# Intest Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [Intest Corp](/companies/intt.md) (CIK 1036262)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 16:20 ET
- Period: 2023-09-30
- Accession: 0001437749-23-031276
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1036262/000143774923031276/intt20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1036262/000143774923031276/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $32.7m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $97.1m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $17.3m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $51.7m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $15.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $45.4m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $1.8m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $5.7m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $3.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $10.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $168.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $526.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $572.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $1.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $3.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $8.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.24 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.74 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.25 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.76 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 12,212,317 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 11,665,850 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $11.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $983.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $41.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $86.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $134.6m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $26.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $40.0m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $9.0m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $4.1m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $94.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 44,576 characters.

### Risk Factors and Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q for the period ended September 30, 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, including the conflicts in Ukraine and Israel;
- 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 II, Item 1A – “Risk Factors” in this Report and in Part I, Item 1A - "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “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.

### 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).

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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.

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.

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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).

| Revenue | Three Months Ended 9/30/2023 |  | 9/30/2022 |  | Change $% |  | 6/30/2023 |  | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Semi | $19,767 | 60.5% | $19,170 | 62.3% | $597 | 3.1% | $18,833 | 57.8% | $934 | 5.0% |
| Industrial | 2,456 | 7.5% | 2,130 | 6.9% | 326 | 15.3% | 2,806 | 8.6% | (350) | -12.5% |
| Auto/EV | 1,789 | 5.5% | 1,621 | 5.3% | 168 | 10.4% | 1,542 | 4.7% | 247 | 16.0% |
| Life Sciences | 1,540 | 4.7% | 1,715 | 5.6% | (175) | -10.2% | 1,135 | 3.5% | 405 | 35.7% |
| Defense/Aero | 3,392 | 10.4% | 1,914 | 6.2% | 1,478 | 77.2% | 3,890 | 11.9% | (498) | -12.8% |
| Security | 1,102 | 3.4% | 871 | 2.8% | 231 | 26.5% | 936 | 2.9% | 166 | 17.7% |
| Other | 2,617 | 8.0% | 3,350 | 10.9% | (733) | -21.9% | 3,416 | 10.6% | (799) | -23.4% |
|  | $32,663 | 100.0% | $30,771 | 100.0% | $1,892 | 6.1% | $32,558 | 100.0% | $105 | 0.3% |

| Revenue | Nine Months Ended 9/30/2023 |  | 9/30/2022 |  | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Semi | $56,283 | 57.9% | $48,969 | 58.0% | $7,314 | 14.9% |
| Industrial | 8,399 | 8.6% | 7,859 | 9.3% | 540 | 6.9% |
| Auto/EV | 5,928 | 6.1% | 7,971 | 9.5% | (2,043) | -25.6% |
| Life Sciences | 4,188 | 4.3% | 3,583 | 4.2% | 605 | 16.9% |
| Defense/Aero | 10,121 | 10.4% | 4,830 | 5.7% | 5,291 | 109.5% |
| Security | 3,004 | 3.2% | 2,239 | 2.7% | 765 | 34.2% |
| Other | 9,217 | 9.6% | 8,972 | 10.6% | 245 | 2.7% |
|  | $97,140 | 100.0% | $84,423 | 100.0% | $12,717 | 15.1% |

Total consolidated revenue for the three months ended September 30, 2023 was $32.7 million compared to $30.8 million for the same period in 2022 and $32.6 million for the three months ended June 30, 2023. The increase in revenue for the third quarter of 2023 as compared to the same period in 2022 reflects higher demand from most of our markets. In particular, we had increased shipments of our thermal solutions and our Acculogic products to the defense/aerospace market.

