UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| | 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
inTEST Corporation
(Exact Name of Registrant as Specified in its Charter)
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(Address of principal executive offices, including zip code)
(
(Registrant's Telephone Number, including Area Code)
| Securities registered pursuant to Section 12(b) of the Act: | ||
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
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.
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).
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 ☐ |
| | 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
Number of shares of Common Stock, $0.01 par value, outstanding as of the close of business on May 2, 2022:
inTEST CORPORATION
TABLE OF CONTENTS
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| PART I. |
FINANCIAL INFORMATION |
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| Item 1. |
Financial Statements |
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| Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021 |
1 |
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| Unaudited Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 |
2 |
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| Unaudited Consolidated Statements of Comprehensive Earnings for the three months ended March 31, 2022 and 2021 |
3 |
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| Unaudited Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2022 and 2021 |
4 |
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| Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 |
5 |
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| Notes to Consolidated Financial Statements |
6 |
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| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
24 |
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
31 |
| Item 4. |
Controls and Procedures |
31 |
| PART II. |
OTHER INFORMATION |
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| Item 1. |
Legal Proceedings |
32 |
| Item 1A. |
Risk Factors |
32 |
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
32 |
| Item 3. |
Defaults Upon Senior Securities |
32 |
| Item 4. |
Mine Safety Disclosures |
32 |
| Item 5. |
Other Information |
32 |
| Item 6. |
Exhibits |
33 |
| SIGNATURES |
34 | |
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, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Trade accounts receivable, net of allowance for doubtful accounts of and , respectively | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment: | ||||||||
| Machinery and equipment | ||||||||
| Leasehold improvements | ||||||||
| Gross property and equipment | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | ||||||||
| Right-of-use assets, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Restricted certificates of deposit | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current portion of Term Note | $ | $ | ||||||
| Current portion of operating lease liabilities | ||||||||
| Accounts payable | ||||||||
| Accrued wages and benefits | ||||||||
| Accrued professional fees | ||||||||
| Customer deposits and deferred revenue | ||||||||
| Accrued sales commissions | ||||||||
| Domestic and foreign income taxes payable | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Term Note, net of current portion | ||||||||
| Deferred tax liabilities | ||||||||
| Contingent consideration | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, par value; shares authorized; shares issued or outstanding | ||||||||
| Common stock, par value; shares authorized; and shares issued, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive earnings | ||||||||
| Treasury stock, at cost; shares | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
See accompanying Notes to Consolidated Financial Statements.
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
| Three Months Ended | ||||||||
| 2022 | 2021 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling expense | ||||||||
| Engineering and product development expense | ||||||||
| General and administrative expense | ||||||||
| Restructuring and other charges | ||||||||
| Total operating expenses | ||||||||
| Operating income | ||||||||
| Other expense | ( | ) | ( | ) | ||||
| Earnings before income tax expense | ||||||||
| Income tax expense | ||||||||
| Net earnings | $ | $ | ||||||
| Earnings per common share – basic | $ | $ | ||||||
| Weighted average common shares outstanding – basic | ||||||||
| Earnings per common share – diluted | $ | $ | ||||||
| Weighted average common shares and common share equivalents outstanding – diluted | ||||||||
See accompanying Notes to Consolidated Financial Statements.
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
(Unaudited)
| Three Months Ended | ||||||||
| 2022 | 2021 | |||||||
| Net earnings | $ | $ | ||||||
| Unrealized gain on interest rate swap agreement | ||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||
| Comprehensive earnings | $ | $ | ||||||
See accompanying Notes to Consolidated Financial Statements
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
| 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 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Net earnings | - | |||||||||||||||||||||||||||
| Other comprehensive earnings | - | |||||||||||||||||||||||||||
| Amortization of deferred compensation related to stock-based awards | - | |||||||||||||||||||||||||||
| Issuance of unvested shares of restricted stock | ( | ) | ||||||||||||||||||||||||||
| Shares issued under Employee Stock Purchase Plan | ||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||
| Common Stock | Paid-in | Retained | Comprehensive | Treasury | Stockholders' | |||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Earnings | Stock | Equity | ||||||||||||||||||||||
| Balance, January 1, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Net earnings | - | |||||||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Amortization of deferred compensation related to stock-based awards | - | |||||||||||||||||||||||||||
| Issuance of unvested shares of restricted stock | ( | ) | ||||||||||||||||||||||||||
| Stock options exercised | ||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net earnings | $ | $ | ||||||
| Adjustments to reconcile net earnings to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Provision for excess and obsolete inventory | ||||||||
| Foreign exchange loss | ||||||||
| Amortization of deferred compensation related to stock-based awards | ||||||||
| Loss on disposal of property and equipment | ||||||||
| Proceeds from sale of demonstration equipment, net of gain | ||||||||
| Deferred income tax benefit | ( | ) | ( | ) | ||||
| Changes in assets and liabilities: | ||||||||
| Trade accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accrued wages and benefits | ( | ) | ||||||
| Accrued professional fees | ( | ) | ( | ) | ||||
| Customer deposits and deferred revenue | ( | ) | ||||||
| Accrued sales commissions | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Domestic and foreign income taxes payable | ( | ) | ||||||
| Other current liabilities | ( | ) | ||||||
| Other liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Repayments of Term Note | ( | ) | ||||||
| Proceeds from shares sold under Employee Stock Purchase Plan | ||||||||
| Proceeds from stock options exercised | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effects of exchange rates on cash | ( | ) | ( | ) | ||||
| Net cash used in all activities | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Cash payments for: | ||||||||
| Domestic and foreign income taxes | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: | ||||||||
| Adjustments to preliminary purchase accounting for Acculogic (Note 3) | ||||||||
| Increase in liability for contingent consideration | $ | |||||||
| Increase in fair value of intangible assets | $ | ( | ) | |||||
| Increase in goodwill | $ | ( | ) | |||||
See accompanying Notes to Consolidated Financial Statements.
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 solutions for use in manufacturing and testing across a wide range of markets including automotive, defense/aerospace, industrial, life sciences, security and semiconductor. During the year ended December 31, 2021, we managed our business as
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 processing 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 processing 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.
COVID-19 Pandemic
With respect to the COVID-19 pandemic, we are following the guidance of the Centers for Disease Control and Prevention and the local regulatory authorities in regions outside the U.S. While in most cases we are no longer requiring employees to wear masks indoors in our domestic locations, in certain of our facilities, where we have experienced a recent increase in the number of employees contracting the virus, we have re-instituted a mask requirement. We are encouraging all employees to receive COVID-19 vaccinations and boosters, if possible. We are continuing to conduct temperature screenings and encouraging all employees to maintain social distancing when appropriate. We are also continuing to allow employees to work remotely either part-time or full-time in circumstances when possible. We are still assessing the impact of the recent increase in cases in certain of our facilities and exploring alternatives to address the lost production time. With regard to the recent shutdowns in China, we are working with our customers to identify alternate plans for delivery of our products to this region. If the spread of COVID-19 or its variants continues to worsen, we may experience additional lost production time or further interruption in our ability to ship our products to our customers. In addition, if one or more of our significant customers or suppliers is impacted, or significant additional governmental regulations and restrictions are imposed, our business in the future could be negatively impacted. We continue to monitor the situation closely and will adjust our operations as necessary to protect the health and well-being of our employees. To the extent that further governmental mandates or restrictions are implemented in the future, we currently expect to be able to continue to operate our business in a manner similar to how we have operated over the past year.
| (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, 2021 (the “2021 Form 10-K”) filed on March 23, 2022 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, 2022.
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.
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 11. Our liabilities for contingent consideration are accounted for in accordance with the guidance in Accounting Standards Codification (“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 4 for further disclosures related to the fair value of our liabilities for contingent consideration.
Goodwill, Intangible and Long-Lived Assets
As discussed in Notes 1 and 15, during the year ended December 31, 2021, we managed our business as
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.
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 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 (formerly Z-Sciences) product lines, and Ambrell Corporation’s (“Ambrell”) precision induction heating systems, including EKOHEAT and EASYHEAT 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.
Contract Balances
We record accounts receivable at the time of invoicing. Accounts receivable, net of the allowance for doubtful accounts, 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.
The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, if any, historical experience, and other currently available evidence.
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 7 and 15 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 $
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 finance lease liabilities. We do not currently have any finance leases.
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 10 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 4 and 11. 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 $
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 12.
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 | ||||||||
| 2022 | 2021 | |||||||
| Weighted average common shares outstanding–basic | ||||||||
| Potentially dilutive securities: | ||||||||
| Unvested shares of restricted stock and employee stock options | ||||||||
| Weighted average common shares and common share equivalents outstanding–diluted | ||||||||
| Average number of potentially dilutive securities excluded from calculation | ||||||||
Effect of Recently Issued 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 are effective for us for reporting periods beginning after December 15, 2022. The amendments replace 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 plan to adopt the amendments when they become effective for us on January 1, 2023. We are currently evaluating the impact the adoption of these amendments will have on our consolidated financial statements.
| (3) | ACQUISITIONS |
Z-Sciences
As discussed further in Note 3 to our consolidated financial statements in our 2021 Form 10-K, on October 6, 2021, we acquired substantially all of the assets of Z-Sciences Corp. (“Z-Sciences”), a developer of ultra-cold storage solutions for the medical cold chain market. The Z-Sciences product line was re-branded as “North Sciences” after our acquisition. The acquisition enhances our medical offerings and increases our presence in the life sciences market which is a key target market for us. Z-Sciences was founded in 2004. Its founder joined us as a consultant and is expected to become an employee in 2022. As of March 31, 2022, he was still a consultant. The purchase price for Z-Sciences was $
The acquisition of Z-Sciences has been accounted for as a business combination using purchase accounting, and, accordingly, the results of Z-Sciences have been included in our consolidated results of operations from the date of acquisition. The allocation of the Z-Sciences’ purchase price was based on fair values as of October 6, 2021. Further information about the allocation of the purchase price is discussed in Note 3 to our consolidated financial statements in our 2021 Form 10-K.
Unaudited pro forma information which would give effect to the acquisition of Z-Sciences as if the acquisition occurred on January 1, 2021 is not presented because the financial results for Z-Sciences prior to our acquisition are considered immaterial.
Videology
As discussed further in Note 3 to our consolidated financial statements in our 2021 Form 10-K, on October 28, 2021, we acquired substantially all of the assets of Videology Imaging Solutions Inc. and Videology Imaging Solutions Europe B.V. (collectively, “Videology”), a global designer, developer and manufacturer of OEM digital streaming and image capturing solutions. The acquisition of Videology expands our process technology solutions, diversifies our reach into key targeted markets and broadens our customer base. It also builds on our process technology platforms by expanding our automation capabilities to add future product solutions with imaging data and analytical tools. The purchase price for Videology was $
The acquisition of Videology has been accounted for as a business combination using purchase accounting, and, accordingly, the results of Videology have been included in our consolidated results of operations from the date of acquisition. The allocation of the Videology purchase price was based on fair values as of October 27, 2021. Further information about the allocation of the purchase price, and goodwill and intangible assets recorded as a result of the acquisition is discussed in Note 3 to our consolidated financial statements in our 2021 Form 10-K.
