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

 


 

FORM 10-Q

 


(Mark One)

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

 

For the quarterly period ended March 31, 2024 or

 

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

 

For the transition period from                                       to                                     

 

Commission File Number 1-36117

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

 

Delaware

(State or other jurisdiction of incorporation or organization)

22-2370659

(I.R.S. Employer Identification Number)

 

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

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

 

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

 

Title of Each Class

Common Stock, par value $0.01 per share

Trading Symbol

INTT

Name of Each Exchange on Which Registered

NYSE American

 

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

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

 

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

 

Large accelerated filer  ☐

Accelerated filer  ☒

Non-accelerated filer  ☐

Smaller reporting company  

Emerging growth company  

 

 

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

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

 

Number of shares of Common Stock, $0.01 par value, outstanding as of the close of business on May 1, 2024:   12,489,642

 

 

 

 

inTEST CORPORATION

 

TABLE OF CONTENTS

 

 

Page

PART I.

FINANCIAL INFORMATION

 
     

Item 1.

Financial Statements

1
     
 

Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023

1
 

Unaudited Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023

2
 

Unaudited Consolidated Statements of Comprehensive Earnings for the three months ended March 31, 2024 and 2023

3
 

Unaudited Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2024 and 2023

4
 

Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

5
 

Notes to Consolidated Financial Statements

6
     

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

32
     

PART II.

OTHER INFORMATION

33
     

Item 1.

Legal Proceedings

33
     

Item 1A.

Risk Factors

33
     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33
     

Item 3.

Defaults Upon Senior Securities

33
     

Item 4.

Mine Safety Disclosures

33
     

Item 5.

Other Information

34
     

Item 6.

Exhibits

34
   

SIGNATURES

35

 

 

 

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,

 
  

2024

  

2023

 
  

(Unaudited)

     

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $27,331  $45,260 

Trade accounts receivable, net of allowance for credit losses of $426 and $474, respectively

  22,859   18,175 

Inventories

  31,331   20,089 

Prepaid expenses and other current assets

  3,868   2,254 

Total current assets

  85,389   85,778 

Property and equipment:

        

Machinery and equipment

  8,639   7,118 

Leasehold improvements

  3,932   3,601 

Gross property and equipment

  12,571   10,719 

Less: accumulated depreciation

  (7,800)  (7,529)

Net property and equipment

  4,771   3,190 

Right-of-use assets, net

  6,270   4,987 

Goodwill

  33,278   21,728 

Intangible assets, net

  28,819   16,596 

Deferred tax assets

  -   1,437 

Restricted certificates of deposit

  100   100 

Other assets

  900   1,013 

Total assets

 $159,527  $134,829 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current liabilities:

        

Current portion of Term Note and other long-term debt

 $9,629  $4,100 

Current portion of operating lease liabilities

  2,017   1,923 

Accounts payable

  11,395   5,521 

Accrued wages and benefits

  6,482   4,156 

Accrued professional fees

  883   1,228 

Customer deposits and deferred revenue

  5,596   3,797 

Accrued sales commissions

  1,116   1,055 

Domestic and foreign income taxes payable

  509   1,038 

Other current liabilities

  2,026   1,481 

Total current liabilities

  39,653   24,299 

Operating lease liabilities, net of current portion

  4,644   3,499 

Term Note and other long-term debt, net of current portion

  10,808   7,942 

Contingent consideration

  822   1,093 

Deferred revenue, net of current portion

  1,210   1,331 

Deferred tax liabilities

  1,126   - 

Other liabilities

  1,947   384 

Total liabilities

  60,210   38,548 

Commitments and Contingencies

          

Stockholders' equity:

        

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

  -   - 

Common stock, $0.01 par value; 20,000,000 shares authorized; 12,566,024 and 12,241,925 shares issued, respectively

  125   122 

Additional paid-in capital

  56,954   54,450 

Retained earnings

  42,858   42,196 

Accumulated other comprehensive earnings

  311   414 

Treasury stock, at cost; 78,515 and 75,758 shares, respectively

  (931)  (901)

Total stockholders' equity

  99,317   96,281 

Total liabilities and stockholders' equity

 $159,527  $134,829 

 

See accompanying Notes to Consolidated Financial Statements.