#### Orders and Backlog

We use orders and backlog as key performance metrics to analyze and measure our financial performance and results of operations. We define orders as purchase orders that we have accepted from our customers. Orders are recorded based on the date received and accepted by us. We believe tracking orders is useful in planning for future production needs and staffing levels and we use information about the level of our orders to make decisions about resource allocation, including appropriate levels of inventory purchases and the balance of inventory we carry at any given time. Another important operational measure used is backlog. Backlog is a common measurement used in industries with extended lead times for order fulfillment, like those in which we operate. Backlog at any given date represents the amount of net revenue that we expect to realize for unfilled orders received as of that date. We believe backlog is useful and use this information for similar reasons to those detailed above for orders. The majority of our backlog at any given time is expected to be fulfilled within the next twelve months. Depending on the terms of the purchase orders we have accepted, customers may have the ability to cancel an order or accelerate or postpone currently scheduled delivery dates. In some cases, we may have the ability to charge a cancellation fee if a purchase order we have accepted is later cancelled by a customer. Given that both orders and backlog are operational measures and our methodology for calculating orders and backlog do not meet the definition of a non-GAAP measure, as that term is defined by the SEC, a quantitative reconciliation for each is not required or provided.

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

| Orders | Three Months Ended 9/30/2023 |  | 9/30/2022 |  | Change $% |  | 6/30/2023 |  | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Semi | $12,935 | 48.2% | $19,181 | 58.7% | $(6,246) | -32.6% | $14,721 | 46.9% | $(1,786) | -12.1% |
| Industrial | 1,637 | 6.1% | 2,309 | 7.1% | (672) | -29.1% | 5,756 | 18.3% | (4,119) | -71.6% |
| Auto/EV | 3,051 | 11.3% | 2,870 | 8.8% | 181 | 6.3% | 3,276 | 10.4% | (225) | -6.9% |
| Life Sciences | 931 | 3.5% | 927 | 2.8% | 4 | 0.4% | 609 | 1.9% | 322 | 52.9% |
| Defense/Aero | 3,032 | 11.3% | 3,149 | 9.6% | (117) | -3.7% | 3,216 | 10.2% | (184) | -5.7% |
| Security | 2,212 | 8.2% | 1,072 | 3.3% | 1,140 | 106.3% | 456 | 1.5% | 1,756 | 385.1% |
| Other | 3,056 | 11.4% | 3,172 | 9.7% | (116) | -3.7% | 3,397 | 10.8% | (341) | -10.0% |
|  | $26,854 | 100.0% | $32,680 | 100.0% | $(5,826) | -17.8% | $31,431 | 100.0% | $(4,577) | -14.6% |

| Orders | Nine Months Ended 9/30/2023 |  | 9/30/2022 |  | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Semi | $46,002 | 51.6% | $58,295 | 59.4% | $(12,293) | -21.1% |
| Industrial | 11,535 | 12.9% | 7,897 | 8.0% | 3,638 | 46.1% |
| Auto/EV | 8,371 | 9.4% | 8,239 | 8.4% | 132 | 1.6% |
| Life Sciences | 3,476 | 3.9% | 3,678 | 3.8% | (202) | -5.5% |
| Defense/Aero | 8,225 | 9.2% | 6,897 | 7.0% | 1,328 | 19.3% |
| Security | 2,880 | 3.2% | 2,214 | 2.3% | 666 | 30.1% |
| Other | 8,620 | 9.8% | 11,041 | 11.2% | (2,421) | -21.9% |
|  | $89,109 | 100.0% | $98,261 | 100.0% | $(9,152) | -9.3% |

Total consolidated orders for the three months ended September 30, 2023 were $26.9 million compared to $32.7 million for the same period in 2022 and $31.4 million for the three months ended June 30, 2023. Orders received in the third quarter of 2023 declined $5.8 million, or 18%, compared with the same period in 2022 and $4.6 million, or 15%, compared with the second quarter of 2023. Increased demand from the security, automotive/EV and life sciences markets helped to partially offset lower demand from the semi, industrial, defense/aerospace and other markets. In particular, we saw declines from both our front-end and back-end semi customers which we attribute to shifts in the production cycle in front-end semi and slowing in back-end test as customers continue to deploy units they have taken delivery of over the last few quarters. Demand in the semi market has historically experienced significant fluctuations in demand, as discussed previously in the Overview. In addition, the timing of the receipt of customer orders is unpredictable and typically more variable than the associated delivery schedules. In particular, in certain of our markets including the front-end of the semi market, the auto/EV market and the life sciences market for our image capture technology, our customers tend to place large orders with delivery schedules that extend over several quarters which results in the variability of quarterly order rates that is reflected in the total orders for the periods presented. In addition, during 2022 when supply chain constraints were prevalent across most industries, we saw a tendency for our customers to place orders earlier than they had historically done in the past.