The following unaudited pro forma information gives effect to the acquisition of Videology as if the acquisition occurred on January 1, 2021. These proforma summaries do not reflect any operating efficiencies or costs savings that may be achieved by the combined businesses. These proforma summaries are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been had the acquisition taken place as of that date, nor are they indicative of future consolidated results of operations:
| Three Months Ended March 31, 2021 | ||||
| Revenue | $ | |||
| Net earnings | $ | |||
| Diluted earnings per share | $ | |||
The pro forma results shown above do not reflect the impact on general and administrative expense of investment advisory costs, legal costs and other costs of $
Acculogic
As discussed further in Note 3 to our consolidated financial statements in our 2021 Form 10-K, on December 21, 2021, we completed our acquisition of Acculogic Inc. and its affiliates (collectively, “Acculogic”), a global manufacturer of robotics-based electronic production test equipment and application support services. The acquisition was completed by acquiring all of the outstanding capital stock of Acculogic. The Acculogic acquisition adds electronics test capabilities with new technologies and services as well as broadens our customer base, furthers our end market diversification and expands our international footprint. The purchase price for Acculogic was approximately $
The acquisition of Acculogic has been accounted for as a business combination using purchase accounting, and, accordingly, the results of Acculogic have been included in our consolidated results of operations from the date of acquisition. The allocation of the purchase price for Acculogic is not yet complete as the calculation of post-closing working capital adjustment has not yet been finalized. We are in discussions with the seller and expect the calculation to be finalized in the second quarter of 2022. We currently expect the final post-closing working capital adjustment to be a decrease in the purchase price in the range of $
The preliminary allocation of the Acculogic purchase price which is presented below was based on estimated fair values as of December 21, 2021. At December 31, 2021, we were still working with third-party valuation specialists to assist us with finalizing several aspects of the purchase price, including the valuation of intangible assets and contingent consideration. During the first quarter of 2022, we finalized the valuation of intangible assets, which did not change materially from the preliminary values reported in our 2021 Form 10-K, and the valuation of contingent consideration, which increased approximately $
The excess of the purchase price over the identifiable intangible and net tangible assets was allocated to goodwill and is not deductible for tax purposes. Goodwill is attributed to synergies that are expected to result from the operations of the combined businesses.
The total purchase price of $
| Goodwill | $ | |||
| Identifiable intangible assets | ||||
| Tangible assets acquired and liabilities assumed: | ||||
| Cash | ||||
| Trade accounts receivable | ||||
| Inventories | ||||
| Other current assets | ||||
| Property and equipment | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Total purchase price | $ |
Further information about the intangible assets recorded as a result of the acquisition is discussed in Note 3 to our consolidated financial statements in our 2021 Form 10-K.
The following unaudited pro forma information gives effect to the acquisition of Acculogic as if the acquisition occurred on January 1, 2021. These proforma summaries do not reflect any operating efficiencies or costs savings that may be achieved by the combined businesses. These proforma summaries are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been had the acquisition taken place as of that date, nor are they indicative of future consolidated results of operations:
| Three Months Ended March 31, 2021 | ||||
| Revenue | $ | |||
| Net earnings | $ | |||
| Diluted earnings per share | $ | |||
The pro forma results shown above do not reflect the impact on general and administrative expense of investment advisory costs, legal costs and other costs of $
| (4) | 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 Topic 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 Topic 820 establishes a three-tier fair value hierarchy that distinguishes among the following:
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 11 is measured at fair value on a recurring basis using Level 2 inputs. The contingent consideration liabilities on our balance sheet are measured at fair value on a recurring basis using Level 3 inputs. Our contingent consideration liabilities are a result of our acquisitions of Z-Sciences on October 6, 2021 and Acculogic on December 21, 2021. The contingent consideration liability for Z-Sciences represents the estimated fair value of the additional cash consideration payable that is contingent upon the continued employment with us of the Z-Sciences founder as discussed more fully in Note 3. It is included in Other Current Liabilities on our balance sheet. At December 31, 2021, we have assumed this payment will be made. The contingent consideration liability for Acculogic represents the estimated fair value of the additional cash consideration payable that is contingent upon sales to EV or battery customers as described further in Note 3. This amount was increased by $
The following fair value hierarchy table presents information about 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, 2022 | ||||||||||||||||
| Contingent consideration liability – Z-Sciences | $ | $ | $ | $ | ||||||||||||
| Contingent consideration liability – Acculogic | $ | $ | $ | $ | ||||||||||||
| Interest rate swap | $ | $ | $ | $ | ||||||||||||
Changes in the fair value of our Level 3 contingent consideration liabilities for the three months ended March 31, 2022 were as follows:
| Three March 31, 2022 | ||||
| Balance at beginning of period | $ | |||
| Adjustment to contingent consideration liability in connection with the acquisition of Acculogic | ||||
| Impact of foreign currency translation adjustments | ||||
| Balance at end of period | $ | |||
| (5) | RESTRUCTURING AND OTHER CHARGES |
During 2021, we recorded restructuring and other charges related to various actions including the consolidation of manufacturing for certain of our Electronic Test segment’s products and changes in our executive management team. These charges are discussed more fully in Note 5 to our consolidated financial statements in our 2021 Form 10-K. There were
Accrued Restructuring
The liability for accrued restructuring charges at March 31, 2022 relates to costs associated with the move of our corporate office from our Mansfield, Massachusetts facility to our facility in New Jersey, as discussed more fully in Note 5 to our consolidated financial statements in our 2021 Form 10-K. We expect to pay out the remaining amount accrued during the second quarter of 2022. The liability for accrued restructuring charges is included in other current liabilities on our consolidated balance sheet. Changes in the amount of the liability for accrued restructuring for the three months ended March 31, 2022 were as follows:
| Balance - January 1, 2022 | $ | |||
| Cash payments | ( | ) | ||
| Balance - March 31, 2022 | $ |
| (6) | 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, 2022 are as follows:
| Balance - January 1, 2022 | $ | |||
| Adjustments to preliminary amounts recorded in the fourth quarter of 2021 for contingent consideration and intangible assets related to acquisition of Acculogic (see Note 3) | ||||
| Impact of foreign currency translation adjustments | ( | ) | ||
| Balance - March 31, 2022 | $ |
Goodwill was comprised of the following at March 31, 2022 and December 31, 2021:
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Electronic Test: | ||||||||
| Acculogic | $ | $ | ||||||
| Environmental Technologies: | ||||||||
| Sigma | ||||||||
| Thermonics | ||||||||
| Z-Sciences | ||||||||
| Total Environmental Technologies | ||||||||
| Process Technologies: | ||||||||
| Ambrell | ||||||||
| Videology | ||||||||
| Total Process Technologies | ||||||||
| Total goodwill | $ | $ | ||||||
Intangible Assets
Changes in the amount of the carrying value of indefinite-lived intangible assets for the three months ended March 31, 2022 are as follows:
| Balance - January 1, 2022 | $ | |||
| Adjustments to preliminary amounts recorded in the fourth quarter of 2021 related to acquisition of Acculogic (see Note 3) | ||||
| Impact of foreign currency translation adjustments | ||||
| Balance - March 31, 2022 | $ |
Changes in the amount of the carrying value of finite-lived intangible assets for the three months ended March 31, 2022 are as follows:
| Balance - January 1, 2022 | $ | |||
| Adjustments to preliminary amounts recorded in the fourth quarter of 2021 related to acquisition of Acculogic (see Note 3) | ||||
| Impact of foreign currency translation adjustments | ||||
| Amortization | ( | ) | ||
| Balance - March 31, 2022 | $ |
Intangible assets were allocated to our reporting segments at March 31, 2022 and December 31, 2021 as follows:
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Electronic Test: | ||||||||
| Acculogic | $ | $ | ||||||
| Environmental Technologies: | ||||||||
| Sigma | ||||||||
| Thermonics | ||||||||
| Z-Sciences | ||||||||
| Total Environmental Technologies | ||||||||
| Process Technologies: | ||||||||
| Ambrell | ||||||||
| Videology | ||||||||
| Total Process Technologies | ||||||||
| Total intangible assets | $ | $ | ||||||
The following tables provide further detail about our intangible assets as of March 31, 2022 and December 31, 2021:
| March 31, 2022 | ||||||||||||
| Gross | Accumulated Amortization | Net | ||||||||||
| Finite-lived intangible assets: | ||||||||||||
| Customer relationships | $ | $ | $ | |||||||||
| Technology | ||||||||||||
| Patents | ||||||||||||
| Backlog | ||||||||||||
| Software | ||||||||||||
| Trade name | ||||||||||||
| Total finite-lived intangible assets | ||||||||||||
| Indefinite-lived intangible assets: | ||||||||||||
| Trademarks | - | |||||||||||
| Total intangible assets | $ | $ | $ | |||||||||
| December 31, 2021 | ||||||||||||
| Gross | Accumulated Amortization | Net | ||||||||||
| Finite-lived intangible assets: | ||||||||||||
| Customer relationships | $ | $ | $ | |||||||||
| Technology | ||||||||||||
| Patents | ||||||||||||
| Backlog | ||||||||||||
| Software | ||||||||||||
| Trade name | ||||||||||||
| Total finite-lived intangible assets | ||||||||||||
| Indefinite-lived intangible assets: | ||||||||||||
| Trademarks | - | |||||||||||
| Total intangible assets | $ | $ | $ | |||||||||
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. 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:
| 2022 (remainder) | $ | |||
| 2023 | $ | |||
| 2024 | $ | |||
| 2025 | $ | |||
| 2026 | $ |
| (7) | 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 market for the three months ended March 31, 2021 has been reclassified to be consistent with how the information for the current period is presented. See also Note 15 for information about revenue by operating segment and geographic region.
| Three Months Ended | ||||||||
| 2022 | 2021 | |||||||
| Revenue by customer type: | ||||||||
| End user | $ | $ | ||||||
| OEM/Integrator | ||||||||
| $ | $ | |||||||
| Revenue by product type: | ||||||||
| Thermal test | $ | $ | ||||||
| Thermal process | ||||||||
| Semiconductor test | ||||||||
| Video imaging | ||||||||
| Flying probe and in-circuit testers | ||||||||
| Service/other | ||||||||
| $ | $ | |||||||
| Revenue by market: | ||||||||
| Semiconductor | $ | $ | ||||||
| Industrial | ||||||||
| Automotive (including Electric Vehicles) | ||||||||
| Defense/aerospace | ||||||||
| Life Sciences | ||||||||
| Security | ||||||||
| Other | ||||||||
| $ | $ | |||||||
There were
| (8) | MAJOR CUSTOMERS |
During the three months ended March 31, 2022, no customer accounted for 10% or more of our consolidated revenue. During the three months ended March 31, 2021, Texas Instruments Incorporated accounted for
| (9) | INVENTORIES |
Inventories held at March 31, 2022 and December 31, 2021 were comprised of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Inventory consigned to others | ||||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
| (10) | 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, 2022 and 2021, respectively, were as follows:
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Operating lease cost | $ | $ | ||||||
| Short-term lease cost | $ | $ | ||||||
The following is additional information about our leases as of March 31, 2022:
| Range of remaining lease terms (in years) | to | ||
| Weighted average remaining lease term (in years) | |||
| Weighted average discount rate |
Maturities of lease liabilities as of March 31, 2022 were as follows:
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total lease payments | $ | |||
| Less imputed interest | ( | ) | ||
| Total | $ |
Cash Flow Information
Total amortization of ROU assets for the three months ended March 31, 2022 and 2021 was $
During the three months ended March 31, 2022, we executed an amendment to the lease for our facility in Singapore which extended the term for a period of
| (11) | 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, 2022 and December 31, 2021 consisted of the following:
| L/C | Lease | Letters of Credit | ||||||||||||
| Facility | Original L/C | Expiration | Expiration | Mar. 31, | Dec. 31, | |||||||||
| Mt. Laurel, NJ |
|
|
| $ | $ | |||||||||
| Mansfield, MA |
|
|
| |||||||||||
| $ | $ | |||||||||||||
Credit Facility
On October 15, 2021 (the “Closing Date”), we entered into an Amended and Restated Loan and Security Agreement (the “October 2021 Agreement”) with M&T Bank (“M&T”). The October 2021 Agreement includes a $
The principal balance of the revolving credit facility and the principal balance of any amount drawn under the Term Note will accrue 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 October 2021 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.
The October 2021 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 October 2021 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
On October 28, 2021, we drew $
On December 29, 2021, we drew $
The following table sets forth the maturities of long-term debt for each of the next five years:
| 2022 (remainder) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| $ |
| (12) | STOCK-BASED COMPENSATION PLAN |
As of March 31, 2022, 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 2021 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, 2022, total compensation expense to be recognized in future periods is $
The following table summarizes the compensation expense we recorded during the three months ended March 31, 2022 and 2021 related to unvested shares of restricted stock and stock options:
| Three Months Ended | ||||||||
| 2022 | 2021 | |||||||
| Cost of revenue | $ | $ | ||||||
| Selling expense | ||||||||
| Engineering and product development expense | ||||||||
| General and administrative expense | ||||||||
| $ | $ | |||||||
There was
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 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 years.