 

 

-1-

 

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

(Unaudited)

 
   

Three Months Ended

March 31,

 
   

2024

   

2023

 
                 

Revenue

  $ 29,824     $ 31,919  

Cost of revenue

    16,748       16,867  

Gross profit

    13,076       15,052  
                 

Operating expenses:

               

Selling expense

    4,590       4,455  

Engineering and product development expense

    1,982       1,904  

General and administrative expense

    6,012       5,175  

Total operating expenses

    12,584       11,534  
                 

Operating income

    492       3,518  

Interest expense

    (140 )     (182 )

Other income

    435       58  
                 

Earnings before income tax expense

    787       3,394  

Income tax expense

    125       577  
                 

Net earnings

  $ 662     $ 2,817  
                 

Earnings per common share – basic

  $ 0.06     $ 0.26  
                 

Weighted average common shares outstanding – basic

    12,026,361       10,755,729  
                 

Earnings per common share – diluted

  $ 0.05     $ 0.25  
                 

Weighted average common shares and common share equivalents outstanding – diluted

    12,158,297       11,088,664  

 

See accompanying Notes to Consolidated Financial Statements.

 

-2-

 

inTEST CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)

(Unaudited)

 
   

Three Months Ended

March 31,

 
   

2024

   

2023

 
                 

Net earnings

  $ 662     $ 2,817  
                 

Unrealized loss on interest rate swap agreement

    (14 )     (99 )

Foreign currency translation adjustments

    (89 )     170  
                 

Comprehensive earnings

  $ 559     $ 2,888  

 

See accompanying Notes to Consolidated Financial Statements

 

-3-

 

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

(Unaudited)

 
   

Three Months Ended March 31, 2024

 
                                                         
                                   

Accumulated

                 
                   

Additional

           

Other

           

Total

 
   

Common Stock

   

Paid-in

   

Retained

   

Comprehensive

   

Treasury

   

Stockholders'

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

(Loss)

   

Stock

   

Equity

 
                                                         

Balance, January 1, 2024

    12,241,925     $ 122     $ 54,450     $ 42,196     $ 414     $ (901 )   $ 96,281  
                                                         

Net earnings

    -       -       -       662       -       -       662  

Other comprehensive loss

    -       -       -       -       (103 )     -       (103 )

Amortization of deferred compensation related to stock-based awards

    -       -       349       -       -       -       349  

Issuance of shares in connection with acquisition of Alfamation

    187,432       2       2,084       -       -       -       2,086  

Issuance of unvested shares of restricted stock

    138,838       1       (1 )     -       -       -       -  

Forfeiture of unvested shares of restricted stock

    (11,200 )     -       -       -       -       -       -  

Stock options exercised

    4,925       -       18       -       -       -       18  

Shares issued under Employee Stock Purchase Plan

    4,104       -       54       -       -       -       54  

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

    -       -       -       -       -       (30 )     (30 )
                                                         

Balance, March 31, 2024

    12,566,024     $ 125     $ 56,954     $ 42,858     $ 311     $ (931 )   $ 99,317  

 

   

Three Months Ended March 31, 2023

 
                                                         
                                   

Accumulated

                 
                   

Additional

           

Other

           

Total

 
   

Common Stock

   

Paid-in

   

Retained

   

Comprehensive

   

Treasury

   

Stockholders'

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Earnings

   

Stock

   

Equity

 
                                                         

Balance, January 1, 2023

    11,063,271     $ 111     $ 31,987     $ 32,854     $ 218     $ (214 )   $ 64,956  
                                                         

Net earnings

    -       -       -       2,817       -       -       2,817  

Other comprehensive earnings

    -       -       -       -       71       -       71  

Amortization of deferred compensation related to stock-based awards

    -       -       474       -       -       -       474  

Issuance of unvested shares of restricted stock

    90,588       1       (1 )     -       -       -       -  

Forfeiture of unvested shares of restricted stock

    (13,271 )     -       -       -       -       -       -  

Stock options exercised

    25,200       -       165       -       -       -       165  

Shares issued under Employee Stock Purchase Plan

    2,292       -       48       -       -       -       48  

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

    -       -       -       -       -       (33 )     (33 )
                                                         