At September 30, 2023, our backlog of unfilled orders for all products was approximately $38.8 million compared with approximately $47.9 million at September 30, 2022 and $44.6 million at June 30, 2023. Our backlog includes customer orders that we have accepted, approximately 60% of which we expect to deliver in 2023. While backlog is calculated on the basis of firm purchase orders, a customer may cancel an order or accelerate or postpone currently scheduled delivery dates. Our backlog may be affected by the tendency of customers to rely on short lead times available from suppliers, including us, in periods of depressed demand. In periods of increased demand, there is a tendency towards longer lead times that has the effect of increasing backlog. As a result, our backlog at a particular date is not necessarily indicative of sales for any future period.

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### Israel-Hamas War, War in Ukraine and Global Supply Chain Constraints

In early October 2023, Hamas attacked Israel and Israel formally declared war in response to the attack. The conflict is ongoing, and it is unclear when it might end. Ambrell has a sole source supplier of capacitors used in certain of our induction heating products that is located in Israel. This supplier is the sole source supplier of capacitors for numerous companies, and currently there are no viable alternatives available. We have been in frequent contact with our supplier since the conflict with Hamas began. With the shipment we received in mid-October, we currently estimate that we have enough supply to last through the fourth quarter. Our supplier has indicated that they have large stock available outside of the region and have more than one facility in Israel as well, so they believe they have redundancies in place that will help ensure that the supply chain to their customers is uninterrupted. We continue to monitor the situation closely and are staying in close contact with our supplier. However, there can be no assurance that the situation will not worsen which could impact our ability to ship certain of our induction heating products which could have a material impact on our future results of operations.

The ongoing war between Russia and Ukraine continues to contribute to global inflationary pressures and the availability of certain raw materials produced in that region, further exacerbating global supply chain challenges that emerged after the onset of the COVID-19 pandemic as described below. Acculogic purchases certain material from a key sole-source supplier in Belarus, which is bordered by Russia to the east and northeast and Ukraine to the south. We estimate that we currently have a six-to-nine-month supply of these parts that we are maintaining. We are currently in the process of qualifying an alternate supplier for these parts. We received prototype sample parts from the alternate supplier which we are now evaluating. We expect to complete this evaluation by the end of 2023.

In addition, while the supply chain and logistics challenges that we encountered throughout 2022 have eased and conditions appear to have stabilized, uncertainty in the global trade environment and the possibility of future global health or other crises remain. As a result, we expect that we may continue to experience increased prices, lack of availability and logistics delays from time to time for the foreseeable future. The actions we have taken and are continuing to take to mitigate these risks include qualifying new vendors as alternate sources in our supply chain, increasing our inventory of raw materials and ordering further in advance of when we expect to need materials than has been our practice in the past. We have also increased the prices that we charge our customers, where appropriate, and continue to work with our customers to find alternate options for the shipment of products where they control aspects of the logistics process. However, the environment in which we operate is dynamic and shifts rapidly at times, and the success of our efforts to mitigate and address the impacts on our business may not be successful. As a result, we could see increases in our costs or reduced revenues which would impact the level of our earnings in future periods.

Please refer to Part II, Item 1A in this Report and Part I, Item 1A of our 2022 Form 10-K for further discussion of the risks associated with our business operations, including risks associated with foreign operations.

### Results of Operations

The results of operations for all of our operating segments are generally affected by the same factors described in the Overview section above. Separate discussions and analyses for each segment would be repetitive. The discussion and analysis that follows, therefore, is presented on a consolidated basis and includes discussion of factors unique to each segment where significant to an understanding of that segment.

#### Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

*Revenue.* Revenue was $32.7 million for the three months ended September 30, 2023 compared to $30.8 million for the same period in 2022, an increase of $1.9 million, or 6%. We believe the increase in our revenue during the third quarter of 2023 primarily reflects the factors previously discussed under “Revenue” in the Overview section above.

*Gross Margin.* Our consolidated gross margin was 47% of revenue for the three months ended September 30, 2023 compared to 45% for the same period in 2022. The improvement in gross margin was primarily the result of a decline in the average cost of component materials used in our products in 2023 as compared to 2022. This decline was a result of changes in product mix.

*Selling Expense.* Selling expense was $4.4 million for the three months ended September 30, 2023 compared to $4.0 million for the same period in 2022, an increase of $358,000, or 9%. The increase reflects higher commissions as a result of changes in product mix and sales channels. We also incurred higher freight charges, advertising costs and increased salary and benefits costs as we continue to invest to grow our business.

*Engineering and Product Development Expense.* Engineering and product development expense was $1.8 million for the three months ended September 30, 2023 compared to $1.9 million for the same period in 2022, a decrease of $64,000, or 3%, primarily reflecting lower salary and benefits expense as we had open positions in the third quarter of 2023 that we are in the process of re-hiring. These positions were filled in the comparable prior period.

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*General and Administrative Expense.* General and administrative expense was $5.9 million for the three months ended September 30, 2023 compared to $4.9 million for the same period in 2022, an increase of $1.0 million, or 21%. This increase includes the impact of $819,000 of costs for corporate development activities during the third quarter of 2023, primarily related to an acquisition opportunity which we are no longer pursuing. There were no similar costs during the third quarter of 2022. This increase was partially offset by the recording of a reduction in the expected final payout amount for the contingent consideration related to our acquisition of Acculogic, which is discussed more fully in the notes to our consolidated financial statements.

*Other Income.* For the three months ended September 30, 2023, we recorded other income of $423,000 compared to $59,000 for the same period in 2022, an increase of $364,000. The increase in other income was primarily the result of increased interest earned on our cash balances. This reflects both higher average cash balances as well as higher rates of return being earned.

*Income Tax Expense.* For the three months ended September 30, 2023, we recorded income tax expense of $572,000 compared to income tax expense of $515,000 for the same period in 2022. Our effective tax rate was 16% for the three months ended September 30, 2023 compared to 17% for the same period in 2022. On a quarterly basis, we record income tax expense or benefit based on the expected annualized effective tax rate for the various taxing jurisdictions in which we operate our businesses.

#### Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

*Revenue.* Revenue was $97.1 million for the nine months ended September 30, 2023 compared to $84.4 million for the same period in 2022, an increase of $12.7 million, or 15%. We believe the increase in our revenue during the first nine months of 2023 primarily reflects higher demand from the semi market. There was also strong demand for our thermal test solutions for the defense/aerospace markets.

*Gross Margin.* Our consolidated gross margin was 47% of revenue for the nine months ended September 30, 2023 as compared to 46% of revenue for the same period in 2022. The improvement in our gross margin primarily reflects a decrease in our component material costs as a percentage of revenue, reflecting changes in product mix, and a decline in our fixed manufacturing costs as a percent of revenue. Even though our fixed manufacturing costs increased in absolute dollar terms, they were more fully absorbed by the higher revenue levels. The increase in our fixed manufacturing costs in absolute dollar terms reflects increased salary and benefits expense as a result of headcount additions and annual merit adjustments. To a lesser extent we also had increased depreciation and facility costs reflecting additions to our capitalized asset base and new facilities.

*Selling Expense.* Selling expense was $13.5 million for the nine months ended September 30, 2023 compared to $11.5 million for the same period in 2022, an increase of $2.0 million, or 17%. The increase primarily reflects higher commissions on the higher revenue level. We also had an increase in salary and benefits expense, reflecting annual merit adjustments and additional headcount investments, and higher levels of travel and advertising costs as we are increasing the number of customer visits and trade show attendance as we work to continue to grow our business.