The fair value for stock options granted during the three months ended March 31, 2022 and 2021 was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
| 2022 | 2021 | |||||||
| Risk-free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Expected common stock market price volatility factor | . | . | ||||||
| Weighted average expected life of stock options (years) | ||||||||
The per share weighted average fair value of stock options issued during the three months ended March 31, 2022 and 2021 was $
The following table summarizes the activity related to stock options for the three months ended March 31, 2022:
| Number | Weighted | |||||||
| Options outstanding, January 1, 2022 ( exercisable) | ||||||||
| Granted | ||||||||
| Exercised | ||||||||
| Canceled | ||||||||
| Options outstanding, March 31, 2022 ( exercisable) | ||||||||
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 years for employees and over year for our independent directors (
Since August 2020, we have increasingly granted performance-based restricted stock awards where the ultimate number of shares that vest can vary between
On March 9, 2022, our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") received restricted stock awards totaling
The following table summarizes the activity related to unvested restricted stock awards for the three months ended March 31, 2022:
| Number | Weighted | |||||||
| Unvested shares outstanding, January 1, 2022 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Unvested shares outstanding, March 31, 2022 | ||||||||
The total fair value of the restricted stock awards that vested during the three months ended March 31, 2022 and 2021 was $
| (13) | 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
On March 31, 2022, employees purchased
| (14) | 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
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
| (15) | SEGMENT INFORMATION |
During the year ended December 31, 2021, we managed our business as
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 other income (expense), corporate expenses and acquired intangible amortization.
| Three Months Ended | ||||||||
| 2022 | 2021 | |||||||
| Revenue: | ||||||||
| Electronic Test | $ | $ | ||||||
| Environmental Technologies | ||||||||
| Process Technologies | ||||||||
| Total revenue | $ | $ | ||||||
| Income from divisional operations: | ||||||||
| Electronic Test | $ | $ | ||||||
| Environmental Technologies | ||||||||
| Process Technologies | ||||||||
| Total income from divisional operations | ||||||||
| Corporate expenses | ( | ) | ( | ) | ||||
| Acquired intangible amortization | ( | ) | ( | ) | ||||
| Other income (expense) | ( | ) | ( | ) | ||||
| Earnings before income tax expense | $ | $ | ||||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Identifiable assets: | ||||||||
| Electronic Test | $ | $ | ||||||
| Environmental Technologies | ||||||||
| Process Technologies | ||||||||
| Corporate | ||||||||
| $ | $ | |||||||
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 | ||||||||
| 2022 | 2021 | |||||||
| Revenue: | ||||||||
| U.S. | $ | $ | ||||||
| Foreign | ||||||||
| $ | $ | |||||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Property and equipment: | ||||||||
| U.S. | $ | $ | ||||||
| Foreign | ||||||||
| $ | $ | |||||||
| 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, 2022 (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 and financial results, such as statements of our plans, strategies and intentions, or our future performance or goals that are based upon management's current expectations. Our forward-looking statements can often be identified by the use of forward-looking terminology such as "believes," "expects," "intends," "may," “could,” "will," "should," "plans," “projects,” “forecasts,” “seeks,” “anticipates,” “goal,” “objective,” “target,” “estimate,” “future,” “outlook,” “vision,” 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 estimations. These statements involve risks and uncertainties and are based upon various assumptions. Such risks and uncertainties include, but are not limited to:
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our ability to execute on our 5-Point Strategy; |
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our ability to grow our presence in the life sciences, security, industrial and international markets; |
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the possibility of future acquisitions or dispositions and the successful integration of any acquired operations; |
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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”; |
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indications of a change in the market cycles in the semi market, or other markets we serve; |
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developments and trends in the semi market, including changes in the demand for semiconductors; |
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our ability to convert backlog to sales and to ship product in a timely manner; |
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the loss of any one or more of our largest customers, or a reduction in orders by a major customer; |
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the availability of materials used to manufacture our products; |
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the impact of current global supply chain constraints or other interruptions in our supply chain caused by external factors, including the ongoing war in Ukraine and COVID-19; |
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the impact of inflation on our business and financial condition; |
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the impact of COVID-19 on our business, liquidity, financial condition and results of operations; |
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the sufficiency of cash balances, lines of credit and net cash from operations; |
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stock price fluctuations; |
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the ability to borrow funds or raise capital to finance potential acquisitions or for working capital; |
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changes in the rate of, and timing of, capital expenditures by our customers; |
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effects of exchange rate fluctuations; |
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progress of product development programs; |
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the anticipated market for our products; |
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the availability of and retention of key personnel or our ability to hire personnel at anticipated costs; |
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general economic conditions both domestically and globally, and |
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other risk factors included in Part I, Item 1A - "Risk Factors" in our 2021 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 are not obligated to update these forward-looking statements, even though our situation may change in the future.
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 2021 Form 10-K.
We are a global supplier of innovative test and process solutions for use in manufacturing and testing across a wide range of markets including automotive, defense/aerospace, industrial, life sciences, security and semiconductor. During the year ended December 31, 2021, we managed our business as two operating segments which were also our reportable segments and reporting units: Thermal Products ("Thermal") and Electromechanical Solutions ("EMS"). Effective January 1, 2022, we reorganized our operating segments to better align with our plan to manage and report our business going forward. This change in our operating and reporting structure reflects the evolution of our business, particularly as a result of the broadening of our product portfolio through the acquisitions we completed in the fourth quarter of 2021, which are discussed more fully in Note 3. Accordingly, for 2022, 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). Prior period information has been reclassified to be comparable to the current period’s presentation.
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 2021 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 semiconductor manufacturing industry (“semi” or “semi market”). The semi market, which includes both the broader semiconductor market, as well as the more specialized ATE and wafer processing 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 processing equipment. Demand for ATE or wafer processing 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 processing 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.
Acquisitions
A key element to our strategy for growth is through acquisitions. As discussed more fully in Note 3 to our consolidated financial statements in this Report, during 2021, we completed three acquisitions that expanded our technology offerings, diversified our markets and customers and expanded our reach into Europe.
On October 6, 2021, we acquired substantially all of the assets of Z-Sciences (now North Sciences), a developer of ultra-cold storage solutions for the life sciences cold chain market. This small, tuck-in transaction enhances our technology, adds new talent, and provides a low-cost entry into this fast growing, fragmented market. This business is included in our Environmental Technologies segment.
On October 28, 2021, we acquired substantially all of the assets of Videology, a global designer, developer and manufacturer of OEM digital streaming and image capturing solutions. The acquisition expanded our process technology offerings, diversified our reach into key target markets and broadened our customer base. This business is included in our Process Technologies segment.
On December 21, 2021, we acquired Acculogic, a global manufacturer of robotics-based electronic production test equipment and application support services. The acquisition expanded our global reach and enhanced our product portfolio with leading technologies and automation services. This business is included in our Electronic Test segment.
Orders and Backlog
The following table sets forth, for the periods indicated, a breakdown of the orders received by operating segment and market (in thousands).
| Three Months Ended March 31, |
Change |
Three Months Ended December 31, |
Change |
|||||||||||||||||||||||||
| 2022 |
2021 |
$ |
% |
2021 |
$ |
% |
||||||||||||||||||||||
| Orders: |
||||||||||||||||||||||||||||
| Electronic Test |
$ | 9,297 | $ | 10,484 | $ | (1,187 | ) |
(11 | )% |
$ | 5,324 | $ | 3,973 | 75 | % |
|||||||||||||
| Environmental Technologies |
6,914 | 5,644 | 1,270 | 23 | % |
6,468 | 446 | 7 | % |
|||||||||||||||||||
| Process Technologies |
8,852 | 9,102 | (250 | ) |
(3 | )% |
18,667 | (9,815 | ) |
(53 | )% |
|||||||||||||||||
| $ | 25,063 | $ | 25,230 | $ | (167 | ) |
(1 | )% |
$ | 30,459 | $ | (5,396 | ) |
(18 | )% |
|||||||||||||
| Semi |
$ | 12,382 | $ | 17,185 | $ | (4,803 | ) |
(28 | )% |
$ | 21,386 | $ | (9,004 | ) |
(42 | )% |
||||||||||||
| Industrial |
3,222 | 2,526 | 696 | 28 | % |
2,504 | 718 | 29 | % |
|||||||||||||||||||
| Auto/EV |
2,619 | 1,168 | 1,451 | 124 | % |
1,413 | 1,206 | 85 | % |
|||||||||||||||||||
| Life Sciences |
1,216 | 952 | 264 | 28 | % |
654 | 562 | 86 | % |
|||||||||||||||||||
| Defense/Aerospace |
1,851 | 1,110 | 741 | 67 | % |
862 | 989 | 115 | % |
|||||||||||||||||||
| Security |
153 | - | 153 | n/a | 1,620 | (1,467 | ) |
(91 | )% |
|||||||||||||||||||
| Other |
3,620 | 2,289 | 1,331 | 58 | % |
2,020 | 1,600 | 79 | % |
|||||||||||||||||||
| $ | 25,063 | $ | 25,230 | $ | (167 | ) |
(1 | )% |
$ | 30,459 | $ | (5,396 | ) |
(18 | )% |
|||||||||||||
Total consolidated orders for the three months ended March 31, 2022 were $25.1 million compared to $25.2 million for the same period in 2021 and $30.5 million for the three months ended December 31, 2021. Orders from customers in semi for the three months ended March 31, 2022 declined 28% compared to the same period in 2021 and 42% compared to the three months ended December 31, 2021. During the first quarter of 2021, we experienced exceptionally strong demand from our back-end semi customers as the market was in a period of significant expansion. Demand from these customers in the first quarter of 2021 has moderated, which we believe reflects the typical purchasing cycle in this market as customers complete the installation and set-up of equipment purchased throughout 2021. In addition, orders in the fourth quarter of 2021 included a $10.0 million order for our front-end semi solutions which we did not expect to repeat in the first quarter of 2022. This order will ship over the next several quarters.
Orders for the three months ended March 31, 2022 as compared to both the same period in 2021 and the three months ended December 31, 2021 reflected strong demand from the automotive market, in particular for electric vehicle (“EV”) applications utilizing our induction heating technology and our newly acquired battery test solutions. Orders increased in life sciences as well, driven by demand for a variety of our technology solutions including digital imaging and induction heating. Demand from the defense/aerospace market for environmental technology solutions was also strong in the three months ended March 31, 2022.
At March 31, 2022, our backlog of unfilled orders for all products was approximately $35.0 million compared with approximately $17.1 million at March 31, 2021 and $34.1 million at December 31, 2021. The amounts at March 31, 2022 and December 31, 2021 included approximately $7.6 million and $6.5 million, respectively, from acquired businesses. The significant increase in our backlog as compared to March 31, 2021 primarily reflects the aforementioned $10.0 million order received from one of our front-end semi market customers during the fourth quarter of 2021 and the impact of the acquired businesses. Our backlog includes customer orders which we have accepted, essentially all of which we expect to deliver in 2022, subject to supply chain constraints. 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.
