revenue in accordance with the guidance in ASC Topic 606 (Revenue from Contracts with Customers). We recognize revenue for the sale of products or services when our performance obligations under the terms of a contract with a customer are satisfied and control of the product or service has been transferred to the customer. Generally, this occurs when we ship a product or perform a service. In certain cases, recognition of revenue is deferred until the product is received by the customer or at some other point in the future when we have determined that we have satisfied our performance obligations under the contract. Our contracts with customers may include a combination of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. In addition to the sale of products and services, we also lease certain of our equipment to customers under short-term lease agreements. We recognize revenue from equipment leases on a straight-line basis over the lease term.

 

Revenue is recorded in an amount that reflects the consideration we expect to receive in exchange for those products or services. We do not have any material variable consideration arrangements, or any material payment terms with our customers other than standard payment terms which generally range from net 30 to net 90 days. We generally do not provide a right of return to our customers. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

 

Nature of Products and Services

 

We are a global supplier of innovative test and process technology solutions for use in manufacturing and testing in targeted markets including automotive, defense/aerospace, industrial, life sciences, security and semiconductor. We sell thermal management products including ThermoStreams, ThermoChambers, process chillers, refrigerators and freezers, which we sell under our Temptronic, Sigma, Thermonics and North Sciences product lines, and Ambrell Corporation’s (“Ambrell”) precision induction heating systems, including EKOHEAT® and EASYHEATTM products. As a result of the acquisition of Videology, we sell industrial-grade circuit board mounted video digital cameras and related devices, systems and software. We sell semiconductor ATE interface solutions which include manipulators, docking hardware and electrical interface products. As a result of the acquisition of Acculogic, we sell robotics-based electronic production test equipment. We provide post-warranty service and support for the equipment we sell. We sell semiconductor ATE interface solutions and certain thermal management products to the semi market. We also sell many of our products to various other markets including the automotive, defense/aerospace, industrial, life sciences and security markets.

 

We lease certain of our equipment under short-term leasing agreements with original lease terms of six months or less. Our lease agreements do not contain purchase options.

 

Types of Contracts with Customers

 

Our contracts with customers are generally structured as individual purchase orders which specify the exact products or services being sold or equipment being leased along with the selling price, service fee or monthly lease amount for each individual item on the purchase order. Payment terms and any other customer-specific acceptance criteria are also specified on the purchase order. We generally do not have any customer-specific acceptance criteria, other than that the product performs within the agreed upon specifications. We test substantially all products manufactured as part of our quality assurance process to determine that they comply with specifications prior to shipment to a customer.

 

- 9-

 

Contract Balances

 

We record accounts receivable at the time of invoicing. Accounts receivable, net of the allowance for credit losses, is included in current assets on our balance sheet. To the extent that we do not recognize revenue at the same time as we invoice, we record a liability for deferred revenue. In certain instances, we also receive customer deposits in advance of invoicing and recording of accounts receivable. Deferred revenue and customer deposits are included in current liabilities on our consolidated balance sheets.

 

As discussed above, we follow the guidance in ASC Topic 326 in developing our estimate of the allowance for credit losses related to our accounts receivable. The allowance for credit losses is our best estimate of the amount of expected credit losses in our existing accounts receivable. We monitor the collectability of accounts receivable on an ongoing basis and record charges for bad debt expense in the period when we determine that a loss is expected to occur based on our assessment.

 

Costs to Obtain a Contract with a Customer

 

The only costs we incur associated with obtaining contracts with customers are sales commissions that we pay to our internal sales personnel or third-party sales representatives. These costs are calculated based on set percentages of the selling price of each product or service sold. Commissions are considered earned by our internal sales personnel at the time we recognize revenue for a particular transaction. Commissions are considered earned by third-party sales representatives at the time that revenue is recognized for a particular transaction. We record commission expense in our consolidated statements of operations at the time the commission is earned. Commissions earned but not yet paid are included in current liabilities on our balance sheets.

 

Product Warranties

 

In connection with the sale of our products, we generally provide standard one- or two-year product warranties which are detailed in our terms and conditions and communicated to our customers. Our standard warranties are not offered for sale separately from our products; therefore, there is not a separate performance obligation related to our standard warranties. We record estimated warranty expense for our standard warranties at the time of sale based upon historical claims experience. We offer customers an option to separately purchase an extended warranty on certain products. In the case of extended warranties, we recognize revenue in the amount of the sale price for the extended warranty on a straight-line basis over the extended warranty period. We record costs incurred to provide service under an extended warranty at the time the service is provided. Warranty expense is included in selling expense in our consolidated statements of operations.

 

See Notes 5 and 13 for further information about our revenue from contracts with customers.

 

Inventories

 

Inventories are valued at cost on a first-in, first-out basis, not in excess of market value. Cash flows from the sale of inventories are recorded in operating cash flows. On a quarterly basis, we review our inventories and record excess and obsolete inventory charges based upon our established objective excess and obsolete inventory criteria. Our criteria identify excess material as the quantity of material on hand that is greater than the average annual usage of that material over the prior three years. Our criteria identify obsolete material as material that has not been used in a work order during the prior twenty-four months. In certain cases, additional excess and obsolete inventory charges are recorded based upon current market conditions, anticipated product life cycles, new product introductions and expected future use of the inventory. The excess and obsolete inventory charges we record establish a new cost basis for the related inventories. We incurred excess and obsolete inventory charges of $135 and $123 for the three months ended March 31, 2023 and 2022, respectively.

 

Leases

 

We account for leases in accordance with ASC Topic 842 (Leases). We determine if an arrangement is a lease at inception. A lease contract is within scope if the contract has an identified asset (property, plant or equipment) and grants the lessee the right to control the use of the asset during the lease term. The identified asset may be either explicitly or implicitly specified in the contract. In addition, the supplier must not have any practical ability to substitute a different asset and would not economically benefit from doing so for the lease contract to be in scope. The lessee’s right to control the use of the asset during the term of the lease must include the ability to obtain substantially all of the economic benefits from the use of the asset as well as decision-making authority over how the asset will be used. Leases are classified as either operating leases or finance leases based on the guidance in ASC Topic 842. Operating leases are included in operating lease ROU assets and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment and financing lease liabilities. We do not currently have any financing leases.