*Engineering and Product Development Expense.* Engineering and product development expense was $5.7 million for the nine months ended September 30, 2023 compared to $5.6 million for the same period in 2022, an increase of $40,000 or 1%, primarily reflecting an increase in materials used in product development projects and fees paid to third parties to assist in our development efforts. These increases were offset somewhat by a decrease in salary and benefits expense as we have open positions in the first nine months of 2023 that we are in the process of re-hiring. These positions were filled in the comparable prior period.

*General and Administrative Expense.* General and administrative expense was $16.1 million for the nine months ended September 30, 2023 compared to $14.6 million for the same period in 2022, an increase of $1.5 million, or 10%. The increase primarily reflects higher levels of salary and benefits expense, bonus accruals and stock-based compensation expense. The increases reflect, in part, annual merit adjustments as well as increased accruals for profit-based bonuses. We also recorded higher costs related to our corporate development efforts and an increase in audit fees in the first nine months of 2023 as compared to the same period in 2022. The increase in audit fees is a result of our anticipated transition to accelerated filer status for fiscal 2024. These increases were partially offset by a reduction in amortization expense related to our acquired intangible assets and the aforementioned reduction in the liability for contingent consideration related to the acquisition of Acculogic.

*Other Income.* For the nine months ended September 30, 2023, we recorded other income of $678,000 compared to $32,000 for the same period in 2022, an increase of $646,000. The increase in other income was primarily the result of increased interest earned on our cash balances. This reflects both higher average cash balances as well as higher rates of return being earned.

*Income Tax Expense.* For the nine months ended September 30, 2023, we recorded income tax expense of $1.7 million compared to income tax expense of $1.0 million for the same period in 2022. Our effective tax rate was 17% in both periods. On a quarterly basis, we record income tax expense or benefit based on the expected annualized effective tax rate for the various taxing jurisdictions in which we operate our businesses.

### Liquidity and Capital Resources

As discussed more fully in the Overview, our business and results of operations are substantially dependent upon the demand for ATE by semiconductor manufacturers and companies that specialize in the testing of ICs. The cyclical and volatile nature of demand for ATE makes estimates of future revenues, results of operations and net cash flows difficult.

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Our primary historical source of liquidity and capital resources has been cash flow generated by our operations. In 2021, we also utilized our Credit Facility, which is discussed below, to fund our acquisitions. We manage our businesses to maximize operating cash flows as our primary source of liquidity for our short-term cash requirements, as discussed below. We use cash to fund growth in our operating assets, for new product research and development, for acquisitions and for stock repurchases. We currently anticipate that any additional long-term cash requirements related to our strategy would be funded through a combination of our cash and cash equivalents, our Credit Facility or by issuing equity.

#### Proceeds from Sale of Common Stock

On May 11, 2023, we entered into an At-the-Market Issuance Sales Agreement (the "Sales Agreement") pursuant to which we issued and sold 921,797 shares of our common stock having an aggregate offering price of $20.0 million between May 11, 2023 and May 31, 2023. We received net proceeds from the sale of these shares of $19.2 million after payment of commissions of 3.0% of the gross proceeds and other fees related to the sale of these shares.

#### Credit Facility

As discussed in the Overview and in Note 9 to our consolidated financial statements in this Report, on October 15, 2021, we entered into the Loan Agreement with M&T. The Loan Agreement includes a $25 million non-revolving delayed draw term note (the “Term Note”) and a $10 million 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 1A. Under the Amended Loan Agreement, the maximum loan amount that we may borrow under the Term Note increased from $25 million to $50.5 million, which raises the available funding at September 30, 2023 to $30 million. 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 September 30, 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 or a bank-defined base rate plus an applicable margin, depending on leverage. The Amended Loan Agreement includes customary affirmative, negative and financial covenants, including a maximum ratio of consolidated funded debt to consolidated EBITDA of not more than 3.0 to 1.0 and a fixed charge coverage ratio of not less than 1.25 to 1.0. Our obligations under the Amended Loan Agreement are secured by liens on substantially all of our tangible and intangible assets. At September 30, 2023, we were in compliance with all of the covenants included in the Credit Facility. At September 30, 2023, we were in compliance with debt covenants of the Amended Loan Agreement.