Revenue
The following table sets forth, for the periods indicated, a breakdown of revenue by operating segment and market (in thousands).
| Three Months Ended March 31, |
Change |
Three Months Ended December 31, |
Change |
|||||||||||||||||||||||||
| 2022 |
2021 |
$ |
% |
2021 |
$ |
% |
||||||||||||||||||||||
| Revenue: |
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| Electronic Test |
$ | 8,778 | $ | 8,501 | $ | 277 | 3 | % |
$ | 6,851 | $ | 1,927 | 28 | % |
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| Environmental Technologies |
6,993 | 6,198 | 795 | 13 | % |
7,176 | (183 | ) |
(3 | )% |
||||||||||||||||||
| Process Technologies |
8,310 | 4,857 | 3,453 | 71 | % |
8,331 | (21 | ) |
- | % |
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| $ | 24,081 | $ | 19,556 | $ | 4,525 | 23 | % |
$ | 22,358 | $ | 1,723 | 8 | % |
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| Semi |
$ | 13,390 | $ | 13,320 | $ | 70 | 1 | % |
$ | 12,284 | $ | 1,106 | 9 | % |
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| Industrial |
2,799 | 1,427 | 1,372 | 96 | % |
2,172 | 627 | 29 | % |
|||||||||||||||||||
| Auto/EV |
2,756 | 1,327 | 1,429 | 108 | % |
2,697 | 59 | 2 | % |
|||||||||||||||||||
| Life Sciences |
699 | 643 | 56 | 9 | % |
409 | 290 | 71 | % |
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| Defense/Aerospace |
1,493 | 1,252 | 241 | 19 | % |
1,322 | 171 | 13 | % |
|||||||||||||||||||
| Security |
574 | - | 574 | n/a | 693 | (119 | ) |
(17 | )% |
|||||||||||||||||||
| Other |
2,370 | 1,587 | 783 | 49 | % |
2,781 | (411 | ) |
(15 | )% |
||||||||||||||||||
| $ | 24,081 | $ | 19,556 | $ | 4,525 | 23 | % |
$ | 22,358 | $ | 1,723 | 8 | % |
|||||||||||||||
Total consolidated revenue for the three months ended March 31, 2022 was $24.1 million compared to $19.6 million for the same period in 2021 and $22.4 million for the three months ended December 31, 2021. Revenue for the three months ended March 31, 2022 included $4.0 million from the businesses we acquired during the fourth quarter of 2021, as previously discussed. Acquired businesses accounted for $1.5 million of revenue during the fourth quarter of 2021.
Organic growth in revenue for the three months ended March 31, 2022 was 3% compared to the same period in 2021 and reflected demand from the automotive market, in particular EVs, as well as industrial markets. The acquired businesses contributed to growth in life sciences, security and other markets. Revenue from the semi market was relatively unchanged compared to the same period in 2021 as demand from front-end semi customers offset the decline in sales to the back-end semi customers which were exceptionally strong in the same period in 2021, as previously mentioned. Compared with the three months ended December 31, 2021, revenue excluding acquired businesses declined approximately 4% largely reflecting logistics and supply chain constraints that did not allow us to ship all of the orders we had planned to ship during the first quarter of 2022. The incremental increase from acquired businesses primarily reflects that we owned these businesses for the full quarter while we only had revenue in the fourth quarter of 2021 from the respective dates of acquisition through December 31, 2021.
War in Ukraine and Global Supply Chain Constraints
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. As discussed in Part 1, Item IA “Risk Factors” in our 2021 Form 10-K, Acculogic, which we acquired in December 2021, 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 this material. Since February 2022, we have been working through the process of qualifying an alternate supplier for this material. Although we expect to have completed that qualification by the end of the second quarter of 2022, if we do not successfully identify and qualify an alternate vendor for this material, our revenue and earnings could be adversely affected in future periods.
In addition, while we were able to mitigate a significant portion of the supply chain and logistics challenges that we encountered in the first quarter of 2022, we have approximately $1.0 million of products that we were not able to ship during the quarter because of such constraints. We expect to ship all of such products during the second quarter of 2022. However, we expect to continue to experience increased prices, lack of availability and logistics delays for the foreseeable future. The actions we are taking 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 are also increasing the prices that we charge our customers as a result of increased raw material expenses, and we are working with our customers to find alternate options for the shipment of products where they control aspects of the logistics process. However, the situation is evolving and shifting 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 1, Item 1A of our 2021 Form 10-K for further discussion of the risks associated with our business operations, including risks associated with foreign operations.
COVID-19 Pandemic
With respect to the COVID-19 pandemic, we are following the guidance of the Centers for Disease Control and Prevention and the local regulatory authorities in regions outside the U.S. While in most cases we are no longer requiring employees to wear masks indoors in our domestic locations, in certain of our facilities, where we have experienced a recent increase in the number of employees contracting the virus, we have re-instituted a mask requirement. We are encouraging all employees to receive COVID-19 vaccinations and boosters, if possible. We are continuing to conduct temperature screenings and encouraging all employees to maintain social distancing when appropriate. We are also continuing to allow employees to work remotely either part-time or full-time in circumstances when possible. We are still assessing the impact of the recent increase in cases in certain of our facilities and exploring alternatives to address the lost production time. With regard to the recent shutdowns in China, we are working with our customers to identify alternate plans for delivery of our products to this region. If the spread of COVID-19 or its variants continues to worsen, we may experience additional lost production time or further interruption in our ability to ship our products to our customers. In addition, if one or more of our significant customers or suppliers is impacted, or significant additional governmental regulations and restrictions are imposed, our business in the future could be negatively impacted. We continue to monitor the situation closely and will adjust our operations as necessary to protect the health and well-being of our employees. To the extent that further governmental mandates or restrictions are implemented in the future, we currently expect to be able to continue to operate our business in a manner similar to how we have operated over the past year.
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 March 31, 2022 Compared to Three Months Ended March 31, 2021
Revenue. Revenue was $24.1 million for the three months ended March 31, 2022 compared to $19.6 million for the same period in 2021, an increase of $4.5 million, or 23%. We believe the increase in our revenue during the first quarter of 2022 primarily reflects the factors previously discussed in the Overview section.
Gross Margin. Our consolidated gross margin was 46% of revenue for the three months ended March 31, 2022 as compared to 49% of revenue for the same period in 2021. The decrease in our gross margin primarily reflects a combination of an increase in our component material costs as a percentage of revenue, reflecting changes in product and customer mix, and an increase in our direct labor as a percentage of revenue, reflecting an increase in the relative labor component of our cost structure. This increase reflects both the impact of the acquired businesses as well as increases in the average rates paid for labor as compared to the same period in 2021. The increase in labor rates reflects both inflation and merit increases given on April 1, 2021. To a lesser extent, there was also an increase in our fixed operating costs as a percent of revenue, reflecting both the impact of the acquired businesses as well as headcount investments in our legacy business.
Selling Expense. Selling expense was $3.5 million for the three months ended March 31, 2022 compared to $2.4 million for the same period in 2021 an increase of $1.1 million, or 44%. The acquired businesses account for approximately $721,000 of this increase. The remaining increase primarily reflects headcount investments and increased travel across all our segments. These increases were partially offset by a decrease in commission expense, reflecting changes in customer mix.
Engineering and Product Development Expense. Engineering and product development expense was $1.9 million for the three months ended March 31, 2022 compared to $1.3 million for the same period in 2021 an increase of $602,000, or 46%. The acquired businesses account for approximately $478,000 of this increase. The remaining increase primarily reflects headcount investments and an increase in supplies used in product development. These increases were partially offset by a reduction in legal fees related to our intellectual property.
General and Administrative Expense. General and administrative expense was $4.8 million for the three months ended March 31, 2022 compared to $3.2 million for the same period in 2021 an increase of $1.7 million, or 53%. The acquired businesses account for approximately $1.3 million of this increase. The remaining increase primarily reflects headcount investments as well as an increase in professional fees paid to various third parties who assist us with our strategic initiatives and regulatory compliance.
Restructuring and Other Charges. For the three months ended March 31, 2021, we recorded $55,000 in restructuring and other charges related to the consolidation of our EMS manufacturing operations. There were no similar charges in the three months ended March 31, 2022.
Income Tax Expense. For the three months ended March 31, 2022, we recorded income tax expense of $78,000 compared to income tax expense of $366,000 for the same period in 2021. Our effective tax rate was 12% for the three months ended March 31, 2022 compared to 14% for the same period in 2021. 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 revenue, results of operations and net cash flows difficult.
Our primary historical source of liquidity and capital resources has been cash flow generated by our operations. In 2021, we also utilized our new credit facility, which is discussed further in the Overview and 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 new credit facility or by issuing equity.
Credit Facility
As discussed in Note 11 to our consolidated financial statements in this Report, on October 15, 2021, we entered into the October 2021 Agreement with M&T. The October 2021 Agreement includes a $25 million Term Note and a $10 million revolving credit facility and replaces our prior credit facility with M&T. The October 2021 Agreement has a five-year contract period that expires on October 15, 2026 and draws under the Term Note will be permissible for two years. The principal balance of the revolving credit facility and the principal balance of any amount drawn under the Term Note will accrue interest based on the Secured Overnight Financing Rate or a bank-defined base rate plus an applicable margin, depending on leverage. The October 2021 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 October 2021 Agreement are secured by liens on substantially all of our tangible and intangible assets.
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 December 31, 2021, it was approximately 2.1% based on current leverage.
At March 31, 2022, there were no amounts borrowed under our revolving credit facility. This facility has a total borrowing availability of $10.0 million. At March 31, 2022 we had utilized $20.5 million of the availability under our Term Note and we had $4.5 million remaining available under our Term Note.
Liquidity
Our cash and cash equivalents and working capital were as follows (in thousands):
| March 31, |
December 31, |
|||||||
| Cash and cash equivalents |
$ | 17,211 | $ | 21,195 | ||||
| Working capital |
$ | 27,122 | $ | 27,005 | ||||
As of March 31, 2022, $3.5 million, or 20%, 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 in Note 11 to our consolidated financial statements.
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 estimate that our minimum short-term working capital requirements currently range between $8.0 million and $10.0 million. We also anticipate making investments in our business in the next twelve months including hiring of additional staff, updates to our website and other systems and investments related to our geographic and market expansion efforts. We expect our current 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 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 the Overview, on October 28, 2021, we acquired substantially all of the assets of Videology and on December 21, 2021, we completed the acquisition of Acculogic. We utilized $20.5 million under our new credit facility to finance these acquisitions. As previously discussed, 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 our new credit facility or by issuing equity.
Cash Flows
Operating Activities. For the three months ended March 31, 2022, we recorded net earnings of $577,000. Net cash used in operations during this period was $2.8 million. During the three months ended March 31, 2022, we had non-cash charges of $1.3 million for depreciation and amortization which included $309,000 of amortization related to our ROU assets. Our operating lease liabilities declined $346,000 during this same period. During the three months ended March 31, 2022, we also recorded $372,000 for amortization of deferred compensation expense related to stock-based awards. Accounts receivable increased $832,000 during the three months ended March 31, 2022, reflecting the increase in revenue in the first quarter of 2022, while inventories and accounts payable increased $2.2 million and $1.6 million, respectively, also reflecting the increase in business levels. Accrued wages and benefits decreased $1.2 million during the three months ended March 31, 2022 reflecting the payment in March 2022 of profit-based bonuses accrued in 2021 on our results for the 2021 year.
Investing Activities. During the three months ended March 31, 2022, purchases of property and equipment were $335,000, primarily reflecting leasehold improvements to our facility in Mansfield, Massachusetts for the space that our Videology subsidiary will be occupying in the second quarter of 2022. These improvements were funded using our working capital. We have no significant commitments for capital expenditures for the balance of 2022; 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 three months ended March 31, 2022, we made principal payments on our Term Note totaling $883,000 and received $56,000 as a result of purchases of our stock that were made by our employees under the ESPP.
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.
Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with 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 March 31, 2022, 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 2021 Form 10-K.
Off -Balance Sheet Arrangements
There were no off-balance sheet arrangements during the three months ended March 31, 2022 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.
| Item 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
This disclosure is not required for a smaller reporting company.
| Item 4. |
CONTROLS AND PROCEDURES |
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. 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
During the period covered by this Report, 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.
PART II. OTHER INFORMATION
| Item 1. |
Legal Proceedings |
From time to time we may be a party to legal proceedings occurring in the ordinary course of business. We are not currently involved in any material legal proceedings.
| Item 1A. |
Risk Factors |
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 2021 Form 10-K filed with the Securities and Exchange Commission on March 23, 2022. There have been no material changes from the risk factors set forth in our 2021 Form 10-K.