 

- 10-

 

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. None of our leases provide an implicit rate; therefore, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease. We include these options in the determination of the amount of the ROU asset and lease liability when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Certain of our operating leases contain predetermined fixed escalations of minimum rentals and rent holidays during the original lease terms. Rent holidays are periods during which we have control of the leased facility but are not obligated to pay rent. For these leases, our ROU asset and lease liability are calculated including any rent holiday in the determination of the life of the lease.

 

We have lease agreements which contain both lease and non-lease components, which are generally accounted for separately. In addition to the monthly rental payments due, most of our leases for our offices and warehouse facilities include non-lease components representing our portion of the common area maintenance, property taxes and insurance charges incurred by the landlord for the facilities which we occupy. These amounts are not included in the calculation of the ROU assets and lease liabilities as they are based on actual charges incurred in the periods to which they apply.

 

Operating lease payments are included in cash outflows from operating activities on our consolidated statements of cash flows. Amortization of ROU assets is presented separately from the change in operating lease liabilities and is included in Depreciation and Amortization on our consolidated statements of cash flows.

 

We have made an accounting policy election not to apply the recognition requirements of ASC Topic 842 to short-term leases (leases with a term of one year or less at the commencement date of the lease). Lease expense for short-term lease payments is recognized on a straight-line basis over the lease term.

 

See Note 8 for further disclosures regarding our leases.

 

Interest Rate Swap Agreement

 

We are exposed to interest rate risk on our floating-rate debt. We have entered into an interest rate swap agreement to effectively convert our floating-rate debt to a fixed-rate basis for a portion of our floating rate debt, as discussed further in Notes 3 and 9. The principal objective of this agreement is to eliminate the variability of the cash flows for interest payments associated with our floating-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. We have elected to apply the hedge accounting rules in accordance with ASC Topic 815 (Derivatives and Hedging). Further, we have determined that this agreement qualifies for the shortcut method of hedge accounting. Changes in the fair value of interest rate swap agreements designated as cash flow hedges are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity and are amortized to interest expense over the term of the related debt. 

 

Contingent Liability for Repayment of State and Local Grant Funds Received

 

In connection with leasing a facility in Rochester, New York, which our subsidiary, Ambrell, occupied in May 2018, we entered into agreements with the city of Rochester and the state of New York under which we received grants totaling $550 to help offset a portion of the cost of the leasehold improvements we made to this facility. The final payment of $87 was received during the three months ended March 31, 2022. In exchange for the funds we received under these agreements, we are required to create and maintain specified levels of employment in this location through various dates ending in 2024. If we fail to meet these employment targets, we may be required to repay a proportionate share of the proceeds. At March 31, 2023, $193 of the total proceeds received could still be required to be repaid if we do not meet the targets. We have recorded this amount as a contingent liability which is included in other liabilities on our consolidated balance sheet. Those portions of the proceeds which are no longer subject to repayment are reclassified to deferred grant proceeds and amortized to income on a straight-line basis over the remaining lease term for the Rochester facility. Deferred grant proceeds are included in other current liabilities and other liabilities on our balance sheet and totaled $286 at March 31, 2023. At March 31, 2023, we were in compliance with the employment targets as specified in the grant agreement with the city of Rochester.

 

 

Stock-Based Compensation

We account for stock-based compensation in accordance with ASC Topic 718 (Compensation - Stock Compensation) which requires that employee share-based equity awards be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value of stock options, which is then amortized to expense over the service periods. See further disclosures related to our stock-based compensation plans in Note 10.

 

- 11-

 

Income Taxes

The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carryforwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.

 

Earnings (Loss) Per Common Share

Earnings (loss) per common share - basic is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during each period. Earnings (loss) per common share - diluted is computed by dividing earnings (loss) by the weighted average number of common shares and common share equivalents outstanding during each period. Common share equivalents represent unvested shares of restricted stock and stock options and are calculated using the treasury stock method. Common share equivalents are excluded from the calculation if their effect is anti-dilutive.

 

The table below sets forth, for the periods indicated, a reconciliation of weighted average common shares outstanding - basic to weighted average common shares and common share equivalents outstanding - diluted and the average number of potentially dilutive securities that were excluded from the calculation of diluted earnings (loss) per share because their effect was anti-dilutive:

 

  

Three Months Ended
March 31,

 
  

2023

  

2022

 
         

Weighted average common shares outstanding–basic

  10,755,729   10,617,271 

Potentially dilutive securities:

        

Unvested shares of restricted stock and employee stock options

  332,935   225,321 

Weighted average common shares and common share equivalents outstanding–diluted

  11,088,664   10,842,592 

Average number of potentially dilutive securities excluded from calculation

  154,429   318,574 

 

Effect of Recently Adopted Amendments to Authoritative Accounting Guidance

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued amendments to the guidance for accounting for credit losses. In November 2019, the FASB deferred the effective date of these amendments for certain companies, including smaller reporting companies. As a result of the deferral, the amendments were effective for us for reporting periods beginning after December 15, 2022. The amendments replaced the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. The amendments require a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We adopted the amendments when they became effective for us on January 1, 2023. The adoption of these amendments did not have any impact on our consolidated financial statements.

 

(3)

FAIR VALUE MEASUREMENTS

 

ASC Topic 820 (Fair Value Measurement) establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

 

ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes among the following:

 

- 12-

 

Level 1 Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access.