On October 28, 2021, we drew $12 million under the Term Note to finance the acquisition of Videology. 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 $8.5 million under the Term Note to finance the acquisition of Acculogic. 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 September 30, 2023, it was approximately 7.4% based on current leverage.

Interest expense for the nine months ended September 30, 2023 and 2022 was $526,000 and $457,000, respectively.

#### Liquidity

Our cash and cash equivalents and working capital were as follows (in thousands):

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Cash and cash equivalents | $41,685 | $13,434 |
| Working capital | $60,120 | $33,182 |

As of September 30, 2023, $4.4 million, or 11%, of our cash and cash equivalents was held by our foreign subsidiaries. We currently expect our cash and cash equivalents, in combination with the borrowing capacity available under our revolving credit facility and the anticipated net cash to be provided by our operations in the next twelve months to be sufficient to support our short-term working capital requirements and other corporate requirements. Our revolving credit facility is discussed above and in Note 9 to our consolidated financial statements in this Report.

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Our material short-term cash requirements include payments due under our various lease agreements, recurring payroll and benefits obligations to our employees, purchase commitments for materials that we use in the products we sell and principal and interest payments on our debt. We also anticipate making investments in our business in the next twelve months including hiring of additional staff and other investments related to our geographic and market expansion efforts. We estimate that our minimum short-term working capital requirements currently range between $8.0 million and $10.0 million. We expect our current cash and cash equivalents, in combination with the borrowing capacity available under our Revolving Facility and the anticipated net cash to be provided by our operations to be sufficient to support these additional investments as well as our current short-term cash requirements.

Our current strategy for growth includes pursuing acquisition opportunities for complementary businesses, technologies or products. As discussed further in our 2022 Form 10-K, we acquired substantially all of the assets of Videology in October 2021 and we completed the acquisition of Acculogic in December 2021. We utilized $20.5 million under the Term Note to finance these acquisitions. The borrowing availability under the Term Note was expanded in September 2022 as discussed above and in Note 9 to our consolidated financial statements in this Report. Also discussed above, we raised $19.2 million from the sale of common stock in May 2023. We currently anticipate that any additional long-term cash requirements related to our strategy would be funded through a combination of our cash and cash equivalents, the remaining availability under the Term Note or by issuing additional equity.

#### Cash Flows

*Operating Activities*. For the nine months ended September 30, 2023, we recorded net earnings of $8.6 million. Net cash provided by operations during this period was $11.5 million. During the nine months ended September 30, 2023, we had non-cash charges of $3.5 million for depreciation and amortization which included $1.2 million of amortization related to our ROU assets. Our operating lease liabilities declined $1.3 million during this same period. During the nine months ended September 30, 2023, we recorded $1.6 million for amortization of deferred compensation expense related to stock-based awards and a deferred tax benefit of $1.1 million. During the first nine months of 2023, inventories were relatively unchanged. In the first half of 2023, the level of our inventories had increased as we secured inventory to fill the orders in our backlog. However, inventory levels decreased in the third quarter of 2023 as supply chain constraints have eased and we have seen a slowing in order rates, particularly from the semi market. We anticipate the level of our inventories will continue to decline for the balance of 2023. Similar to the trend in our inventory levels, accounts payable are relatively the same at September 30, 2023 as they were at December 31, 2022 after having increased during the first half of the year. This primarily reflects that we have slowed the pace of new purchases from our vendors. Customer deposits and deferred revenue declined $794,000 during the first nine months of 2023 as we have now delivered all or substantially all of the large orders received in late 2022 where we collected sizable deposits from our customers as we needed to secure inventory in advance of the delivery schedule. We have not had as many large single orders placed in the first nine months of 2023 where similar deposits were collected.