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
None.
| Item 3. |
Defaults Upon Senior Securities |
None.
| Item 4. |
Mine Safety Disclosures |
Not applicable.
| Item 5. |
Other Information |
None.
| Item 6. |
Exhibits |
| 10.1 |
||
| 10.2 |
||
| 31.1 |
Certification of Chief Executive Officer pursuant to Rule 13a-14(a). |
|
| 31.2 |
Certification of Chief Financial Officer pursuant to Rule 13a-14(a). |
|
| 32.1 |
||
| 32.2 |
||
| 101.INS |
Inline XBRL Taxonomy Instance Document |
|
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| (1) |
Previously filed by the Company as an exhibit to the Company’s Current Report on Form 8-K dated October 15, 2021, File No. 001-36117, filed October 20, 2021, and incorporated herein by reference. |
|
| (2) |
Previously filed by the Company as an exhibit to the Company’s Current Report on Form 8-K dated March 9, 2022, File No. 001-36117, filed March 15, 2022, and incorporated herein by reference. |
|
| * |
Indicates a management contract or compensatory plan, contract or arrangement in which directors or executive officers participate. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| inTEST Corporation |
||
| Date: |
May 13, 2022 |
/s/ Richard N. Grant, Jr. |
| Richard N. Grant, Jr. |
||
| Date: |
May 13, 2022 |
/s/ Duncan Gilmour |
| Duncan Gilmour |
EXHIBIT 31.1
CERTIFICATION
I, Richard N. Grant, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of inTEST Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 13, 2022
/s/ Richard N. Grant, Jr.
Richard N. Grant, Jr.
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION
I, Duncan Gilmour, certify that:
1. I have reviewed this quarterly report on Form 10-Q of inTEST Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 13, 2022
/s/Duncan Gilmour
Duncan Gilmour
Chief Financial Officer, Treasurer and Secretary
EXHIBIT 32.1
inTEST CORPORATION
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of inTEST Corporation (the "Company") on Form 10-Q for the period ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard N. Grant, Jr., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 13, 2022
/s/ Richard N. Grant, Jr.
Richard N. Grant, Jr.
President and Chief Executive Officer
EXHIBIT 32.2
inTEST CORPORATION
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of inTEST Corporation (the "Company") on Form 10-Q for the period ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Duncan Gilmour, Chief Financial Officer, Treasurer and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 13, 2022
/s/ Duncan Gilmour
Duncan Gilmour
Chief Financial Officer, Treasurer and Secretary
Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Allowance for doubtful accounts | $ 212 | $ 213 |
| Preferred stock par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Preferred stock, shares authorized (in shares) | 5,000,000 | 5,000,000 |
| Preferred stock, shares issued (in shares) | 0 | 0 |
| Preferred stock, shares outstanding (in shares) | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized (in shares) | 20,000,000 | 20,000,000 |
| Common stock, shares issued (in shares) | 10,995,194 | 10,910,460 |
| Treasury stock, shares (in shares) | 33,077 | 33,077 |
Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Revenue | $ 24,081 | $ 19,556 |
| Cost of revenue | 13,068 | 10,035 |
| Gross profit | 11,013 | 9,521 |
| Operating expenses: | ||
| Selling expense | 3,456 | 2,403 |
| Engineering and product development expense | 1,924 | 1,322 |
| General and administrative expense | 4,831 | 3,161 |
| Restructuring and other charges | 0 | 55 |
| Total operating expenses | 10,211 | 6,941 |
| Operating income | 802 | 2,580 |
| Other expense | (147) | (2) |
| Earnings before income tax expense | 655 | 2,578 |
| Income tax expense | 78 | 366 |
| Net earnings | $ 577 | $ 2,212 |
| Earnings per common share – basic (in dollars per share) | $ 0.05 | $ 0.21 |
| Weighted average common shares outstanding – basic (in shares) | 10,617,271 | 10,329,449 |
| Earnings per common share – diluted (in dollars per share) | $ 0.05 | $ 0.21 |
| Weighted average common shares and common share equivalents outstanding – diluted (in shares) | 10,842,592 | 10,525,826 |
Consolidated Statements of Comprehensive Earnings (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Net earnings | $ 577 | $ 2,212 |
| Unrealized gain on interest rate swap agreement | 289 | 0 |
| Foreign currency translation adjustments | (116) | (101) |
| Comprehensive earnings | $ 750 | $ 2,111 |
Note 1 - Nature of Operations |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2022 | |||
| Notes to Financial Statements | |||
| Nature of Operations [Text Block] |
We are a global supplier of innovative test and process solutions for use in manufacturing and testing across a wide range of markets including automotive, defense/aerospace, industrial, life sciences, security and semiconductor. During the year ended December 31, 2021, we managed our business as two operating segments which were also our reportable segments and reporting units: Thermal Products ("Thermal") and Electromechanical Solutions ("EMS"). As discussed further in Note 15, effective January 1, 2022, we reorganized our operating segments. Accordingly, for 2022, we have three operating segments which are also our reportable segments and reporting units: Electronic Test, Environmental Technologies and Process Technologies. Prior period information has been reclassified to be comparable to the current period’s presentation.
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 processing 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 processing 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.
COVID-19 Pandemic
With respect to the COVID-19 pandemic, we are following the guidance of the Centers for Disease Control and Prevention and the local regulatory authorities in regions outside the U.S. While in most cases we are no longer requiring employees to wear masks indoors in our domestic locations, in certain of our facilities, where we have experienced a recent increase in the number of employees contracting the virus, we have re-instituted a mask requirement. We are encouraging all employees to receive COVID-19 vaccinations and boosters, if possible. We are continuing to conduct temperature screenings and encouraging all employees to maintain social distancing when appropriate. We are also continuing to allow employees to work remotely either part-time or full-time in circumstances when possible. We are still assessing the impact of the recent increase in cases in certain of our facilities and exploring alternatives to address the lost production time. With regard to the recent shutdowns in China, we are working with our customers to identify alternate plans for delivery of our products to this region. If the spread of COVID-19 or its variants continues to worsen, we may experience additional lost production time or further interruption in our ability to ship our products to our customers. In addition, if one or more of our significant customers or suppliers is impacted, or significant additional governmental regulations and restrictions are imposed, our business in the future could be negatively impacted. We continue to monitor the situation closely and will adjust our operations as necessary to protect the health and well-being of our employees. To the extent that further governmental mandates or restrictions are implemented in the future, we currently expect to be able to continue to operate our business in a manner similar to how we have operated over the past year. |
Note 2 - Summary of Significant Accounting Policies |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Significant Accounting Policies [Text Block] |
Basis of Presentation and Use of 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, 2021 (the “2021 Form 10-K”) filed on March 23, 2022 with the Securities and Exchange Commission.
Reclassification
Subsequent Events
Business Combinations
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 11. Our liabilities for contingent consideration are accounted for in accordance with the guidance in Accounting Standards Codification (“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 4 for further disclosures related to the fair value of our liabilities for contingent consideration.
Goodwill, Intangible and Long-Lived Assets
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.
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
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 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 (formerly Z-Sciences) product lines, and Ambrell Corporation’s (“Ambrell”) precision induction heating systems, including EKOHEAT and EASYHEAT 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.
Contract Balances
We record accounts receivable at the time of invoicing. Accounts receivable, net of the allowance for doubtful accounts, 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.
The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, if any, historical experience, and other currently available evidence.
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 7 and 15 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 $123 and $39 for the three months ended March 31, 2022 and 2021, 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 finance lease liabilities. We do not currently have any finance leases.
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 10 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 4 and 11. 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. As of March 31, 2022, $285 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 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 $236 at March 31, 2022. As of March 31, 2022, we were in compliance with the employment targets as specified in the grant agreement with the city of Rochester.
Stock-Based Compensation
Income Taxes
Earnings (Loss) Per Common Share
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:
Effect of Recently Issued 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 are effective for us for reporting periods beginning after December 15, 2022. The amendments replace 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 plan to adopt the amendments when they become effective for us on January 1, 2023. We are currently evaluating the impact the adoption of these amendments will have on our consolidated financial statements. |
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Note 3 - Acquisitions |
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| Business Combination Disclosure [Text Block] |
Z-Sciences
As discussed further in Note 3 to our consolidated financial statements in our 2021 Form 10-K, on October 6, 2021, we acquired substantially all of the assets of Z-Sciences Corp. (“Z-Sciences”), a developer of ultra-cold storage solutions for the medical cold chain market. The Z-Sciences product line was re-branded as “North Sciences” after our acquisition. The acquisition enhances our medical offerings and increases our presence in the life sciences market which is a key target market for us. Z-Sciences was founded in 2004. Its founder joined us as a consultant and is expected to become an employee in 2022. As of March 31, 2022, he was still a consultant. The purchase price for Z-Sciences was $500 in cash, subject to a customary post-closing working capital adjustment, $300 of which was paid at closing. The remaining $200, adjusted for the final working capital amount, will be paid on the one-year anniversary of closing based on the seller complying with the terms of his employment agreement. This amount has been recorded as a contingent consideration liability on our balance sheet at March 31, 2022 as our current assumption is that this liability will be paid out in October 2022. It is included in Other Current Liabilities. The fair value of this liability at March 31, 2022 approximates its cost due to the short maturity. In addition to his salary, in connection with his prospective employment, Z-Sciences’ founder will receive a multi-year restricted stock award with vesting provisions which would be contingent upon achieving future performance milestones related to sales growth and profitability of products related to the Z-Sciences business for the fiscal years from 2022 through 2026. The award will be valued at a maximum of $1,800. The actual numbers of shares to be awarded will be based on the stock price on the date of grant with a cap of 200,000 shares at the 100% attainment level of the vesting provisions that are defined in the restricted stock award agreement. The value of the award will be recorded as compensation expense in our statement of operations on a straight-line basis over the period in which the shares vest.
The acquisition of Z-Sciences has been accounted for as a business combination using purchase accounting, and, accordingly, the results of Z-Sciences have been included in our consolidated results of operations from the date of acquisition. The allocation of the Z-Sciences’ purchase price was based on fair values as of October 6, 2021. Further information about the allocation of the purchase price is discussed in Note 3 to our consolidated financial statements in our 2021 Form 10-K.
Unaudited pro forma information which would give effect to the acquisition of Z-Sciences as if the acquisition occurred on January 1, 2021 is not presented because the financial results for Z-Sciences prior to our acquisition are considered immaterial.
Videology
As discussed further in Note 3 to our consolidated financial statements in our 2021 Form 10-K, on October 28, 2021, we acquired substantially all of the assets of Videology Imaging Solutions Inc. and Videology Imaging Solutions Europe B.V. (collectively, “Videology”), a global designer, developer and manufacturer of OEM digital streaming and image capturing solutions. The acquisition of Videology expands our process technology solutions, diversifies our reach into key targeted markets and broadens our customer base. It also builds on our process technology platforms by expanding our automation capabilities to add future product solutions with imaging data and analytical tools. The purchase price for Videology was $12,000 paid in cash at closing subject to a customary post-closing working capital adjustment.
The acquisition of Videology has been accounted for as a business combination using purchase accounting, and, accordingly, the results of Videology have been included in our consolidated results of operations from the date of acquisition. The allocation of the Videology purchase price was based on fair values as of October 27, 2021. Further information about the allocation of the purchase price, and goodwill and intangible assets recorded as a result of the acquisition is discussed in Note 3 to our consolidated financial statements in our 2021 Form 10-K.
The following unaudited pro forma information gives effect to the acquisition of Videology as if the acquisition occurred on January 1, 2021. These proforma summaries do not reflect any operating efficiencies or costs savings that may be achieved by the combined businesses. These proforma summaries are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been had the acquisition taken place as of that date, nor are they indicative of future consolidated results of operations:
The pro forma results shown above do not reflect the impact on general and administrative expense of investment advisory costs, legal costs and other costs of $288 incurred by us as a direct result of the transaction.
