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Note 1 - Nature of Operations | 9 Months Ended
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Sep. 30, 2020
Notes to Financial Statements |
Nature of Operations [Text Block] |
( 1 ) | NATURE OF OPERATIONS
We are a global supplier of precision-engineered solutions for use in manufacturing and testing across a wide range of markets including automotive, defense/aerospace, energy, industrial, semiconductor and telecommunications. We manage our business as two operating segments which are also our reportable segments: Thermal Products ("Thermal") and Electromechanical Solutions ("EMS"). Our Thermal segment designs, manufactures and sells our thermal test and thermal process products while our EMS segment designs, manufactures and sells our semiconductor test products. We manufacture our products in the U.S. Marketing and support activities are conducted worldwide from our facilities in the U.S., Germany, Singapore, the Netherlands and the U.K. The consolidated entity is comprised of inTEST Corporation and our wholly owned subsidiaries. Our EMS segment sells its products to semiconductor manufacturers and third -party test and assembly houses (end user sales) and to automated test equipment (“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. Our Thermal segment sells its products to many of these same types of customers; however, it also sells into a variety of other markets, including the automotive, defense/aerospace, energy, industrial and telecommunications markets. As a result of the acquisition of Ambrell Corporation (“Ambrell”) in May 2017, our Thermal segment also sells into the consumer products packaging, fiber optics and other sectors within the broader industrial market, and into the wafer processing sector within the broader semiconductor market. Both 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. As a result, our consolidated gross margin can be significantly impacted in any given period by a change in the mix of products sold in that period. Historically, we have referred to our markets as “Semiconductor” (which includes both the broader semiconductor market as well as the more specialized ATE and wafer processing sectors within the broader semiconductor market), and “Non-Semiconductor” (which includes all of the other markets we serve). Starting in the second quarter of 2019, we began referring to the broader semiconductor market, including the ATE and wafer processing sectors within that market, as the “Semi Market.” All other markets are designated as “Multimarket.” The Semi Market, which is the principal market in which we operate, is characterized by rapid technological change, competitive pricing pressures and cyclical as well as seasonal market patterns. This market is subject to significant economic downturns at various times. 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, our ability to safeguard patented technology and intellectual property in a rapidly evolving market, downward pricing pressures from customers, and our reliance on a relatively few number of customers for a significant portion of our sales. 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 Our business has been, and will continue to be, adversely affected by the ongoing COVID- 19 pandemic. As of the date of this filing, COVID- 19 continues to cause significant disruptions in the normal business environment, both domestically and globally, and we believe the situation will remain challenging until the spread of the virus can be contained. Since March 17, 2020, several states, including all of the states in which we have manufacturing facilities, have instituted “shelter-in place” orders as well as guidance in response to COVID- 19 and the need to contain it. As of the date of this filing, all of the states in which we operate have re-opened to varying degrees. However, some of these states have paused their re-opening plans or reversed actions they had taken with respect to their re-opening plans because of increased spread. Despite these changes, all of our operations continue to be deemed “critical and essential business operations” under the various governmental COVID- 19 mandates which has allowed us to continue to operate our business with certain modifications as discussed below. Although our net revenues from all of the markets we serve have been significantly affected by COVID- 19, the impact of COVID- 19 on our net revenues from the Semi Market has been intensified because it began during a time when our business operations were also being negatively affected by a global downturn in the Semi Market. The Semi Market, from which approximately half of our net revenues are derived, entered a cyclical downturn in the beginning of 2019. This downturn resulted in significant declines in our net revenues from the Semi Market during 2020 as compared to 2019, particularly during the first half of the year, and was the primary factor causing the net loss we recorded in the first nine months of 2020 of $515. Our net revenues from the Semi Market for the first nine months of 2020 totaled $19,256 compared to $24,878 in the first nine months of 2019. During the first quarter of 2020, before the spread of COVID- 19, we had started to see indications that the downturn was coming to an end and that the beginning of the next cyclical upturn in the Semi Market was about to commence. However, COVID- 19 impacted this timing and, as a result, the recovery in the Semi Market was delayed. Although we saw increasing order rates from our customers in the Semi Market during the second quarter of 2020, this trend did not continue for all of the products we sell into this market during the third quarter of 2020. While the broader Semi Market appears to have entered the next cyclical upturn, we serve only a portion of that broader market. Furthermore, because we sell to a limited number of customers in the ATE and wafer processing sectors within the broader Semi Market, the trend in our orders and net revenues does not always follow the overall trend in these sectors of the broader Semi Market. Accordingly, there can be no assurance that the trend in our orders from customers in the Semi Market will follow the trend in the broader Semi Market, in particular, if the spread of COVID- 19 is not further contained and one or more of our significant customers is negatively impacted. In addition, the aftermarket service and support that we provide to our customers has been, and we expect may continue to be, adversely impacted by COVID- 19 due to travel restrictions which continue to exist in some locations