Balance, March 31, 2023

    11,168,080     $ 112     $ 32,673     $ 35,671     $ 289     $ (247 )   $ 68,498  

 

See accompanying Notes to Consolidated Financial Statements

 

-4-

 

inTEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

(Unaudited)

 
   

Three Months Ended

March 31,

 
   

2024

   

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net earnings

  $ 662     $ 2,817  

Adjustments to reconcile net earnings to net cash provided by operating activities:

               

Depreciation and amortization

    1,282       1,176  

Provision for excess and obsolete inventory

    176       135  

Foreign exchange gain

    (28 )     (18 )

Amortization of deferred compensation related to stock-based awards

    349       474  

Discount on shares sold under Employee Stock Purchase Plan

    8       8  

Proceeds from sale of demonstration equipment, net of gain

    19       6  

Deferred income tax expense (benefit)

    226       (404 )

Changes in assets and liabilities:

               

Trade accounts receivable

    (982 )     291  

Inventories

    (396 )     (2,038 )

Prepaid expenses and other current assets

    508       (740 )

Other assets

    (22 )     2  

Operating lease liabilities

    (447 )     (423 )

Accounts payable

    1,311       403  

Accrued wages and benefits

    939       (654 )

Accrued professional fees

    (342 )     (142 )

Customer deposits and deferred revenue

    (782 )     921  

Accrued sales commissions

    66       (221 )

Domestic and foreign income taxes payable

    (406 )     864  

Other current liabilities

    70       43  

Deferred revenue, net of current portion

    (121 )     -  

Other liabilities

    (15 )     (16 )

Net cash provided by operating activities

    2,075       2,484  
                 

CASH FLOWS FROM INVESTING ACTIVITIES

               

Acquisition of business, net of cash acquired

    (18,904 )     -  

Purchase of property and equipment

    (340 )     (334 )

Net cash used in investing activities

    (19,244 )     (334 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES

               

Proceeds from short-term borrowings

    273       -  

Repayments of long-term borrowings

    (1,181 )     (1,025 )

Proceeds from shares sold under Employee Stock Purchase Plan

    46       40  

Proceeds from stock options exercised

    18       165  

Settlement of employee tax liabilities in connection with treasury stock transaction

    (30 )     (33 )

Net cash used in financing activities

    (874 )     (853 )
                 

Effects of exchange rates on cash

    114       71  
                 

Net cash provided by (used in) all activities

    (17,929 )     1,368  

Cash, cash equivalents and restricted cash at beginning of period

    45,260       14,576  

Cash, cash equivalents and restricted cash at end of period

  $ 27,331     $ 15,944  
                 

Cash payments for:

               

Domestic and foreign income taxes

  $ 101     $ 118  
                 

Details of acquisition:

               

Fair value of assets acquired, net of cash

  $ 33,750          

Liabilities assumed

    (24,004 )        

Stock issued

    (2,086 )        

Cash holdback pending final working capital adjustment

    (552 )        

Goodwill resulting from acquisition

    11,796          

Net cash paid for acquisition

  $ 18,904          

 

See accompanying Notes to Consolidated Financial Statements.

 

-5-

 

 

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

 

(1)

NATURE OF OPERATIONS

 

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

On March 12, 2024 we completed the acquisition of Alfamation S.p.A., an Italian joint-stock company (“Alfamation”), for an aggregate base purchase price of approximately EUR 20,000 comprised of: (i) EUR 18,000, or $19,674, in cash; and (ii) 187,432 shares of our common stock, valued at $2,086 based on the closing price of our stock on the date of acquisition. The cash portion of the purchase price is subject to customary working capital adjustments. We currently expect this to result in an additional payment of EUR 542, or $593 for assets delivered at closing in excess of agreed upon thresholds. The liabilities assumed in connection with the acquisition included debt of approximately EUR 8,616, or $9,418. The acquisition is discussed further in Note 3. The debt assumed is discussed further in Note 10.