 

Level 2 Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

 

Level 3 Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

 

Recurring Fair Value Measurements

 

The interest rate swap agreement we entered into in connection with our Term Note, as discussed further in Notes 2 and 9 is measured at fair value on a recurring basis using Level 2 inputs. The contingent consideration liability on our balance sheet is measured at fair value on a recurring basis using Level 3 inputs. Our contingent consideration liability is a result of our acquisition of Acculogic on December 21, 2021, and represents the estimated fair value of the additional cash consideration payable that is contingent upon sales to Electric Vehicle (“EV”) or battery customers. Our acquisition of Acculogic and this liability are both discussed further in Note 3 to our consolidated financial statements in our 2022 Form 10-K.

 

The following fair value hierarchy table presents information about assets and (liabilities) measured at fair value on a recurring basis:

 

  

Amounts at

  

Fair Value Measurement Using

 
  

Fair Value

  

Level 1

  

Level 2

  

Level 3

 

As of March 31, 2023

                

Contingent consideration liability – Acculogic

 $(1,367

)

 $-  $-  $(1,367

)

Interest rate swap

 $429  $-  $429  $- 

 

  

Amounts at

  

Fair Value Measurement Using

 
  

Fair Value

  

Level 1

  

Level 2

  

Level 3

 

As of December 31, 2022

                

Contingent consideration liability – Acculogic

 $(1,363

)

 $-  $-  $(1,363

)

Interest rate swap

 $528  $-  $528  $- 

 

Changes in the fair value of our Level 3 contingent consideration liabilities for the three months ended March 31, 2023 were as follows:

 

  

Three
Months Ended

March 31, 2023

 

Balance at beginning of period

 $1,363 

Impact of foreign currency translation adjustments

  4 
     

Balance at end of period

 $1,367 

 

- 13-

 
 

(4)

GOODWILL AND INTANGIBLE ASSETS

 

We have three operating segments which are also our reporting units: Electronic Test, Environmental Technologies and Process Technologies. Goodwill and intangible assets on our balance sheets are the result of our acquisitions.

 

Goodwill

Changes in the amount of the carrying value of goodwill for the three months ended March 31, 2023 are as follows:

 

Balance - January 1, 2023

 $21,605 

Impact of foreign currency translation adjustments

  31 

Balance - March 31, 2023

 $21,636 

 

Goodwill was comprised of the following at March 31, 2023 and December 31, 2022:

 

  

March 31,

  

December 31,

 
  

2023

  

2022

 

Electronic Test

 $3,377  $3,369 

Environmental Technologies

  1,817   1,817 

Process Technologies

  16,442   16,419 

Total goodwill

 $21,636  $21,605 

 

Intangible Assets

Changes in the amount of the carrying value of indefinite-lived intangible assets for the three months ended March 31, 2023 are as follows:

 

Balance - January 1, 2023

 $8,369 

Impact of foreign currency translation adjustments

  6 

Balance - March 31, 2023

 $8,375 

 

Changes in the amount of the carrying value of finite-lived intangible assets for the three months ended March 31, 2023 are as follows:

 

Balance - January 1, 2023

 $10,190 

Impact of foreign currency translation adjustments

  25 

Amortization

  (544

)

Balance - March 31, 2023

 $9,671 

 

Intangible assets were allocated to our reporting segments at March 31, 2023 and December 31, 2022 as follows:

 

  

March 31,

  

December 31,

 
  

2023

  

2022

 

Electronic Test

  4,019   4,139 

Environmental Technologies

  823   832 

Process Technologies

  13,204   13,588 

Total intangible assets

 $18,046  $18,559 

 

The following tables provide further detail about our intangible assets as of March 31, 2023 and December 31, 2022:

 

  

March 31, 2023

 
  

Gross
Carrying
Amount

  

Accumulated

Amortization

  

Net
Carrying
Amount

 

Finite-lived intangible assets:

            

Customer relationships

 $16,334  $8,431  $7,903 

Technology

  2,863   1,095   1,768 

Patents

  590   590   - 

Backlog

  494   494   - 

Software

  270   270   - 

Trade name

  140   140   - 

Total finite-lived intangible assets

  20,691   11,020   9,671 

Indefinite-lived intangible assets:

            

Trademarks

  8,375   -   8,375 

Total intangible assets

 $29,066  $11,020  $18,046 

 

- 14-

 
  

December 31, 2022

 
  

Gross
Carrying
Amount

  

Accumulated

Amortization

  

Net
Carrying
Amount

 

Finite-lived intangible assets:

            

Customer relationships

 $16,313  $7,990  $8,323 

Technology

  2,855   988   1,867 

Patents

  590   590   - 

Backlog

  492   492   - 

Software

  270   270   - 

Trade name

  140   140   - 

Total finite-lived intangible assets

  20,660   10,470   10,190 

Indefinite-lived intangible assets:

            

Trademarks

  8,369   -   8,369 

Total intangible assets

 $29,029  $10,470  $18,559 

 

We generally amortize our finite-lived intangible assets over their estimated useful lives based on the pattern in which the economic benefits of the intangible assets are expected to be consumed, or on a straight-line basis, if an alternate amortization method cannot be reliably determined. Any such alternate amortization method would be based on the pattern in which the economic benefits of the intangible asset are expected to be consumed. None of our intangible assets have any residual value.

 

The following table sets forth the estimated annual amortization expense for each of the next five years:

 

2023 (remainder)

 $1,549 

2024

 $1,971 

2025

 $1,762 

2026

 $1,153 

2027

 $658 
 

(5)

REVENUE FROM CONTRACTS WITH CUSTOMERS

 

The following tables provide additional information about our revenue from contracts with customers, including revenue by customer and product type and revenue by market. The information about revenue by customer and product type for the three months ended March 31, 2022 has been reclassified to be consistent with how the information for the current period is presented. See also Note 13 for information about revenue by operating segment and geographic region.