*Investing Activities*. During the nine months ended September 30, 2023, purchases of property and equipment were $983,000, primarily reflecting leasehold improvements to our new facility for our Acculogic operation in Canada and test equipment for our Electronic Test segment. These improvements were funded using our working capital. We have no significant commitments for capital expenditures for the balance of 2023; however, depending upon changes in market demand or manufacturing and sales strategies, we may make such purchases or investments as we deem necessary and appropriate. These additional cash requirements would be funded by our cash and cash equivalents, anticipated net cash to be provided by operations and our revolving credit facility.

*Financing Activities*. During the nine months ended September 30, 2023, we had net proceeds of $19.2 million from the sale of 921,797 shares of our common stock, as previously discussed. During this same period, we also received $979,000 as a result of the exercise of options to purchase our stock by employees and $118,000 as a result of purchases of our stock that were made by our employees under the inTEST Corporation Employee Stock Purchase Plan. During the nine months ended September 30, 2023, we made principal payments on our Term Note totaling $3.1 million, and acquired $687,000 of stock as a result of shares withheld by us from employees to satisfy tax liabilities incurred by them as a result of vesting of restricted stock awards. These shares are classified as treasury stock on our consolidated balance sheets.

### New or Recently Adopted Accounting Standards

See the Notes to our consolidated financial statements in this Report for information concerning the implementation and impact of new or recently adopted accounting standards.

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### Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, long-lived assets, goodwill, identifiable intangibles, contingent consideration liabilities and deferred income tax valuation allowances. We base our estimates on historical experience and on appropriate and customary assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Some of these accounting estimates and assumptions are particularly sensitive because of their significance to our consolidated financial statements and because of the possibility that future events affecting them may differ markedly from what had been assumed when the financial statements were prepared. As of September 30, 2023, there have been no significant changes to the accounting estimates that we have deemed critical. Our critical accounting estimates are more fully described in our 2022 Form 10-K.

### Off -Balance Sheet Arrangements

There were no off-balance sheet arrangements during the nine months ended September 30, 2023 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.

## Controls and procedures

As filed, 2,341 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Exchange Act of 1934, as amended, (the “Exchange Act”). Because there are inherent limitations in all control systems, a control system, no matter how well conceived and operated, can provide only reasonable, as opposed to absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Our management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Accordingly, our management has designed the disclosure controls and procedures to provide reasonable assurance that the objectives of the control system were met.

**CEO/CFO Conclusions about the Effectiveness of the Disclosure Controls and Procedures**. As required by Rule 13a-15(b) of the Exchange Act, inTEST management, including our CEO and CFO, conducted an evaluation as of the end of the period covered by this Report, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our CEO and CFO concluded that, as of the end of the period covered by this Report, our disclosure controls and procedures were effective at the reasonable assurance level.

### Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,636 characters.

Information regarding the primary risks and uncertainties that could materially and adversely affect our future performance or could cause actual results to differ materially from those expressed or implied in our forward-looking statements, appears in Part I, Item 1A - "Risk Factors" of our 2022 Form 10-K filed with the Securities and Exchange Commission on March 22, 2023. There have been no material changes from the risk factors set forth in our 2022 Form 10-K, except for the addition of the following:

**We have a sole source supplier of components in Israel and the current Hamas-Israel conflict could disrupt our supply chain or cause other adverse effects on our revenue and earnings.**

In early October 2023, Hamas attacked Israel and Israel formally declared war in response to the attack. The conflict is ongoing, and it is unclear when it might end. The continuing conflict is likely to cause regional instability and could materially adversely affect global trade, regional economies and the global economy, which could materially adversely affect our financial condition and results of operations. Our subsidiary, Ambrell has a sole source supplier of capacitors used in certain of our induction heating products that is located in Israel. This supplier is the sole source supplier of capacitors for numerous companies, and currently there are not viable alternatives available. There can be no assurance that the situation will not worsen, which could impact our ability to assemble and ship certain of our induction heating products which could have a material impact on our results of operations in future periods.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-031276. Last ingested by Listed: Nov 6, 2026, 16:32 ET. No prices; not investment advice.