Acculogic
As discussed further in Note 3 to our consolidated financial statements in our 2021 Form 10-K, on December 21, 2021, we completed our acquisition of Acculogic Inc. and its affiliates (collectively, “Acculogic”), a global manufacturer of robotics-based electronic production test equipment and application support services. The acquisition was completed by acquiring all of the outstanding capital stock of Acculogic. The Acculogic acquisition adds electronics test capabilities with new technologies and services as well as broadens our customer base, furthers our end market diversification and expands our international footprint. The purchase price for Acculogic was approximately $9,000 paid in cash at closing subject to a customary post-closing working capital adjustment. In addition, we may pay the seller up to an additional CAD $5,000 in the five-year period from 2022 through 2026. The additional payments will be based on a percent of net invoices for which payments have been received on systems sold to EV or battery customers in excess of CAD $2,500 per year in each of the five years. The maximum payment is capped at CAD $5,000, which equates to approximately $4,000 at March 31, 2022. To estimate the fair value of the contingent consideration at the acquisition date, an option-based income approach using a Monte Carlo simulation model was utilized due to the non-linear payout structure. As of the acquisition date, this resulted in an estimated fair value of $1,430. This amount was recorded as a contingent consideration liability and included in the purchase price as of the acquisition date. In future reporting periods, this same approach will be utilized to estimate the fair value of the contingent consideration at each reporting date. Changes in the amount of the estimated fair value of the earnouts since the acquisition date will be recorded as operating expenses in our statement of operations in the quarter in which they occur.
The acquisition of Acculogic has been accounted for as a business combination using purchase accounting, and, accordingly, the results of Acculogic have been included in our consolidated results of operations from the date of acquisition. The allocation of the purchase price for Acculogic is not yet complete as the calculation of post-closing working capital adjustment has not yet been finalized. We are in discussions with the seller and expect the calculation to be finalized in the second quarter of 2022. We currently expect the final post-closing working capital adjustment to be a decrease in the purchase price in the range of $350 to $450.
The preliminary allocation of the Acculogic purchase price which is presented below was based on estimated fair values as of December 21, 2021. At December 31, 2021, we were still working with third-party valuation specialists to assist us with finalizing several aspects of the purchase price, including the valuation of intangible assets and contingent consideration. During the first quarter of 2022, we finalized the valuation of intangible assets, which did not change materially from the preliminary values reported in our 2021 Form 10-K, and the valuation of contingent consideration, which increased approximately $500 from the preliminary value reported in our 2021 Form 10-K. The increase primarily reflects an increase in the estimate of net invoices for which payments are expected to be received on systems sold to EV or battery customers in excess of CAD $2,500 per year in the five-year period from 2022 through 2026.
The excess of the purchase price over the identifiable intangible and net tangible assets was allocated to goodwill and is not deductible for tax purposes. Goodwill is attributed to synergies that are expected to result from the operations of the combined businesses.
The total purchase price of $9,797, which includes $1,430 for the estimated fair value of contingent consideration, has been allocated as follows:
Further information about the intangible assets recorded as a result of the acquisition is discussed in Note 3 to our consolidated financial statements in our 2021 Form 10-K.
The following unaudited pro forma information gives effect to the acquisition of Acculogic as if the acquisition occurred on January 1, 2021. These proforma summaries do not reflect any operating efficiencies or costs savings that may be achieved by the combined businesses. These proforma summaries are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been had the acquisition taken place as of that date, nor are they indicative of future consolidated results of operations:
The pro forma results shown above do not reflect the impact on general and administrative expense of investment advisory costs, legal costs and other costs of $1,297 incurred by us as a direct result of the transaction. |
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Note 4 - Fair Value Measurements |
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| Fair Value Disclosures [Text Block] |
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 Topic 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 Topic 820 establishes a three-tier fair value hierarchy that distinguishes among the following:
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 11 is measured at fair value on a recurring basis using Level 2 inputs. The contingent consideration liabilities on our balance sheet are measured at fair value on a recurring basis using Level 3 inputs. Our contingent consideration liabilities are a result of our acquisitions of Z-Sciences on October 6, 2021 and Acculogic on December 21, 2021. The contingent consideration liability for Z-Sciences represents the estimated fair value of the additional cash consideration payable that is contingent upon the continued employment with us of the Z-Sciences founder as discussed more fully in Note 3. It is included in Other Current Liabilities on our balance sheet. At December 31, 2021, we have assumed this payment will be made. The contingent consideration liability for Acculogic represents the estimated fair value of the additional cash consideration payable that is contingent upon sales to EV or battery customers as described further in Note 3. This amount was increased by $500 during the three months ended March 31, 2022 in connection with finalizing this aspect of the purchase price allocation.
The following fair value hierarchy table presents information about liabilities measured at fair value on a recurring basis:
Changes in the fair value of our Level 3 contingent consideration liabilities for the three months ended March 31, 2022 were as follows:
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Note 5 - Restructuring and Other Charges |
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| Restructuring, Impairment, and Other Activities Disclosure [Text Block] |
During 2021, we recorded restructuring and other charges related to various actions including the consolidation of manufacturing for certain of our Electronic Test segment’s products and changes in our executive management team. These charges are discussed more fully in Note 5 to our consolidated financial statements in our 2021 Form 10-K. There were no restructuring and other charges incurred in the three months ended March 31, 2022. During the first quarter of 2021, we incurred $55 of charges associated with finalizing the integration of the aforementioned manufacturing operations of our Electronic Test segment.
Accrued Restructuring
The liability for accrued restructuring charges at March 31, 2022 relates to costs associated with the move of our corporate office from our Mansfield, Massachusetts facility to our facility in New Jersey, as discussed more fully in Note 5 to our consolidated financial statements in our 2021 Form 10-K. We expect to pay out the remaining amount accrued during the second quarter of 2022. The liability for accrued restructuring charges is included in other current liabilities on our consolidated balance sheet. Changes in the amount of the liability for accrued restructuring for the three months ended March 31, 2022 were as follows:
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Note 6 - Goodwill and Intangible Assets |
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| Goodwill and Intangible Assets Disclosure [Text Block] |
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
Goodwill was comprised of the following at March 31, 2022 and December 31, 2021:
Intangible Assets
Changes in the amount of the carrying value of finite-lived intangible assets for the three months ended March 31, 2022 are as follows:
Intangible assets were allocated to our reporting segments at March 31, 2022 and December 31, 2021 as follows:
The following tables provide further detail about our intangible assets as of March 31, 2022 and December 31, 2021:
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. 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:
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Note 7 - Revenue From Contracts With Customers |
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| Revenue from Contract with Customer [Text Block] |
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 market for the three months ended March 31, 2021 has been reclassified to be consistent with how the information for the current period is presented. See also Note 15 for information about revenue by operating segment and geographic region.
There were no significant changes in the amount of the allowance for doubtful accounts for the three months ended March 31, 2022. |
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Note 8 - Major Customers |
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| Concentration Risk Disclosure [Text Block] |
During the three months ended March 31, 2022, no customer accounted for 10% or more of our consolidated revenue. During the three months ended March 31, 2021, Texas Instruments Incorporated accounted for 16% 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, 2021. |
Note 9 - Inventories |
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| Inventory Disclosure [Text Block] |
Inventories held at March 31, 2022 and December 31, 2021 were comprised of the following:
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Note 10 - Leases |
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| Lessee, Operating Leases [Text Block] |
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, 2022 and 2021, respectively, were as follows:
The following is additional information about our leases as of March 31, 2022:
Maturities of lease liabilities as of March 31, 2022 were as follows:
Cash Flow Information
Total amortization of ROU assets for the three months ended March 31, 2022 and 2021 was $309 and $280, respectively.
During the three months ended March 31, 2022, we executed an amendment to the lease for our facility in Singapore which extended the term for a period of 24 months commencing on April 1, 2022 and expiring on March 31, 2024. At the effective date of this modification, we recorded a non-cash increase in our ROU assets and operating lease liabilities of approximately $51. |
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Note 11 - Debt |
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| Debt Disclosure [Text Block] |
Letters of Credit
Credit Facility
On October 15, 2021 (the “Closing Date”), we entered into an Amended and Restated Loan and Security Agreement (the “October 2021 Agreement”) with M&T Bank (“M&T”). The October 2021 Agreement includes a $25,000 non-revolving delayed draw term note (the “Term Note”) and a $10,000 revolving credit facility. The October 2021 Agreement has a year contract period that began on the Closing Date and expires on October 15, 2026 (the “Contract Period”), and draws under the Term Note will be permissible for years. As of March 31, 2022, we had borrowed any amounts under the revolving credit facility, and we had $4,500 available under our Term Note. Our borrowings under the Term Note are discussed below. Interest expense for the three months ended March 31, 2022 was $137. There was interest expense in the three months ended March 31, 2021.
The principal balance of the revolving credit facility and the principal balance of any amount drawn under the Term Note will accrue 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 October 2021 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.
The October 2021 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 October 2021 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 October 2021 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 October 2021 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.
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, 2022 it was approximately 2.2% based on current leverage. Effective April, 1 2022 this rate increased to approximately 2.4%.
The following table sets forth the maturities of long-term debt for each of the next five years:
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Note 12 - Stock-based Compensation Plan |
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| Share-Based Payment Arrangement [Text Block] |
As of March 31, 2022, 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 2021 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, 2022, total compensation expense to be recognized in future periods is $3,232. The weighted average period over which this expense is expected to be recognized is 2.4 years.
The following table summarizes the compensation expense we recorded during the three months ended March 31, 2022 and 2021 related to unvested shares of restricted stock and stock options:
There was no compensation expense capitalized in three months ended March 31, 2022 or 2021.
Stock Options
The per share weighted average fair value of stock options issued during the three months ended March 31, 2022 and 2021 was $5.19 and $5.09, respectively.
The following table summarizes the activity related to stock options for the three months ended March 31, 2022:
Restricted Stock Awards
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. The awards granted prior to January 1, 2022 are discussed in more detail in Note 15 to the consolidated financial statement in our 2021 Form 10-K. There have been no significant changes to our assumptions related to the expected vesting percentages for these awards as of March 31, 2022.
On March 9, 2022, our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") received restricted stock awards totaling 20,493 shares valued at $200 as of the date of grant. These shares vest on the 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. As of March 31, 2022, we have estimated that these shares will vest at 100% of the original amount.
The following table summarizes the activity related to unvested restricted stock awards for the three months ended March 31, 2022:
The total fair value of the restricted stock awards that vested during the three months ended March 31, 2022 and 2021 was $188 and $244, respectively, as of the vesting dates of these awards. |
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Note 13 - Employee Stock Purchase Plan |
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| Employee Stock Purchase Plan [Text Block] |
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, 2022, employees purchased 5,245 shares of our stock through the ESPP at a cost of $56. The closing market price on the date of the purchase was $10.73. The price paid by employees was $9.12 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, 2022, a total of 9,236 shares of stock have been purchased by employees through the ESPP at a cost of $91. We have recorded a total of $16 of compensation expense in our consolidated statements of operations related to these shares. |
Note 14 - Employee Benefit Plans |
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| Retirement Benefits [Text Block] |
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 years. Matching contributions are discretionary. For the three months ended March 31, 2022 and 2021 we recorded $216 and $171 of expense for matching contributions, respectively.
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, 2022 and 2021 we recorded $101 and $43 of expense for matching contributions, respectively. |
Note 15 - Segment Information |
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| Segment Reporting Disclosure [Text Block] |
During the year ended December 31, 2021, we managed our business as two operating segments which were also our reportable segments and reporting units: Thermal and EMS. As previously discussed in Note 1, effective January 1, 2022, we reorganized our segments to better align with our plan to manage and report our business going forward. This change in our operating and reporting structure reflects the evolution of our business, particularly as a result of the broadening of our product portfolio through the acquisitions we completed in the fourth quarter of 2021, which are discussed more fully in Note 3. Accordingly, for 2022, 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). Prior period information has been reclassified to be comparable to the current period’s presentation.
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 other income (expense), corporate expenses and acquired intangible amortization.
The following table provides information about our geographic areas of operation. Revenue is based on the location to which the goods are shipped.
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Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis Of Presentation And Use Of Estimates [Policy Text Block] | Basis of Presentation and Use of 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, 2021 (the “2021 Form 10-K”) filed on March 23, 2022 with the Securities and Exchange Commission.