 

  

Three Months Ended
March 31,

 
  

2023

  

2022

 

Revenue by customer type:

        

End user

 $21,594  $17,142 

OEM/Integrator

  10,215   6,939 
  $31,919  $24,081 

Revenue by product type:

        

Thermal test

 $5,820  $5,057 

Thermal process

  9,822   6,996 

Semiconductor test

  8,105   6,008 

Video imaging

  2,648   1,850 

Flying probe and in-circuit testers

  1,160   1,688 

Service/other

  4,364   2,482 
  $31,919  $24,081 

Revenue by market:

        

Semiconductor

 $17,683  $13,390 

Industrial

  3,137   2,799 

Automotive (including Electric Vehicles)

  2,597   2,756 

Life Sciences

  1,513   699 

Defense/aerospace

  2,839   1,493 

Security

  966   574 

Other

  3,184   2,370 
  $31,919  $24,081 

 

There were no significant changes in the amount of the allowance for credit losses for the three months ended March 31, 2023.

 

- 15-

 
 

(6)

MAJOR CUSTOMERS

 

During the three months ended March 31, 2023, one customer accounted for 13% of our consolidated revenue. This revenue was primarily generated by our Electronic Test segment. No other customers accounted for 10% or more of our consolidated revenue during the three months ended March 31, 2023. During the three months ended March 31, 2022, no customer accounted for 10% or more of our consolidated revenue.

 

(7)

INVENTORIES

 

Inventories held at March 31, 2023 and December 31, 2022 were comprised of the following:

 

  

March 31,

2023

  

December 31,

2022

 

Raw materials

 $18,465  $16,888 

Work in process

  2,372   2,432 

Inventory consigned to others

  52   59 

Finished goods

  3,600   3,186 

Total inventories

 $24,489  $22,565 
 

(8) 

LEASES 

 

As previously discussed in Note 2, we account for our leases in accordance with the guidance in ASC Topic 842. We lease our offices, warehouse facilities and certain equipment under non-cancellable operating leases that expire at various dates through 2031. Total operating lease and short-term lease costs for the three months ended March 31, 2023 and 2022, respectively, were as follows: 

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 
         

Operating lease cost

 $400  $326 

Short-term lease cost

 $3  $30 

 

The following is additional information about our leases as of March 31, 2023:

 

Range of remaining lease terms (in years)

.3

to

8.1

Weighted average remaining lease term (in years)

 

4.8

 

Weighted average discount rate

 

4.4%

 

 

Maturities of lease liabilities as of March 31, 2023 were as follows:

 

2023

 $1,454 

2024

  1,892 

2025

  994 

2026

  694 

2027

  696 

Thereafter

  944 

Total lease payments

 $6,674 

Less imputed interest

  (622

)

Total

 $6,052 

 

- 16-

 

Cash Flow Information

 

Total amortization of ROU assets for the three months ended March 31, 2023 and 2022 was $391 and $309, respectively.

 

During the three months ended March 31, 2023, we entered into a 25-month lease for a facility for our Environmental Technologies segment’s operation in Germany. At the effective date of this lease, we recorded a non-cash increase in our ROU assets and operating lease liabilities of approximately $90. During this same period, we entered into a 36-month lease for a car for one of the employees of our Process Technologies segment who is based in Europe. At the effective date of this lease, we recorded a non-cash increase in our ROU assets and operating lease liabilities of approximately $30.

 

(9)

DEBT

 

Letters of Credit

We have issued letters of credit as the security deposits for certain of our domestic leases. These letters of credit are secured by pledged certificates of deposit which are classified as Restricted Certificates of Deposit on our balance sheets. The terms of our leases require us to renew these letters of credit at least 30 days prior to their expiration dates for successive terms of not less than one year until lease expiration. Our outstanding letters of credit at March 31, 2023 and December 31, 2022 consisted of the following:

 

    

L/C

 

Lease

 

Letters of Credit
Amount Outstanding

 

Facility

 

Original L/C
Issue Date

 

Expiration
Date

 

Expiration
Date

 

Mar. 31,
2023

  

Dec. 31,
2022

 

Mt. Laurel, NJ

 

3/29/2010

 

4/30/2024

 

4/30/2031

 $50  $50 

Mansfield, MA

 

10/27/2010

 

12/31/2024

 

12/31/2024

  50   50 
        $100  $100 

 

Credit Facility

 

On October 15, 2021 (the “Closing Date”), we entered into an Amended and Restated Loan and Security Agreement with M&T Bank (“M&T”) which, on October 28, 2021, was amended by the Joinder and Amendment to Amended and Restated Loan and Security Agreement and which, on December 30, 2021, was further amended by the Joinder and Second Amendment to Amended and Restated Loan and Security Agreement (as amended, the “Loan Agreement”).

 

The Loan Agreement included a $25,000 non-revolving delayed draw term note (the “Term Note”) and a $10,000 revolving credit facility (the “Revolving Facility” and together with the Term Note, the “Credit Facility”). The Credit Facility had a five-year contract period that began on the Closing Date and expired on October 15, 2026, and draws under the Term Note were permissible for two years.

 

On September 20, 2022, we further amended the Loan Agreement by entering into a Third Amendment to Amended and Restated Loan and Security Agreement (the Loan Agreement, as amended by the Third Amendment, the “Amended Loan Agreement”) and the Third Amended and Restated Delayed Draw Term Note. Under the Amended Loan Agreement, the maximum loan amount that we may borrow under the Term Note increased from $25,000 to $50,500, which raises the available funding at March 31, 2023 to $30,000. Under the Amended Loan Agreement, the maturity date of the Term Note and Revolving Facility were also extended to September 19, 2027 (the “Contract Period”). At March 31, 2023, we had not borrowed any amounts under the $10 million Revolving Facility. Our borrowings under the Term Note are discussed below and occurred prior to entering into the Amended Loan Agreement.