 

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

 

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

 

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

 

Our Electronic Test segment sells many of 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 Inc. and its affiliates (“Acculogic”) in December 2021, and Alfamation in March 2024, 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 and specialty consumer electronics markets. Our Environmental Technologies segment sells its products to end users and OEMs within the ATE sector of the semi market. It also sells its products to customers in a variety of other markets other than the semi market, including the automotive, defense/aerospace, industrial and life sciences markets. Our Process Technologies segment sells its products to customers in the wafer production sector within the semi market. It also sells its products to customers in a variety of other markets other than the semi market, including the automotive, defense/aerospace, industrial, life sciences and security markets.

 

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

 

- 6-

 

On May 11, 2023, we entered into an At-the-Market Issuance Sales Agreement (the "Sales Agreement") pursuant to which we issued and sold 921,797 shares of our common stock having an aggregate offering price of $20,000 between May 11, 2023 and May 31, 2023. We received net proceeds from the sale of these shares of $19,244 after payment of commissions of 3.0% of the gross proceeds and other fees related to the sale of these shares.

 

 

(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 Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) filed on March 27, 2024 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, 2024 other than the matter discussed in Note 15.

 

Business Combinations

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

 

Cash, Cash Equivalents and Restricted Cash

 

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

 

Periodically we have restricted cash which represents amounts deposited at our banks to support bank guarantees which certain of our customers require as a condition of paying large deposits on orders they place with us. Typically, the amount of the deposit and related guarantee declines as shipments are made against the order. At March 31, 2024 and December 31, 2023, we had no amounts classified as restricted cash.

 

- 7-

 

Trade Accounts Receivable and Allowance for Credit Losses

 

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

 

Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We do not have any significant off-balance sheet credit exposure related to our customers. Cash flows from accounts receivable are recorded in operating cash flows.

 

For the three months ended March 31, 2024, we utilized $48 of the allowance for credit losses to offset the write-off of a receivable in our Electronic Test segment. There were no other significant changes in the amount of the allowance for credit losses during this time period. There was no bad debt expense recorded for the three months ended March 31, 2024 or 2023.

 

Fair Value of Financial Instruments

 

Our financial instruments include cash and cash equivalents, restricted cash, short-term investments, 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 short-term investments are classified as held-to-maturity and carried at amortized cost. Our credit facility and our interest rate swap are discussed further below and in Note 10. Our liabilities for contingent consideration are accounted for in accordance with the guidance in ASC Topic 820 (Fair Value Measurement). ASC Topic 820 establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). Our contingent consideration liabilities are measured at fair value on a recurring basis using Level 3 inputs which are inputs that are unobservable and significant to the overall fair value measurement. These unobservable inputs reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. See Note 4 for further disclosures related to the fair value of our liabilities for contingent consideration.

 

Goodwill, Intangible and Long-Lived Assets

 

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

 

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

 

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

 

- 8-

 

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

 

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

 

Revenue Recognition

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

 

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

 

Nature of Products and Services

 

We are a global supplier of innovative test and process technology solutions for use in manufacturing and testing in targeted markets including automotive, defense/aerospace, industrial, life sciences, security and semiconductor. Our Environmental Technologies segment sells thermal management products including ThermoStreams, ThermoChambers, process chillers, refrigerators and freezers, which we sell under our Temptronic, Sigma, Thermonics and North Sciences product lines. Our Process Technologies segment sells precision induction heating systems through our subsidiary, Ambrell Corporation (“Ambrell”), including EKOHEAT® and EASYHEAT™ products. This segment also sells industrial-grade circuit board mounted video digital cameras and related devices, systems and software through our Videology Imaging Corporation (“Videology”), subsidiary. Our Electronic Test segment sells semiconductor ATE interface solutions through our inTEST EMS (“EMS”) subsidiary, including manipulators, docking hardware and electrical interface products. This segment also sells robotics-based electronic production test equipment under the Acculogic tradename and, as a result of the acquisition of Alfamation on March 12, 2024, which is discussed further in Note 3, this segment now sells test and measurement solutions for the automotive, life sciences and specialty consumer electronics markets. We provide post-warranty service and support for the equipment we sell. We sell our products to various markets including the automotive, defense/aerospace, industrial, life sciences, security and semiconductor 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.

 

Occasionally we procure and sell materials/components on behalf of and to our customers.

