Compared with the second quarter of 2022, sales to the semi market grew 17% with back-end strength serving the analog and mixed signal test market and continued front-end growth serving the SiC market. Sales increased 47% to the life sciences market and 35% to the defense market. The timing of projects resulted in a sequential decline in sales to the automotive/EV market when compared with an exceptionally strong second quarter.
The Company’s top five customers for the nine-month period represented approximately 30% of revenue, down from 35% in the prior-year period demonstrating the effect of the Company’s 5-Point Strategy to grow through diversification of customers, markets and geographies. Year to date, no single customer accounted for 10% or more of revenue.
Gross margin contracted slightly on a sequential basis primarily due to supply chain challenges, as well as product and channel mix.
Operating expenses were up $2.9 million compared with the third quarter of 2021. This increase primarily reflects the impact of the incremental expenses from acquired business as well as investments in marketing and engineering. Sequentially, operating expenses were relatively unchanged, but improved 170 basis points as a percent of revenue to 34.9%, demonstrating operating leverage as the organization scales.
Balance Sheet and Cash Flow Review
Cash and cash equivalents (including restricted cash) and short-term investments at the end of the third quarter of 2022 were $13.5 million, down $0.5 million from the second quarter of 2022. This includes the negative impact of exchange rate fluctuations of approximately $0.5 million. During the quarter, the Company generated $1.4 million in cash flow from operations. At quarter end, after paying down $1.0 million in debt, total debt was $17.2 million, compared with $18.2 million at the end of the second quarter of 2022.
Capital expenditures were $335,000 in the third quarter of 2022 compared with $114,000 in the prior-year period. For the first nine months, capital expenditures were $1.0 million compared with $577,000 in the prior-year period. Capital expenditures for the year are expected to be approximately $1.5 million.
During the third quarter of 2022, the Company amended its loan agreement to expand the existing non-revolving delayed draw term loan facility by $25.5 million to $50.5 million. The available funding under the term loan facility is currently $30 million. The maturity date for the amended term loan facility, as well as its existing $10 million revolving credit facility, was extended to September 2027. There were no borrowings at the end of the quarter under the revolving credit facility.
Third Quarter 2022 Orders and Backlog (see orders by market in accompanying tables)
($ in 000s) |
Three Months Ended |
|||||||||||||
Change |
Change |
|||||||||||||
9/30/2022 |
6/30/2022 |
$ |
% |
9/30/2021 |
$ |
% |
||||||||
Orders |
32,680 |
40,518 |
(7,838) |
-19.3% |
21,148 |
11,532 |
54.5% |
|||||||
Backlog (at quarter end) |
47,890 |
45,981 |
1,909 |
4.2% |
20,428 |
27,642 |
134.4% |
|||||||
Order growth of 54.5% over the prior-year period reflected increases across nearly all end markets especially in semi, defense and security. Orders for the semi market were up 44% to $19.2 million compared with the prior-year period, driven by demand for induction heating technology solutions for silicon carbide (SiC) crystal growth applications as well as test solutions for analog and mixed signal applications. Order growth over the prior-year period for the semi market was about evenly split between front-end and back-end applications. Third quarter orders were 19% lower when compared with record orders received in the second quarter. Sequentially, demand in the defense and automotive/EV markets helped to offset timing of orders in the semi and life sciences markets.
For the third consecutive quarter, backlog reached another record of $47.9 million, up from its previous record of $46.0 million at June 30, 2022. Notably, approximately 45% is expected to ship beyond the fourth quarter. Historically, only 20% to 25% of backlog would be available beyond the current quarter.
Fourth Quarter Outlook and Guidance
Fourth quarter 2022 financial results are expected to be comparable with third quarter results. Revenue is expected to be in the range of $30 million to $32 million with gross margin of approximately 45%. Fourth quarter guidance implies that the Company expects to deliver revenue at the high end of its original guidance provided for the year of $110 million to $115 million.