 

The principal balance of the Revolving Facility and the principal balance of any amount drawn under the Term Note accrues interest based on the secured overnight financing rate for U.S. government securities (“SOFR”) or a bank-defined base rate plus an applicable margin, depending on leverage. Each draw under the Term Note will have an option for us of either (i) up to a five year amortizing term loan with a balloon due at maturity, or (ii) up to a five year term with up to seven years amortization with a balloon due at maturity. Any amortization greater than five years will be subject to an excess cash flow recapture. The Amended Loan Agreement also allows us to enter into hedging contracts with M&T, including interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, or any other agreements or that are designed to protect us against fluctuations in interest rates or currency exchange rates. Interest expense for the three months ended March 31, 2023 and 2022 was $182 and $137, respectively

The Amended Loan Agreement contains customary default provisions, including but not limited to the failure by us to repay obligations when due, violation of provisions or representations provided in the Amended Loan Agreement, bankruptcy by us, suspension of our business or any of our subsidiaries and certain material judgments. After expiration of the Contract Period or if a continued event of default occurs, interest will accrue on the principal balance at a rate of 2% in excess of the then applicable non-default interest rate. The Amended Loan Agreement includes customary affirmative, negative and financial covenants, including a maximum ratio of consolidated funded debt to consolidated EBITDA and a fixed charge coverage ratio. Our obligations under the Amended Loan Agreement are secured by liens on substantially all of our tangible and intangible assets that are owned as of the Closing Date or acquired thereafter.

 

- 17-

 

On October 28, 2021, we drew $12,000 under the Term Note to finance the acquisition of Videology as discussed above. We also entered into an interest rate swap agreement with M&T as of this date which is designed to protect us against fluctuations in interest rates during the five year repayment and amortization period. As a result, the annual interest rate we expect to pay for this draw under the Term Note is fixed at approximately 3.2% based on current leverage.

 

On December 29, 2021, we drew $8,500 under the Term Note to finance the acquisition of Acculogic as discussed above. We did not enter into an interest rate swap agreement with M&T related to this draw. The annual interest rate we expect to pay for this draw under the Term Note is variable. At March 31, 2023, it was approximately 6.7% based on current leverage. Effective May 1, 2023, this rate had increased to approximately 6.9%.

 

The following table sets forth the maturities of long-term debt for each of the next five years:

 

2023 (remainder)

 $3,075 

2024

  4,100 

2025

  4,100 

2026

  3,842 
  $15,117 
 

(10) 

STOCK-BASED COMPENSATION PLAN

 

As of March 31, 2023, we had unvested restricted stock awards and stock options granted under stock-based compensation plans that are described more fully in Note 15 to the consolidated financial statements in our 2022 Form 10-K.

 

Our unvested restricted stock awards and stock options are accounted for based on their grant date fair value. As of March 31, 2023, total compensation expense to be recognized in future periods was $4,537. The weighted average period over which this expense is expected to be recognized was 2.3 years.

 

The following table summarizes the compensation expense we recorded during the three months ended March 31, 2023 and 2022 related to unvested shares of restricted stock and stock options:

 

  

Three Months Ended
March 31,

 
  

2023

  

2022

 

Cost of revenue

 $19  $11 

Selling expense

  10   7 

Engineering and product development expense

  10   19 

General and administrative expense

  435   335 
  $474  $372 

 

There was no compensation expense capitalized in three months ended March 31, 2023 or 2022. 

 

Stock Options

We record compensation expense for stock options based on the fair market value of the options as of the grant date. No option may be granted with an exercise period in excess of ten years from the date of grant. Generally, stock options will be granted with an exercise price equal to the fair market value of our stock on the date of grant and will vest over four years.

The fair value for stock options granted during the three months ended March 31, 2023 and 2022 was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

 

  

2023

  

2022

 

Risk-free interest rate

  3.94

%

  1.81

%

Dividend yield

  0.00

%

  0.00

%

Expected common stock market price volatility factor

  .57   .54 

Weighted average expected life of stock options (years)

  6.25   6.25 

 

- 18-

 

The per share weighted average fair value of stock options issued during the three months ended March 31, 2023 and 2022 was $9.32 and $5.19, respectively.

 

The following table summarizes the activity related to stock options for the three months ended March 31, 2023:

 

  

Number
of Shares

  

Weighted
Average
Exercise Price

 

Options outstanding, January 1, 2023 (167,886 exercisable)

  580,419  $8.91 

Granted

  90,392   16.06 

Exercised

  (25,200

)

  6.55 

Canceled

  (23,859

)

  9.09 

Options outstanding, March 31, 2023 (185,246 exercisable)

  621,752   10.04 

 

Restricted Stock Awards

We record compensation expense for restricted stock awards based on the quoted market price of our stock at the grant date and amortize the expense over the vesting period. Restricted stock awards generally vest over four years for employees and over one year for our independent directors (25% at each of March 31, June 30, September 30, and December 31 of the year in which they were granted).

 

Since August 2020, we have increasingly granted performance-based restricted stock awards where the ultimate number of shares that vest can vary between 0% and 150% of the amount of the original award and is based on the achievement of specified performance metrics. Vesting for these awards is generally cliff vesting at the end of the period over which the performance metrics are measured. Compensation expense for these awards is recorded on a straight-line basis over the vesting period and is based on the expected final vesting percentage, which is re-assessed at the end of each reporting period and adjusted with a catch-up adjustment, as needed. Our initial assumption at the grant date of these awards is that the award will vest at the 100% level.

 

On August 24, 2020, our new President and Chief Executive Officer ("CEO") received two restricted stock awards totaling 141,610 shares valued at $650 as of the date of grant, which was also his hire date. Of the total shares awarded, 66,448 shares vest over 4 years (25% at each anniversary) and 75,162 shares vest on the third anniversary of the grant date at a vesting percentage that could range from 0% to 150% of the number of shares awarded on August 24, 2020. The final vesting percentage will be based on the achievement of certain performance metrics, including revenue compound annual growth rate and diluted earnings per share excluding amortization of intangibles, for specified time periods as determined by the Compensation Committee of our Board of Directors. At March 31, 2023, we have estimated that these shares will vest at 150% of the original amount based on our assessment of the probable achievement against the relevant performance metrics.