 

- 9-

 

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 credit losses, is included in current assets on our consolidated balance sheets. In certain instances, we also receive customer deposits in advance of invoicing and recording of accounts receivable. Customer deposits are included in current liabilities on our consolidated balance sheets. To the extent that we do not recognize revenue at the same time as we invoice, we record a liability for deferred revenue. Deferred revenue estimated to be recognized within the next twelve months is included in current liabilities. Deferred revenue that we estimate will be recognized beyond twelve months is recorded in Other Liabilities on our consolidated balance sheets. Any non-inventoriable costs associated with deferred revenue are also deferred and recorded in Prepaid Expenses and Other Current Assets or Other Assets on our consolidated balance sheets, depending on when the related deferred revenue is expected to be recognized.

 

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

Costs to Obtain a Contract with a Customer

 

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

 

Product Warranties

 

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

 

See Notes 6 and 14 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 $176 and $135 for the three months ended March 31, 2024 and 2023, respectively.

 

- 10-


 

Leases

 

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

 

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 9 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 10. 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 earnings (loss) within stockholders’ equity and are amortized to interest expense over the term of the related debt. 

 

Contingent Liability for Repayment of State and Local Grant Funds Received

 

In connection with leasing a facility in Rochester, New York, which our subsidiary, Ambrell, occupied in May 2018, we entered into agreements with the city of Rochester and the state of New York under which we received grants totaling $550 to help offset a portion of the cost of the leasehold improvements we made to this facility. The final payment of $87 was received during the three months ended March 31, 2022. In exchange for the funds we received under these agreements, we are required to create and maintain specified levels of employment in this location through various dates ending in 2024. If we fail to meet these employment targets, we may be required to repay a proportionate share of the proceeds. At March 31, 2024, $123 of the total proceeds received could still be required to be repaid if we do not meet the targets. We have recorded this amount as a contingent liability which is included in other liabilities on our consolidated balance sheet. Those portions of the proceeds which are no longer subject to repayment are reclassified to deferred grant proceeds and amortized to income on a straight-line basis over the remaining lease term for the Rochester facility. Deferred grant proceeds are included in other current liabilities and other liabilities on our balance sheet and totaled $298 at March 31, 2024. At March 31, 2024, we were in compliance with the employment targets as specified in the grant agreement with the city of Rochester. 

 

- 11-

 

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 11.

 

Income Taxes

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

 

Earnings (Loss) Per Common Share

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

 

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

 

  

Three Months Ended

March 31,

 
  

2024

  

2023

 
         

Weighted average common shares outstanding–basic

  12,026,361   10,755,729 

Potentially dilutive securities:

        

Unvested shares of restricted stock and employee stock options

  131,936   332,935 

Weighted average common shares and common share equivalents outstanding–diluted

  12,158,297   11,088,664 

Average number of potentially dilutive securities excluded from calculation because their effect was anti-dilutive during the period

  434,584   154,429 

 

Effect of Recently Issued Amendments to Authoritative Accounting Guidance

 

In November 2023, the FASB issued amendments to the guidance for disclosures about reportable segments which require disclosures of significant expenses by segment and interim disclosure of items that were previously required on an annual basis. The amendments are to be applied on a retrospective basis and are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. We are evaluating the impact of the amendments on disclosures in our consolidated financial statements.

 

In December 2023, the FASB issued amendments to the guidance for disclosures about income tax which provide for additional disclosures primarily related to the income tax rate reconciliations and income taxes paid. The amendments require entities to annually disclose the income tax rate reconciliation using both amounts and percentages, considering several categories of reconciling items, including state and local income taxes, foreign tax effects, tax credits and nontaxable or nondeductible items, among others. Disclosure of the reconciling items is subject to a quantitative threshold and disaggregation by nature and jurisdiction. The amendments also require entities to disclose net income taxes paid or received to federal, state and foreign jurisdictions, as well as by individual jurisdiction, subject to a five percent quantitative threshold. The amendments may be adopted on a prospective or retrospective basis and are effective for fiscal years beginning after December 15, 2024 with early adoption permitted. We are evaluating the impact of the amendments on disclosures in our consolidated financial statements.