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| Reclassification, Comparability Adjustment [Policy Text Block] | Reclassification
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| Subsequent Events, Policy [Policy Text Block] | Subsequent Events
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| Business Combinations Policy [Policy Text Block] | Business Combinations
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| Fair Value Measurement, Policy [Policy Text Block] | 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 11. Our liabilities for contingent consideration are accounted for in accordance with the guidance in Accounting Standards Codification (“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 4 for further disclosures related to the fair value of our liabilities for contingent consideration.
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| Goodwill Intangible And Long Lived Assets [Policy Text Block] | Goodwill, Intangible and Long-Lived Assets
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.
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.
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| Revenue [Policy Text Block] | Revenue Recognition
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 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 (formerly Z-Sciences) product lines, and Ambrell Corporation’s (“Ambrell”) precision induction heating systems, including EKOHEAT and EASYHEAT 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.
Contract Balances
We record accounts receivable at the time of invoicing. Accounts receivable, net of the allowance for doubtful accounts, 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.
The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, if any, historical experience, and other currently available evidence.
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 7 and 15 for further information about our revenue from contracts with customers.
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| Inventory, Policy [Policy Text Block] | 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 $123 and $39 for the three months ended March 31, 2022 and 2021, respectively.
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| Lessee, Leases [Policy Text Block] | 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 finance lease liabilities. We do not currently have any finance leases.
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 10 for further disclosures regarding our leases.
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| Derivatives, Policy [Policy Text Block] | 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 4 and 11. 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.
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| Contingent Liability, Repayment of State and Local Grant Funds Received, Policy [Policy Text Block] | 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. As of March 31, 2022, $285 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 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 $236 at March 31, 2022. As of March 31, 2022, we were in compliance with the employment targets as specified in the grant agreement with the city of Rochester.
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| Share-Based Payment Arrangement [Policy Text Block] | Stock-Based Compensation
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| Income Tax, Policy [Policy Text Block] | Income Taxes
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| Earnings Per Share, Policy [Policy Text Block] | Earnings (Loss) Per Common Share
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:
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| New Accounting Pronouncements, Policy [Policy Text Block] | Effect of Recently Issued 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 are effective for us for reporting periods beginning after December 15, 2022. The amendments replace 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 plan to adopt the amendments when they become effective for us on January 1, 2023. We are currently evaluating the impact the adoption of these amendments will have on our consolidated financial statements. |
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Note 2 - Summary of Significant Accounting Policies (Tables) |
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| Schedule of Weighted Average Number of Shares [Table Text Block] |
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Note 3 - Acquisitions (Tables) |
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| Business Acquisition, Pro Forma Information [Table Text Block] |
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| Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block] |
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Note 4 - Fair Value Measurements (Tables) |
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Note 5 - Restructuring and Other Charges (Tables) |
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| Schedule of Restructuring Reserve by Type of Cost [Table Text Block] |
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Note 6 - Goodwill and Intangible Assets (Tables) |
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| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Changes in Goodwill [Table Text Block] |
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| Schedule of Goodwill [Table Text Block] |
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| Schedule of Indefinite-Lived Intangible Assets [Table Text Block] |
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| Schedule of Finite-Lived Intangible Assets [Table Text Block] |
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| Schedule Of Intangible Assets [Table Text Block] |
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| Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block] |
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Note 7 - Revenue From Contracts With Customers (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disaggregation of Revenue [Table Text Block] |
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Note 9 - Inventories (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventory, Current [Table Text Block] |
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Note 10 - Leases (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lease, Cost [Table Text Block] |
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| Lessee, Operating Lease, Liability, Maturity [Table Text Block] |
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Note 11 - Debt (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Outstanding Letters Of Credit [Table Text Block] |
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| Schedule of Maturities of Long-Term Debt [Table Text Block] |
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Note 12 - Stock-based Compensation Plan (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Table Text Block] |
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| Schedule of Share-Based Payment Award, Stock Options, Valuation Assumptions [Table Text Block] |
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| Share-Based Payment Arrangement, Option, Activity [Table Text Block] |
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| Nonvested Restricted Stock Shares Activity [Table Text Block] |
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Note 15 - Segment Information (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Segment Reporting Information, by Segment [Table Text Block] |
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| Revenue from External Customers by Geographic Areas [Table Text Block] |
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| Long-Lived Assets by Geographic Areas [Table Text Block] |
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| Asset [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Segment Reporting Information, by Segment [Table Text Block] |
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Note 1 - Nature of Operations (Details Textual) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Number of Operating Segments | 2 | 2 |
Note 2 - Summary of Significant Accounting Policies (Details Textual) $ in Thousands |
3 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
|
Mar. 31, 2022
USD ($)
|
Mar. 31, 2021
USD ($)
|
Dec. 31, 2021 |
May 31, 2018
USD ($)
|
|
| Number of Operating Segments | 2 | 2 | ||
| Number of Reportable Segments | 3 | 2 | ||
| Inventory Write-down | $ 123 | $ 39 | ||
| Deferred Grant Proceeds | 236 | |||
| City of Rochester and State of New York [Member] | ||||
| Contingent Liability, Repayment of State and Local Grant Funds Received | 87 | $ 550 | ||
| Covenant, Future Amount Receivable | $ 285 | |||
Note 2 - Summary of Significant Accounting Policies - Weighted Average Common Shares (Details) - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Weighted average common shares outstanding–basic (in shares) | 10,617,271 | 10,329,449 |
| Unvested shares of restricted stock and employee stock options (in shares) | 225,321 | 196,377 |
| Weighted average common shares and common share equivalents outstanding – diluted (in shares) | 10,842,592 | 10,525,826 |
| Average number of potentially dilutive securities excluded from calculation (in shares) | 318,574 | 347,068 |
Note 3 - Acquisitions - Pro Forma Information (Details) $ / shares in Units, $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2021
USD ($)
$ / shares
| |
| Videology [Member] | |
| Revenue | $ 21,855 |
| Net earnings | $ 2,832 |
| Diluted earnings per share (in dollars per share) | $ / shares | $ 0.27 |
| Acculogic [Member] | |
| Revenue | $ 22,286 |
| Net earnings | $ 2,185 |
| Diluted earnings per share (in dollars per share) | $ / shares | $ 0.21 |
Note 3 - Acquisitions - Total Purchase Consideration (Details) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
Dec. 21, 2021 |
|---|---|---|---|
| Goodwill | $ 21,863 | $ 21,448 | |
| Acculogic [Member] | |||
| Goodwill | $ 3,363 | ||
| Identifiable intangible assets | 5,123 | ||
| Cash | 312 | ||
| Trade accounts receivable | 2,630 | ||
| Inventories | 1,329 | ||
| Other current assets | 240 | ||
| Property and equipment | 156 | ||
| Accounts payable | (406) | ||
| Accrued expenses | (2,950) | ||
| Total purchase price | $ 9,797 |
Note 4 - Fair Value Measurements (Details Textual) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability | $ 0.5 | |
| Acculogic [Member] | ||
| Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability | $ 0.5 | |
Note 4 - Fair Value Measurements - Changes in the Fair Value of Level 3 Contingent Consideration Liabilities (Details) - Contingent Consideration Liabilities [Member] $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
USD ($)
| |
| Balance | $ 1,109 |
| Impact of foreign currency translation adjustments | 48 |
| Balance | 1,657 |
| Acculogic [Member] | |
| Adjustment to contingent consideration liability in connection with the acquisition of Acculogic | $ 500 |
Note 5 - Restructuring and Other Charges (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Electronic Test [Member] | ||
| Restructuring Charges, Total | $ 0 | $ 55 |
Note 5 - Restructuring and Other Charges - Changes in Accrued Restructuring (Details) - EMS Segment Restructuring and Facility Consolidation [Member] $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
USD ($)
| |
| Beginning balance | $ 70 |
| Cash payments | (7) |
| Balance | $ 63 |
Note 6 - Goodwill and Intangible Assets - Changes in Goodwill (Details) $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
USD ($)
| |
| Balance | $ 21,448 |
| Adjustments to preliminary amounts recorded in the fourth quarter of 2021 for contingent consideration and intangible assets related to acquisition of Acculogic (see Note 3) | 451 |
| Impact of foreign currency translation adjustments | (36) |
| Balance | $ 21,863 |
Note 6 - Goodwill and Intangible Assets - Component of Goodwill (Details) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
Dec. 21, 2021 |
|---|---|---|---|
| Goodwill | $ 21,863 | $ 21,448 | |
| Environmental Technologies [Member] | |||
| Goodwill | 1,817 | 1,817 | |
| Process Technologies [Member] | |||
| Goodwill | 16,480 | 16,576 | |
| Acculogic [Member] | |||
| Goodwill | $ 3,363 | ||
| Acculogic [Member] | Electronic Test [Member] | |||
| Goodwill | 3,566 | 3,055 | |
| Sigma [Member] | Environmental Technologies [Member] | |||
| Goodwill | 1,656 | 1,656 | |
| Thermonics [Member] | Environmental Technologies [Member] | |||
| Goodwill | 50 | 50 | |
| Z-Sciences [Member] | Environmental Technologies [Member] | |||
| Goodwill | 111 | 111 | |
| Ambrell [Member] | Process Technologies [Member] | |||
| Goodwill | 12,032 | 12,032 | |
| Videology [Member] | Process Technologies [Member] | |||
| Goodwill | $ 4,448 | $ 4,544 |
Note 6 - Goodwill and Intangible Assets - Changes in the Amount of the Carrying Value of Indefinite-lived Intangible Assets (Details) $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
USD ($)
| |
| Balance | $ 8,428 |
| Adjustments to preliminary amounts recorded in the fourth quarter of 2021 related to acquisition of Acculogic (see Note 3) | 20 |