and limitations on visitors allowed into customer facilities, which has resulted in some of these activities being reduced or suspended. The net revenues associated with these aftermarket service and support activities typically range from 8% to 10% of our consolidated net revenues. Although these net revenues returned to a more typical range during the third quarter of 2020, if the spread of COVID- 19 worsens, these revenues may be reduced in future periods. During 2019, we made adjustments to reduce our fixed cost structure, which included staff reductions and limits on all discretionary spending. As a result of the delay in the Semi Market recovery discussed above and the impact of COVID- 19 on our operations, we have taken actions to further reduce our fixed cost structure with the goal of limiting future losses and maintaining an adequate level of liquidity to operate our business. To date, these additional actions have included further staff reductions, the temporary closure of our EMS manufacturing facility in Fremont, California for approximately three weeks beginning in late March and the temporary closure of our Thermal segment manufacturing facility in Mansfield, Massachusetts for a two -week period at the beginning of April. As discussed further in Note 9, on April 10, 2020, we entered into a Loan and Security Agreement (the “Agreement”) with M&T Bank (“M&T”). Under the terms of the Agreement, M&T has provided us with a $7,500 revolving credit facility. This revolving credit facility was put in place to provide us with additional liquidity in response to the current business environment as a result of COVID- 19. As of the date of the filing of this report, all of our facilities are open, although a significant number of our employees are working remotely as discussed below. As discussed further in Note 3, we are in the process of closing our manufacturing operation in Fremont, California. We expect that action to be substantially completed during the fourth quarter of 2020. While we do not currently have any further plans for other facility closures, if the current pace of the spread of COVID- 19 cannot be sufficiently slowed and the spread of the virus is not contained, our business operations could be further interrupted. If the spread of the virus cannot be contained, government and health authorities may announce new or extend existing restrictions, which could require us to make further adjustments to our operations in order to comply with any such restrictions. These adjustments to our operations could include additional facility closures in the future if demand slows down, which could have a material negative impact on our business, results of operations, financial condition and cash flows. The funds we may be able to draw down under the Agreement may not be sufficient to prevent the need to take further actions, such as staff reductions, facility closures or other salary and benefits adjustments for remaining employees. As a result of our current level of working capital as well as the availability of the revolving credit facility under the Agreement, we currently expect to have sufficient liquidity to operate our business throughout the balance of 2020, as further described in this report. Generally, global supply chains and the timely availability of products have been, and will continue to be, materially disrupted by quarantines, factory slowdowns or shutdowns, border closings and travel restrictions resulting from COVID- 19. We have experienced, and expect that we may continue to experience, extended delivery lead times, price increases and/or lack of availability from our normal suppliers for the materials needed to produce our products in a timely manner and/or with the level of margins we typically expect to achieve. We are working to mitigate and address these delays and price increases, but there can be no assurance that we will not experience delays or price increases in the future which could have a material negative impact on our business, results of operations and financial condition. We have implemented workplace safeguards designed to protect the health and well-being of our employees. A significant number of employees have been authorized to work from home and have been provided with the tools and technology necessary to do so. However, the process of working remotely may result in those employees not being as effective or responsive to our customers' needs as they would be under more normal conditions. This could result in lost business opportunities or have other negative impacts on our business. Remaining employees in our facilities are following World Health Organization (“WHO”) and Centers for Disease Control and Prevention (“CDC”) recommended safety practices, as well as state and local directives, but there can be no assurances that we can successfully avoid one or more of our employees contracting COVID- 19 and entering our facilities while infected. Should this occur, or should we have employees who become ill or otherwise are unable to work, we may experience limitations in employee resources or may be required to close affected facilities for a time to clean and disinfect appropriately. The duration of any business disruption and related financial impact cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs. The extent to which COVID- 19 may impact our operating results, financial condition, and liquidity will depend on future developments, which are highly uncertain and cannot be predicted as of the date of the filing of this report, including new information that may emerge concerning the severity of COVID- 19 and steps taken to contain COVID- 19 or treat its impact, among others. The adverse effects of COVID- 19 on our business could be material in future periods.

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- Definition The entire disclosure for the nature of an entity's business, major products or services, principal markets including location, and the relative importance of its operations in each business and the basis for the determination, including but not limited to, assets, revenues, or earnings. For an entity that has not commenced principal operations, disclosures about the risks and uncertainties related to the activities in which the entity is currently engaged and an understanding of what those activities are being directed toward. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=99393423&loc=d3e5967-108592 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -URI http://asc.fasb.org/topic&trid=2134479 + Details
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