 

-12-

 

(3)

ACQUISITION

 

On March 12, 2024 we completed the acquisition of Alfamation S.p.A., an Italian joint-stock company (“Alfamation”). Alfamation is a leading global provider of state-of-the-art test and measurement solutions for the automotive, life sciences and specialty consumer electronics markets. Alfamation is included in our Electronic Test operating segment. The acquisition of Alfamation deepens our presence in the automotive/EV and life science markets, expands our exposure in consumer electronics, extends our geographic reach with a sizable footprint in Europe, and widens our portfolio of products and solutions. Additionally, we believe Alfamation brings engineering talent and a management team that culturally aligns with our mission to provide innovative, engineered solutions that address the high-value challenges of our customers. The aggregate purchase price was approximately EUR 20,000 comprised of: (i) EUR 18,000, or $19,674, in cash; and (ii) 187,432 shares of our common stock, valued at $2,086 based on the closing price of our stock on the date of acquisition. The cash portion of the purchase price is subject to customary working capital adjustments. We currently expect this to result in an additional payment of EUR 542, or $593 for assets delivered at closing in excess of agreed upon thresholds. The liabilities assumed in connection with the acquisition included debt of approximately EUR 8,616, or $9,418. The debt assumed is discussed further in Note 10. Total acquisition costs incurred to complete this transaction were $1,013. Acquisition costs were expensed as incurred and included in general and administrative expense.

 

In connection with the acquisition, we have entered into a lease agreement (the “Lease Agreement”) with the former owner of Alfamation who will continue to serve as the managing director of Alfamation under our ownership. The Lease Agreement commenced on March 12, 2024 and will last for six years. It will be automatically renewed for the same period of time unless terminated by either party. Under the terms of the Lease Agreement, Alfamation will lease warehouse and office space totaling about 51,817 square feet. Alfamation will pay a yearly lease payment of EUR 260 broken up into two equal payments. At the date of the signing of the Lease Agreement, the yearly lease payment equated to approximately $284.

The acquisition of Alfamation has been accounted for as a business combination using purchase accounting, and, accordingly, the results of Alfamation have been included in our consolidated results of operations from the date of acquisition. The allocation of the purchase price for Alfamation is not yet complete. The preliminary allocation of the Alfamation purchase price was based on estimated fair values as of March 12, 2024. We are currently working with third-party valuation specialists to assist us with our purchase accounting. The information that needs to be gathered from multiple sources, including the records and personnel at Alfamation, is not yet fully assembled. As a result, the values reflected below are preliminary and we expect that they may change. In particular, we expect that the total value assigned to our technology and customer relationships and the related deferred tax liabilities, the fair value of acquired accounts receivable, inventory and certain accrued expenses may all change as we finalize our assessments. In addition, the final working capital adjustment has also not yet been completed. Adjustments to these preliminary amounts will be included in the final allocation of the purchase price for Alfamation, which we expect to finalize in the second or third quarter of 2024. These adjustments could be material.

 

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 $22,353 has been allocated as follows:

 

Goodwill

 $11,796 

Identifiable intangible assets

  13,087 

Tangible assets acquired and liabilities assumed:

    

Cash

  811 

Trade accounts receivable

  4,004 

Inventories

  11,243 

Other current assets

  2,169 

Property and equipment

  1,597 

Other assets

  1,650 

Accounts payable

  (4,644)

Accrued expenses

  (4,311)

Other current liabilities

  (278)

Deferred tax liability

  (2,391)

Debt (current and long-term)

  (9,418)

Other non-current liabilities

  (2,962)

Total purchase price

 $22,353 

 

We estimated the fair value of identifiable intangible assets acquired using the income approach. Identifiable intangible assets acquired include customer relationships, customer backlog, technology and a tradename. We are amortizing the finite-lived intangible assets acquired over their estimated useful lives based on the pattern in which the economic benefits of the intangible asset are expected to be consumed.