 

On March 10, 2021, we issued restricted stock awards totaling 18,000 shares to members of senior management within our operating segments. These shares will vest on the third anniversary of the grant date at a vesting percentage that could range from 0% to 150% of the number of shares awarded on March 10, 2021. The final vesting percentage will be based on the achievement of certain performance metrics related to the operating results of the business units for which these members of management are responsible. At March 31, 2023, we have estimated that 12,000 of these shares will vest at 100% of the original amount. The remaining 6,000 shares were not expected to vest and, in fact, were forfeited during the first quarter of 2023 when the individual to whom they had been granted resigned from his position with us.

 

On June 14, 2021, our new CFO received two restricted stock awards totaling 7,941 shares valued at $133 as of the date of grant, which was also his hire date. Of the total shares awarded, 1,988 shares vest over 4 years (25% at each anniversary) and 5,953 shares vest on August 24, 2023 at a vesting percentage that could range from 0% to 150% of the number of shares awarded on June 14, 2021. The final vesting percentage will be based on the achievement of certain performance metrics, including revenue compound annual growth rate and diluted earnings per share excluding amortization of intangibles, for specified time periods as determined by the Compensation Committee of our Board of Directors. At March 31, 2023, we have estimated that these shares will vest at 150% of the original amount based on our assessment of the probable achievement against the relevant performance metrics.

 

- 19-

 

On October 1, 2021, we issued restricted stock awards totaling 5,000 shares to a member of senior management. These shares will vest on January 1, 2025 at a vesting percentage that could range from 0% to 150% of the number of shares awarded on October 1, 2021. The final vesting percentage will be based on the achievement of certain performance metrics related to our consolidated operating results. At March 31, 2023, we have estimated that these shares will vest at 100% of the original amount based on our assessment of the probable achievement against the relevant performance metrics.

 

On March 9, 2022, our CEO and CFO received restricted stock awards totaling 20,493 shares valued at $200 as of the date of grant. These shares vest on the third anniversary of the grant date at a vesting percentage that could range from 0% to 150% of the number of shares awarded on March 9, 2022. The final vesting percentage will be based on the achievement of certain performance metrics, including revenue compound annual growth rate and diluted earnings per share excluding amortization of intangibles, for specified time periods as determined by the Compensation Committee of our Board of Directors. At March 31, 2023, we have estimated that these shares will vest at 100% of the original amount based on our assessment of the probable achievement against the relevant performance metrics. 

 

On March 8, 2023, our CEO, CFO and the Division Presidents of two of our operating segments received restricted stock awards totaling 18,888 shares valued at $303 as of the date of grant. These shares vest on the third anniversary of the grant date at a vesting percentage that could range from 0% to 150% of the number of shares awarded on March 8, 2023. The final vesting percentage will be based on the achievement of certain performance metrics related to revenue for the year ending December 31, 2025 as determined by the Compensation Committee of our Board of Directors. At March 31, 2023, we have estimated that these shares will vest at 100% of the original amount based on our assessment of the probable achievement against the relevant performance metrics. 

 

The following table summarizes the activity related to unvested restricted stock awards for the three months ended March 31, 2023:

 

  

Number
of Shares

  

Weighted
Average
Grant Date
Fair Value

 

Unvested shares outstanding, January 1, 2023

  288,450  $7.80 

Granted

  90,588   16.06 

Vested

  (21,066

)

  12.21 

Forfeited

  (13,271

)

  9.88 

Unvested shares outstanding, March 31, 2023

  344,701   9.71 

 

The total fair value of the restricted stock awards that vested during the three months ended March 31, 2023 and 2022 was $381 and $188, respectively, as of the vesting dates of these awards. 

 

(11) 

EMPLOYEE STOCK PURCHASE PLAN

 

The inTEST Corporation Employee Stock Purchase Plan (the “ESPP”) was adopted by the Board in April 2021 subject to approval by our stockholders, which occurred on June 23, 2021 at our Annual Meeting of Stockholders. The ESPP provides our eligible employees with an opportunity to purchase common stock through accumulated payroll deductions at a discounted purchase price. The ESPP became effective on October 1, 2021.

 

The ESPP provides that an aggregate of up to 250,000 shares of our common stock will be available for issuance under the ESPP. The shares of our common stock purchasable under the ESPP will be shares of authorized but unissued or reacquired shares, including shares repurchased by us on the open market.

 

On March 31, 2023, employees purchased 2,292 shares of our stock through the ESPP at a cost of $40. The closing market price on the date of the purchase was $20.74. The price paid by employees was $17.63 which represented a 15% discount. The total amount of the discount of $8 was recorded as compensation expense in our consolidated statements of operations. From the effective date of the ESPP through March 31, 2023, a total of 33,445 shares of stock have been purchased by employees through the ESPP at a cost of $281. We have recorded a total of $49 of compensation expense in our consolidated statements of operations related to these shares.

 

(12) 

EMPLOYEE BENEFIT PLANS

 

We have defined contribution 401(k) plans for our employees who work in the U.S. All permanent employees of inTEST Corporation, inTEST EMS LLC, Temptronic Corporation and Videology who are at least 18 years of age are eligible to participate in the inTEST Corporation Incentive Savings Plan. We match employee contributions dollar for dollar up to 10% of the employee's annual compensation, with a maximum limit of $5. Employer contributions vest ratably over four years. Matching contributions are discretionary. For the three months ended March 31, 2023 and 2022 we recorded $239 and $216 of expense for matching contributions, respectively.

 

- 20-

 

All permanent employees of Ambrell are immediately eligible to participate in the Ambrell Corporation Savings & Profit Sharing Plan (the "Ambrell Plan") upon employment and are eligible for employer matching contributions after completing six months of service, as defined in the Ambrell Plan. The Ambrell Plan allows eligible employees to make voluntary contributions up to 100% of compensation, up to the federal government contribution limits. We will make a matching contribution of 50% of each employee's contributions up to a maximum of 10% of the employee's deferral with a maximum limit of $5. For the three months ended March 31, 2023 and 2022 we recorded $133 and $101 of expense for matching contributions, respectively.

