Business Overview
Interlink Electronics, Inc. (NASDAQ:LINK) is a global sensor and printed electronics company operating in two principal sensor technology divisions: force/touch sensors, and gas and environmental sensors. The company designs, develops, manufactures and sells a range of force-sensing technologies and electrochemical gas-sensing instruments, products and solutions that are deployed across a diverse array of end markets.Interlink's force/touch sensors, including its proprietary Force-Sensing Resistor (FSR®) technology, are used extensively in Human-Machine Interface (HMI) devices across the consumer electronics, automotive, industrial and medical sectors. The company's gas and environmental sensors and instruments are utilized for safety, personal wellness and air quality monitoring applications in industry, community, health and home settings.
Interlink operates manufacturing facilities in Shenzhen, China, Silicon Valley, California, and Irvine, Scotland, and maintains a global presence with sales and engineering support offices in the United States, China, United Kingdom, Hong Kong, Singapore and Japan. The company serves a diverse customer base that includes Fortune Global 500 companies as well as start-ups, design houses, original equipment manufacturers and universities.
Financial Performance
For the full year 2023, Interlink reported annual revenue of $13.94 million, down 4.3% from the prior year, and a net loss of $383,000. The company generated negative operating cash flow of $116,000 and negative free cash flow of $239,000 for the year.In the first quarter of 2024, Interlink's revenue declined 4.7% year-over-year to $3.12 million, with the company reporting a net loss of $741,000. Gross profit margin contracted to 40.1% from 48.4% in the prior-year period, while operating expenses increased 13.9% to $2.00 million.
The company's financial performance in the first quarter was impacted by lower demand from certain larger force-sensor customers in the industrial and medical markets, as well as changes in product and customer mix. Interlink also incurred higher intangible asset amortization expenses related to its 2023 acquisition of Calman Technology Limited.
Geographic Diversification
Interlink generates revenue from three primary geographic regions: the United States, Asia and the Middle East, and Europe and other markets. In the first quarter of 2024, the company derived 46.3% of its revenue from the U.S. market, 23.3% from Asia and the Middle East, and 30.4% from Europe and other regions.This geographic diversification helps mitigate Interlink's exposure to economic and market conditions in any single region. However, the company's operations and financial results can be impacted by fluctuations in foreign currency exchange rates, changes in trade policies, and political instability in the countries in which it operates.
Segment Performance
Interlink operates in two principal sensor technology divisions: force/touch sensors, and gas and environmental sensors. The force/touch sensor segment, which includes the company's legacy HMI products as well as the newly acquired Calman Technology business, accounted for approximately 80% of total revenue in the first quarter of 2024.Revenue from the force/touch sensor segment declined 8.0% year-over-year, reflecting lower demand from certain larger industrial and medical customers. In contrast, revenue from the gas and environmental sensor segment increased 12.3% in the quarter, though this business line represents a smaller portion of Interlink's overall sales.
The company continues to invest in research and development to expand its force/touch and gas sensing technology platforms and address evolving customer needs across its target markets. Engineering, research and development expenses increased 9.3% year-over-year in the first quarter of 2024.
Liquidity
As of March 31, 2024, Interlink had $4.4 million in cash and cash equivalents and no outstanding debt. The company's working capital totaled $7.2 million, providing ample liquidity to fund ongoing operations.Interlink has outstanding 200,000 shares of 8.0% Series A Convertible Preferred Stock with an aggregate liquidation preference of $5.0 million. The company pays monthly cash dividends on the preferred shares, which totaled $100,000 in the first quarter of 2024.
The company's cash flow generation has been challenged, with negative operating cash flow of $116,000 and negative free cash flow of $239,000 for the full year 2023. Interlink is focused on improving its cash flow profile through revenue growth, margin expansion and disciplined cost management.
Risks and Challenges
Interlink operates in a rapidly changing industry and faces a variety of risks that could impact its future financial performance. These include:- Intense competition and pricing pressures in the sensor technology market - Reliance on a limited number of large customers, which can lead to revenue concentration risk - Exposure to global supply chain disruptions and inflationary pressures - Potential for delays or interruptions in the company's manufacturing operations - Risks associated with the company's international operations, including foreign currency fluctuations and changing trade policies - Challenges in attracting and retaining key engineering and technical talent
The company's ability to navigate these headwinds and execute on its growth strategy will be critical to its long-term success.
Outlook
Interlink has not provided formal financial guidance for the full year 2024. However, the company's performance in the first quarter suggests ongoing challenges, with revenue declining and profitability remaining under pressure.While Interlink's diversified product portfolio, global footprint and strong liquidity position provide some insulation, the company faces a difficult macroeconomic environment that is impacting demand across its key end markets. Successful integration of the Calman Technology acquisition, new product introductions, and continued cost discipline will be important factors in determining Interlink's trajectory over the coming quarters.