 

- 13-

 

The following table summarizes the estimated fair value of Alfamation’s identifiable intangible assets and their estimated useful lives as of the acquisition date:

 

  

Fair

Value

  

Weighted

Average

Estimated

Useful Life

 
      

(in years)

 

Finite-lived intangible assets:

        

Customer relationships

 $5,949   15.0 

Technology

  340   10.0 

Customer backlog

  3,399   1.0 

Total finite-lived intangible assets

  9,688   9.9 
         

Indefinite-lived intangible assets:

        

Trade name

  3,399     

Total intangible assets

 $13,087     

 

For the period from March 13, 2024 to March 31, 2024, Alfamation contributed $1,379 of revenue and had a net loss of $101.

 

The following unaudited pro forma information gives effect to the acquisition of Alfamation as if the acquisition occurred on January 1, 2023. 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,

 
  

2024

  

2023

 
         

Revenue

 $34,752  $38,473 

Net earnings

 $480  $3,227 

Diluted earnings per share

 $0.04  $0.29 

 

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 $1,013 incurred by us as a direct result of the transaction.

 

 

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

 

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.

 

- 14-

 

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 10, is measured at fair value on a recurring basis using Level 2 inputs. The contingent consideration liability on our balance sheet is measured at fair value on a recurring basis using Level 3 inputs. Our contingent consideration liability is a result of our acquisition of Acculogic on December 21, 2021, and represents the estimated fair value of the additional cash consideration payable that is contingent upon sales to Electric Vehicle (“EV”) or battery customers. Our acquisition of Acculogic and this liability are both discussed further in Note 3 to our consolidated financial statements in our 2022 Form 10-K. The current portion of our contingent consideration liability was $247 and $0 at March 31, 2024 and December 31, 2023, respectively, and was included in Other Current Liabilities on our consolidated balance sheets.

 

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

 

   

Amounts at

   

Fair Value Measurement Using

 
   

Fair Value

   

Level 1

   

Level 2

   

Level 3

 

As of March 31, 2024

                               

Contingent consideration liability – Acculogic

  $ (1,069 )   $ -     $ -     $ (1,069 )

Interest rate swap

  $ 271     $ -     $ 271     $ -  

 

   

Amounts at

   

Fair Value Measurement Using

 
   

Fair Value

   

Level 1

   

Level 2

   

Level 3

 

As of December 31, 2023

                               

Contingent consideration liability – Acculogic

  $ (1,093 )   $ -     $ -     $ (1,093 )

Interest rate swap

  $ 285     $ -     $ 285     $ -  

 

Changes in the fair value of our Level 3 contingent consideration liabilities for the three months ended March 31, 2024 were as follows:

 

   

Three

Months Ended

March 31, 2024

 

Balance at beginning of period

  $ 1,093  

Impact of foreign currency translation adjustments

    (24 )
         

Balance at end of period

  $ 1,069  

 

 

(5)

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, 2024 are as follows:

 

Balance - January 1, 2024

  $ 21,728  

Acquisition of Alfamation

    11,796  

Impact of foreign currency translation adjustments

    (246 )

Balance - March 31, 2024

  $ 33,278  

 

- 15-

 

Goodwill was comprised of the following at March 31, 2024 and December 31, 2023:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Electronic Test

 $15,026  $3,436 

Environmental Technologies

  1,817   1,817 

Process Technologies

  16,435   16,475 

Total goodwill

 $33,278  $21,728 

 

Intangible Assets

Changes in the amount of the carrying value of indefinite-lived intangible assets for the three months ended March 31, 2024 are as follows:

 

Balance - January 1, 2024

  $ 8,398  

Acquisition of Alfamation

    3,399  

Impact of foreign currency translation adjustments

    (66 )

Balance - March 31, 2024

  $ 11,731  

 

Changes in the amount of the carrying value of finite-lived intangible assets for the three months ended March 31, 2024 are as follows:

 

Balance - January 1, 2024

  $ 8,198  

Acquisition of Alfamation

    9,688  

Impact of foreign currency translation adjustments

    (203 )

Amortization

    (595 )

Balance - March 31, 2024

  $ 17,088  

 

Intangible assets were allocated to our reporting segments at March 31, 2024 and December 31, 2023 as follows:

 

   

March 31,

   

December 31,

 
   

2024

   

2023

 

Electronic Test

    16,357       3,728  

Environmental Technologies

    796       794  

Process Technologies

    11,666       12,074  

Total intangible assets

  $ 28,819     $ 16,596  

 