 

(13) 

SEGMENT INFORMATION

 

We have three operating segments which are also our reportable segments and reporting units: Electronic Test (which includes our semiconductor test equipment, flying probe and in-circuit testers), Environmental Technologies (which includes our thermal test, process and storage products) and Process Technologies (which includes our induction heating and video imaging products). We operate our business worldwide and sell our products both domestically and internationally. All of our segments sell to semiconductor manufacturers, third-party test and assembly houses and ATE manufacturers and to a variety of markets outside of the semi market, including the automotive, defense/aerospace, industrial, life sciences, security and other markets.

 

Our management team, including our CEO who is also our Chief Operating Decision Maker as defined under U.S. GAAP, evaluates the performance of our operating segments primarily on income from divisional operations which represents earnings before income tax expense and excludes interest expense, other income (expense), corporate expenses and acquired intangible amortization.

 

  

Three Months Ended
March 31,

 
  

2023

  

2022

 

Revenue:

        

Electronic Test

 $10,371  $8,778 

Environmental Technologies

  8,042   6,993 

Process Technologies

  13,506   8,310 

Total revenue

 $31,919  $24,081 
         

Income from divisional operations:

        

Electronic Test

 $2,578  $1,887 

Environmental Technologies

  1,013   802 

Process Technologies

  2,676   730 

Total income from divisional operations

  6,267   3,419 

Corporate expenses

  (2,205

)

  (1,835

)

Acquired intangible amortization

  (544

)

  (782

)

Interest expense

  (182

)

  (137

)

Other income (expense)

  58   (10

)

Earnings before income tax expense

 $3,394  $655 

 

  

March 31,

  

December 31,

 
  

2023

  

2022

 

Identifiable assets:

        

Electronic Test

 $31,303  $31,143 

Environmental Technologies

  18,362   18,040 

Process Technologies

  57,672   56,866 

Corporate

  6,179   4,017 
  $113,516  $110,066 

 

- 21-

 

The following table provides information about our geographic areas of operation. Revenue is based on the location to which the goods are shipped.

 

  

Three Months Ended
March 31,

 
  

2023

  

2022

 

Revenue:

        

U.S.

 $11,090  $9,234 

Foreign

  20,829   14,847 
  $31,919  $24,081 

 

  

March 31,

  

December 31,

 
  

2023

  

2022

 

Property and equipment:

        

U.S.

 $2,537  $2,658 

Foreign

  670   474 
  $3,207  $3,132 

 

 

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Risk Factors and Forward-Looking Statements

 

In addition to historical information, this Quarterly Report on Form 10-Q for the period ended March 31, 2023 (this “Report”), including this management’s discussion and analysis (“MD&A”), contains statements that are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements do not convey historical information, but relate to predicted or potential future events, such as statements of our plans, strategies and intentions, or our future performance or goals, projections of revenue, taxable earnings (loss), net earnings (loss), net earnings (loss) per share, capital expenditures and other financial items, that are based on management’s current expectations and estimates. Our forward-looking statements can often be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “could,” “will,” “should,” “plans,” “depending,” “projects,” “forecasts,” “seeks,” “anticipates,” “goal,” “objective,” “target,” “estimates,” “future,” “strategy,” or variations of such words or similar terminology. Investors and prospective investors are cautioned that such forward-looking statements are only projections based on current expectations and estimates. These statements involve risks and uncertainties and are based upon various assumptions. Such risks and uncertainties include, but are not limited to:

 

 

our ability to execute on our 5-Point Strategy;

 

our ability to grow our presence in the life sciences, security, industrial and international markets;

 

the possibility of future acquisitions or dispositions and the successful integration of any acquired operations;

 

the success of our strategy to diversify our business by entering markets outside the semiconductor and automated test equipment (“ATE”) markets, collectively the “semi market”;

 

indications of a change in the market cycles in the semi market, or other markets we serve;

 

developments and trends in the semi market, including changes in the demand for semiconductors;

 

our ability to convert backlog to sales and to ship product in a timely manner;

 

the loss of any one or more of our largest customers, or a reduction in orders by a major customer;

 

the availability of materials used to manufacture our products;

 

the impact of current global supply chain constraints or other interruptions in our supply chain caused by external factors;

 

the sufficiency of cash balances, lines of credit and net cash from operations;

 

stock price fluctuations;

 

the ability to borrow funds or raise capital to finance potential acquisitions or for working capital;

 

changes in the rate of, and timing of, capital expenditures by our customers;

 

effects of exchange rate fluctuations;

 

progress of product development programs;

 

the anticipated market for our products;

 

the availability of and retention of key personnel or our ability to hire personnel at anticipated costs;

 

general economic conditions both domestically and globally, and

 

other risk factors included in Part I, Item 1A - "Risk Factors" in our 2022 Form 10-K.

 

These risks and uncertainties, among others, could cause our actual future results to differ materially from those described in our forward-looking statements or from our prior results. Any forward-looking statement made by us in this Report is based only on information currently available to us and speaks to circumstances only as of the date on which it is made. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Report to conform these statements to actual results or to changes in our expectations, except as required by law.

 

-22-

 

Overview
 

This MD&A should be read in conjunction with the accompanying consolidated financial statements. In addition, please refer to the discussion of our business and markets contained in Part 1, Item 1 of our 2022 Form 10-K.

 

We are a global supplier of innovative test and process technology solutions for use in manufacturing and testing across a wide range of markets including automotive, defense/aerospace, industrial, life sciences, security and semiconductor. We have three reportable segments which are also our reporting units: Electronic Test (which includes our semiconductor test equipment, flying probe and in-circuit testers), Environmental Technologies (which includes our thermal test, process and storage products) and Process Technologies (which includes our induction heating and video imaging products).