| Impact of foreign currency translation adjustments | 2 |
| Balance | $ 8,450 |
Note 6 - Goodwill and Intangible Assets - Changes in the Amount of the Carrying Value of Intangible Assets (Details) $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
USD ($)
| |
| Balance | $ 13,206 |
| Adjustments to preliminary amounts recorded in the fourth quarter of 2021 related to acquisition of Acculogic (see Note 3) | 29 |
| Impact of foreign currency translation adjustments | 2 |
| Amortization | (782) |
| Balance | $ 12,455 |
Note 6 - Goodwill and Intangible Assets - Future Amortization Expense (Details) $ in Thousands |
Mar. 31, 2022
USD ($)
|
|---|---|
| 2022 (remainder) | $ 1,937 |
| 2023 | 2,137 |
| 2024 | 2,013 |
| 2025 | 1,799 |
| 2026 | $ 1,188 |
Note 7 - Revenue From Contracts With Customers (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Accounts Receivable, Allowance for Credit Loss, Period Increase (Decrease), Total | $ 0 | $ 0 |
Note 7 - Revenue From Contracts With Customers - Disaggregation of Revenues (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Revenue | $ 24,081 | $ 19,556 |
| Semiconductor Market [Member] | ||
| Revenue | 13,390 | 13,320 |
| Industrial Market [Member] | ||
| Revenue | 2,799 | 1,427 |
| Automotive [Member] | ||
| Revenue | 2,756 | 1,327 |
| Defense/ Aerospace [Member] | ||
| Revenue | 1,493 | 1,252 |
| Life Sciences [Member] | ||
| Revenue | 699 | 643 |
| Security [Member] | ||
| Revenue | 574 | 0 |
| Other Multi Markets [Member] | ||
| Revenue | 2,370 | 1,587 |
| Thermal Testing Products [Member] | ||
| Revenue | 5,057 | 4,305 |
| Thermal Process [Member] | ||
| Revenue | 7,465 | 5,566 |
| Semiconductor Production Test Products [Member] | ||
| Revenue | 6,348 | 8,320 |
| Video Imaging [Member] | ||
| Revenue | 1,851 | 0 |
| Flying Probe and In-circuit Testers [Member] | ||
| Revenue | 1,688 | 0 |
| Service and Other Products [Member] | ||
| Revenue | 1,672 | 1,365 |
| End User [Member] | ||
| Revenue | 19,579 | 17,660 |
| OEM and Integrators [Member] | ||
| Revenue | $ 4,502 | $ 1,896 |
Note 8 - Major Customers (Details Textual) |
3 Months Ended |
|---|---|
Mar. 31, 2021 | |
| Customer Concentration Risk [Member] | Revenue Benchmark [Member] | Texas Instruments Incorporated [Member] | |
| Concentration Risk, Percentage | 16.00% |
Note 9 - Inventories - Inventories (Details) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Raw materials | $ 11,179 | $ 10,403 |
| Work in process | 1,562 | 1,250 |
| Inventory consigned to others | 44 | 44 |
| Finished goods | 2,128 | 1,166 |
| Total inventories | $ 14,913 | $ 12,863 |
Note 10 - Leases (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | |||
|---|---|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
Apr. 01, 2022 |
Dec. 31, 2021 |
|
| Operating Lease, Right-of-Use Asset, Amortization Expense | $ 309 | $ 280 | ||
| Operating Lease, Right-of-Use Asset | 5,657 | $ 5,919 | ||
| Operating Lease, Liability, Total | $ 6,320 | |||
| Lease Agreement, Ambrell’s Netherlands Facility [Member] | Subsequent Event [Member] | ||||
| Lessee, Operating Lease, Renewal Term (Month) | 24 months | |||
| Operating Lease, Right-of-Use Asset | $ 51 | |||
| Operating Lease, Liability, Total | $ 51 | |||
Note 10 - Leases - Lease Costs (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Operating lease cost | $ 326 | $ 324 |
| Short-term lease cost | $ 30 | $ 8 |
| Weighted average remaining lease term (in years) (Year) | 5 years 6 months | |
| Weighted average discount rate | 4.20% | |
| Minimum [Member] | ||
| Range of remaining lease terms (in years) (Year) | 1 year | |
| Maximum [Member] | ||
| Range of remaining lease terms (in years) (Year) | 9 years 1 month 6 days | |
Note 10 - Leases - Maturities of Lease Liabilities (Details) $ in Thousands |
Mar. 31, 2022
USD ($)
|
|---|---|
| 2022 | $ 1,227 |
| 2023 | 1,636 |
| 2024 | 1,573 |
| 2025 | 735 |
| 2026 | 467 |
| Thereafter | 1,378 |
| Total lease payments | 7,016 |
| Less imputed interest | (696) |
| Total | $ 6,320 |
Note 11 - Debt (Details Textual) - October 2021 Agreement [Member] - M&T Bank [Member] - USD ($) $ in Thousands |
3 Months Ended | |||||
|---|---|---|---|---|---|---|
Dec. 29, 2021 |
Oct. 28, 2021 |
Oct. 15, 2021 |
Mar. 31, 2022 |
Mar. 31, 2021 |
Apr. 01, 2022 |
|
| Debt Instrument, Term (Year) | 5 years | |||||
| Long-Term Line of Credit, Total | $ 0 | |||||
| Debt Instrument, Remaining Borrowing Capacity | 4,500 | |||||
| Interest Expense, Debt, Total | $ 137 | $ 0 | ||||
| Debt Instrument, Interest Rate in Event of Default | 2.00% | |||||
| Revolving Credit Facility [Member] | ||||||
| Line of Credit Facility, Maximum Borrowing Capacity | $ 10,000 | |||||
| Term Note [Member] | ||||||
| Debt Instrument, Face Amount | $ 25,000 | |||||
| Debt Instrument, Draw Period (Year) | 2 years | |||||
| Proceeds from Issuance of Long-term Debt, Total | $ 8,500 | $ 12,000 | ||||
| Debt Instrument, Interest Rate, Effective Percentage | 3.20% | 2.20% | ||||
| Term Note [Member] | Subsequent Event [Member] | ||||||
| Debt Instrument, Interest Rate, Effective Percentage | 2.40% | |||||
Note 11 - Debt - Outstanding Letters of Credit (Details) - Letter of Credit [Member] - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Letters of Credit Amount Outstanding | $ 100 | $ 100 |
| Mt Laurel [Member] | ||
| Line of Credit, Issue Date | Mar. 29, 2010 | |
| Line of Credit, Expiration Date | Apr. 30, 2023 | |
| Lease Expiration Date | Apr. 30, 2031 | |
| Letters of Credit Amount Outstanding | $ 50 | 50 |
| Mansfield [Member] | ||
| Line of Credit, Issue Date | Oct. 27, 2010 | |
| Line of Credit, Expiration Date | Dec. 31, 2024 | |
| Lease Expiration Date | Dec. 31, 2024 | |
| Letters of Credit Amount Outstanding | $ 50 | $ 50 |
Note 11 - Debt - Future Maturities of Long-term Debt (Details) $ in Thousands |
Mar. 31, 2022
USD ($)
|
|---|---|
| 2022 (remainder) | $ 3,217 |
| 2023 | 4,100 |
| 2024 | 4,100 |
| 2025 | 4,100 |
| 2026 | 3,700 |
| Long-Term Debt, Total | $ 19,217 |
Note 12 - Stock-based Compensation Plan - Allocation of Share-based Compensation Expense (Details) - Restricted Stock [Member] - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Share-Based Payment Arrangement, Expense | $ 372 | $ 269 |
| Cost of Sales [Member] | ||
| Share-Based Payment Arrangement, Expense | 11 | 0 |
| Selling and Marketing Expense [Member] | ||
| Share-Based Payment Arrangement, Expense | 7 | 3 |
| Research and Development Expense [Member] | ||
| Share-Based Payment Arrangement, Expense | 19 | 10 |
| General and Administrative Expense [Member] | ||
| Share-Based Payment Arrangement, Expense | $ 335 | $ 256 |
Note 12 - Stock-based Compensation Plan - Stock Options Valuation Assumptions (Details) - Share-Based Payment Arrangement, Option [Member] |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Risk-free interest rate | 1.81% | 1.00% |
| Dividend yield | 0.00% | 0.00% |
| Expected common stock market price volatility factor | 54.00% | 49.00% |
| Weighted average expected life of stock options (years) (Year) | 6 years 3 months | 6 years 3 months |
Note 12 - Stock-based Compensation Plan - Stock Option Activity (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
$ / shares
shares
| |
| Options outstanding, number of shares (in shares) | shares | 408,869 |
| Options outstanding, weighted average exercise price (in dollars per share) | $ / shares | $ 9.07 |
| Granted, number of shares (in shares) | shares | 38,540 |
| Granted, weighted average exercise price (in dollars per share) | $ / shares | $ 9.76 |
| Exercised, number of shares (in shares) | shares | 0 |
| Exercised, weighted average exercise price (in dollars per share) | $ / shares | $ 0 |
| Canceled, number of shares (in shares) | shares | 0 |
| Canceled, weighted average exercise price (in dollars per share) | $ / shares | $ 0 |
| Options outstanding, number of shares (in shares) | shares | 447,409 |
| Options outstanding, weighted average exercise price (in dollars per share) | $ / shares | $ 9.13 |
Note 12 - Stock-based Compensation Plan - Stock Option Activity (Details) (Parentheticals) |
Mar. 31, 2022
shares
|
|---|---|
| Options exercisable (in shares) | 59,195 |
| Options exercisable (in shares) | 101,670 |
Note 12 - Stock-based Compensation Plan - Unvested Stock Activity (Details) - Restricted Stock [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
$ / shares
shares
| |
| Unvested shares outstanding (in shares) | shares | 262,533 |
| Unvested shares outstanding, weighted average exercise price (in dollars per share) | $ / shares | $ 7.16 |
| Granted, number of shares (in shares) | shares | 79,489 |
| Granted, weighted average exercise price (in dollars per share) | $ / shares | $ 10.03 |
| Vested, number of shares (in shares) | shares | (18,467) |
| Vested, weighted average exercise price (in dollars per share) | $ / shares | $ 9.21 |
| Forfeited, number of shares (in shares) | shares | 0 |
| Forfeited, weighted average exercise price (in dollars per share) | $ / shares | $ 0 |
| Unvested shares outstanding (in shares) | shares | 323,555 |
| Unvested shares outstanding, weighted average exercise price (in dollars per share) | $ / shares | $ 7.69 |
Note 13 - Employee Stock Purchase Plan (Details Textual) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2022 |
Jun. 23, 2021 |
|
| Stock Issued During Period, Value, Employee Stock Purchase Plan | $ 56 | ||
| Share Price (in dollars per share) | $ 10.73 | $ 10.73 | |
| Employee Stock Purchase Plan [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares) | 250,000 | ||
| Stock Issued During Period, Shares, Employee Stock Purchase Plans (in shares) | 5,245 | 9,236 | |
| Stock Issued During Period, Value, Employee Stock Purchase Plan | $ 56 | $ 91 | |
| Shares Issued, Price Per Share (in dollars per share) | $ 9.12 | $ 9.12 | |
| Share-based Compensation Arrangement by Share-based Payment Award, Discount from Market Price, Purchase Date | 15.00% | ||
| Share-based Compensation Arrangement by Share-based Payment Award, Discount Amount | $ 8 | ||
| Share-Based Payment Arrangement, Expense | $ 16 |
Note 14 - Employee Benefit Plans (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| 401(k) Plan [Member] | ||
| Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay | 10.00% | |
| Defined Contribution Plan Maximum Annual Employer Matching Contribution Per Emplyee Amount | $ 5 | |
| Defined Contribution Plan Employer Matching Contribution Vesting Period (Year) | 4 years | |
| Defined Contribution Plan, Employer Discretionary Contribution Amount | $ 216 | $ 171 |
| The Ambrell Plan [Member] | ||
| Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay | 10.00% | |
| Defined Contribution Plan, Employer Discretionary Contribution Amount | $ 101 | $ 43 |
| Defined Contribution Plan, Maximum Annual Contributions Per Employee, Percent | 100.00% | |
| Defined Contribution Plan, Employer Matching Contribution, Percent of Match | 50.00% | |
| Defined Contribution Plan, Maximum Annual Contributions Per Employee, Amount | $ 5 | |
Note 15 - Segment Information (Details Textual) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Number of Reportable Segments | 3 | 2 |
Note 15 - Segment Information - Segment Information (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Net revenues | $ 24,081 | $ 19,556 |
| Earnings before income tax expense | 655 | 2,578 |
| Acquired intangible amortization | (782) | (304) |
| Other income (expense) | (147) | (2) |
| Operating Segments [Member] | ||
| Net revenues | 24,081 | 19,556 |
| Earnings before income tax expense | 3,419 | 4,366 |
| Operating Segments [Member] | Electronic Test [Member] | ||
| Net revenues | 8,778 | 8,501 |
| Earnings before income tax expense | 1,887 | 2,987 |
| Operating Segments [Member] | Environmental Technologies [Member] | ||
| Net revenues | 6,993 | 6,198 |
| Earnings before income tax expense | 802 | 923 |
| Operating Segments [Member] | Process Technologies [Member] | ||
| Net revenues | 8,310 | 4,857 |
| Earnings before income tax expense | 730 | 456 |
| Corporate, Non-Segment [Member] | ||
| Earnings before income tax expense | $ (1,835) | $ (1,482) |
Note 15 - Segment Information - Identifiable Assets (Details) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Identifiable Assets | $ 102,934 | $ 103,905 |
| Corporate, Non-Segment [Member] | ||
| Identifiable Assets | 7,142 | 10,123 |
| Electronic Test [Member] | ||
| Identifiable Assets | 28,319 | 26,251 |
| Environmental Technologies [Member] | ||
| Identifiable Assets | 15,736 | 15,411 |
| Process Technologies [Member] | ||
| Identifiable Assets | $ 51,737 | $ 52,120 |
Note 15 - Segment Information - Net Revenue From Unaffiliated Customers (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Revenue | $ 24,081 | $ 19,556 |
| UNITED STATES | ||
| Revenue | 9,234 | 5,747 |
| Non-US [Member] | ||
| Revenue | $ 14,847 | $ 13,809 |
Note 15 - Segment Information - Long-lived Assets by Geographical Area (Details) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property and Equipment | $ 2,804 | $ 2,688 |
| UNITED STATES | ||
| Property and Equipment | 2,433 | 2,346 |
| Non-US [Member] | ||
| Property and Equipment | $ 371 | $ 342 |
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