The following tables provide further detail about our intangible assets as of March 31, 2024 and December 31, 2023:

 

   

March 31, 2024

 
   

Gross

Carrying

Amount

   

Accumulated

Amortization

   

Net

Carrying

Amount

 

Finite-lived intangible assets:

                       

Customer relationships

  $ 22,202     $ 10,082     $ 12,120  

Technology

    3,195       1,504       1,691  

Patents

    590       590       -  

Backlog

    3,851       574       3,277  

Software

    270       270       -  

Trade name

    140       140       -  

Total finite-lived intangible assets

    30,248       13,160       17,088  
Indefinite-lived intangible assets:                         

Trademarks

    11,731       -       11,731  

Total intangible assets

  $ 41,979     $ 13,160     $ 28,819  

 

   

December 31, 2023

 
   

Gross
Carrying
Amount

   

Accumulated

Amortization

   

Net
Carrying
Amount

 

Finite-lived intangible assets:

                       

Customer relationships

  $ 16,407     $ 9,687     $ 6,720  

Technology

    2,895       1,417       1,478  

Patents

    590       590       -  

Backlog

    499       499       -  

Software

    270       270       -  

Trade name

    140       140       -  

Total finite-lived intangible assets

    20,801       12,603       8,198  

Indefinite-lived intangible assets:

                       

Trademarks

    8,398       -       8,398  

Total intangible assets

  $ 29,199     $ 12,603     $ 16,596  

 

- 16-

 

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

 

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

 

2024 (remainder)

  $ 4,384  

2025

  $ 2,863  

2026

  $ 1,577  

2027

  $ 1,083  

2028

  $ 952  

 

 

(6)

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. See also Note 14 for information about revenue by operating segment and geographic region.

 

   

Three Months Ended
March 31,

 
   

2024

   

2023

 

Revenue by customer type:

               

End user

  $ 21,430     $ 21,704  

OEM/Integrator

    8,394       10,215  
    $ 29,824     $ 31,919  

Revenue by product type:

               

Thermal test

  $ 3,699     $ 5,820  

Thermal process

    10,955       9,822  

Semiconductor test

    6,282       8,105  

Video imaging

    2,119       2,648  

Flying probe and in-circuit testers

    2,744       1,160  

Alfamation products

    1,379       -  

Service/other

    2,646       4,364  
    $ 29,824     $ 31,919  

Revenue by market:

               

Semiconductor

  $ 14,967     $ 17,683  

Industrial

    4,187       3,137  

Automotive (including Electric Vehicles)

    3,958       2,597  

Life Sciences

    653       1,513  

Defense/aerospace

    3,239       2,839  

Security

    541       966  

Other

    2,279       3,184  
    $ 29,824     $ 31,919  

 

 

(7)

MAJOR CUSTOMERS

 

During the three months ended March 31, 2024, one customer accounted for 15% 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, 2024. During the three months ended March 31, 2023, one customer accounted for 13% of our consolidated revenue. This revenue was primarily generated by our Electronic Test segment. No other customers accounted for 10% or more of our consolidated revenue during the three months ended March 31, 2023.

 

-17-

 

(8)

INVENTORIES

 

Inventories held at March 31, 2024 and December 31, 2023 were comprised of the following:

 

   

March 31,

2024

   

December 31,

2023

 

Raw materials

  $ 17,104     $ 15,948  

Work in process

    9,419       1,563  

Inventory consigned to others

    114       98  

Finished goods

    4,694       2,480  

Total inventories

  $ 31,331     $ 20,089  

 

 

(9) 

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, 2024 and 2023, respectively, were as follows: 

 

  

Three Months Ended March 31,

 
  

2024

  

2023

 
         

Operating lease cost

 $451  $400 

Short-term lease cost

 $3  $3 

 

The following is additional information about our leases as of March 31, 2024:

 

Range of remaining lease terms (in years)

 .5to7.1 

Weighted average remaining lease term (in years)

  4.5  

Weighted average discount rate

  5.3%  

 

Maturities of lease liabilities as of March 31, 2024 were as follows:

 

2024

 $1,896 

2025

  1,644 

2026

  1,313 

2027