 

All of our operating segments have multiple products that we design, manufacture and market to our customers. Due to a number of factors, our products have varying levels of gross margin. These factors include, for example, the amount of engineering time required to develop the product, the market or customer to which we sell the product and the level of competing products available from other suppliers. The needs of our customers ultimately determine the products that we sell in a given time period. Therefore, the mix of products sold in a given period can change significantly when compared against the prior period. As a result, our consolidated gross margin may be significantly impacted by a change in the mix of products sold in a particular period. 

 

Markets

 

As discussed further in Part 1, Item 1 “Markets” of our 2022 Form 10-K, we are focused on specific target markets which include automotive, defense/aerospace, industrial, life sciences, security as well as both the front-end and back-end of the semi market. The semi market, which includes both the broader semiconductor market, as well as the more specialized ATE and wafer production sectors within the broader semiconductor market, has historically been the largest single market in which we operate. The semi market is characterized by rapid technological change, competitive pricing pressures and cyclical market patterns and is subject to periods of significant expansion or contraction in demand. Our intention is to continue diversifying our markets, our product offerings within the markets we serve and our customer base across all of our markets with the goal of reducing our dependence on any one market, product or customer. In particular, we are seeking to reduce the impact of volatility in the semi market on our results of operations.

 

The portion of our business that is derived from the semi market is substantially dependent upon the demand for ATE by semiconductor manufacturers and companies that specialize in the testing of integrated circuits (“ICs”) and, for our induction heating products, the demand for wafer production equipment. Demand for ATE or wafer production equipment is primarily driven by semiconductor manufacturers that are opening new, or expanding existing, semiconductor fabrication facilities or upgrading equipment, which in turn is dependent upon the current and anticipated market demand for ICs and products incorporating ICs. Such market demand can be the result of market expansion, development of new technologies or redesigned products to incorporate new features, or the replacement of aging equipment.

 

In the past, the semi market has been highly cyclical with recurring periods of oversupply, which often severely impact the semi market's demand for the products we manufacture and sell into the market. This cyclicality can cause wide fluctuations in both our orders and revenue and, depending on our ability to react quickly to these shifts in demand, can significantly impact our results of operations. Market cycles are difficult to predict and, because they are generally characterized by sequential periods of growth or declines in orders and revenue during each cycle, year over year comparisons of operating results may not always be as meaningful as comparisons of periods at similar points in either up or down cycles. These periods of heightened or reduced demand can shift depending on various factors impacting both our customers and the markets that they serve. In addition, during both downward and upward cycles in the semi market, in any given quarter, the trend in both our orders and revenue can be erratic. This can occur, for example, when orders are canceled or currently scheduled delivery dates are accelerated or postponed by a significant customer or when customer forecasts and general business conditions fluctuate during a quarter. 

 

While a significant portion of our orders and revenue are derived from the semi market, and our operating results generally follow the overall trend in the semi market, in any given period we may experience anomalies that cause the trend in our revenue from the semi market to deviate from the overall trend in the market. We believe that these anomalies may be driven by a variety of factors within the semi market, including, for example, changing product requirements, longer periods between new product offerings by OEMs and changes in customer buying patterns. In addition, in recent periods, we have seen instances when demand within the semi market is not consistent for each of our operating segments or for any given product within a particular operating segment. This inconsistency in demand can be driven by a number of factors but, in most cases, we have found that the primary reason is unique customer-specific changes in demand for certain products driven by the needs of their customers or markets served. Recently this has become more pronounced for our sales into the wafer production sector within the broader semiconductor market due to the limited market penetration we have into this sector and the variability of orders we have experienced from the few customers we support. These shifts in market practices and customer-specific needs have had, and may continue to have, varying levels of impact on our operating results and are difficult to quantify or predict from period to period. Management has taken, and will continue to take, such actions it deems appropriate to adjust our strategies, products and operations to counter such shifts in market practices as they become evident.

 

-23-

 

As discussed further in Part I, Item 1 “Overview and Strategy” of our 2022 Form 10-K, although the semi market remains our largest market, as part of our strategy to grow our business, we are focused on several other key target markets where we believe our products address test and process requirements and where we believe there is significant potential for growth. These key target markets include the automotive, defense/aerospace, industrial, life sciences and security markets. We believe that these markets are usually less cyclical than the semi market. While market share statistics exist for some of these markets, due to the nature of our highly specialized product offerings in these markets, we do not expect broad market penetration in many of these markets and, therefore, do not anticipate developing meaningful market shares in most of these markets.

 

In addition, because of our limited market share, our orders and revenue in any given period in these markets do not necessarily reflect the overall trends in these markets. Consequently, we are continuing to evaluate buying patterns and opportunities for growth in these, and other, markets that may affect our performance. The level of our orders and revenue in all of the markets we serve has varied in the past, and we expect will vary significantly in the future, as we work to build our presence in our current markets and establish new markets for our products.

 

Revenue

The following table sets forth, for the periods indicated, a breakdown of revenue by market (in thousands).

 

   

Three Months Ended

 
                                   

Change

                   

Change

 
   

3/31/2023

   

3/31/2022

   

$

   

%

   

12/31/2022

   

$

   

%

 

Revenue

                                                                               

Semi

  $ 17,683       55.4 %   $ 13,390       55.6 %   $ 4,293       32.1 %   $ 19,453       60.0 %   $ (1,770 )     -9.1 %

Industrial

    3,137       9.8 %     2,799       11.6 %     338       12.1 %     2,179       6.7 %     958       44.0 %

Auto/EV

    2,597       8.1 %     2,756       11.5 %     (159 )     -5.8 %     2,805       8.7 %     (208 )     -7.4 %

Life Sciences

    1,513       4.8 %     699       2.9 %     814       116.5 %     1,006       3.1 %     507       50.4 %

Defense/Aero

    2,839       8.9 %     1,493       6.2 %     1,346       90.2 %     2,176       6.7 %     663       30.5 %

Security

    966       3.0 %     574       2.4 %     392       68.3 %     1,002       3.1 %     (36 )     -3.6