Recent trends affecting our financial performance

The Russian/Ukrainian military conflict and the Israeli-Hamas conflict have not had a direct significant impact on the company’s revenue as it does not have any significant recurring customers in those regions. However, the company does have customers and suppliers in surrounding regions which may be affected, and further escalation of both conflicts and geopolitical tensions could adversely affect the company’s business, financial condition, and results of operations through factors such as cyberattacks, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets. The full impact of these conflicts on the company and its customers or suppliers is not yet known.

Results of Operations

Overview of the three months ended December 31, 2024

• Sales increased by $0.3 million, or 2%, to $15.7 million.
• Gross margin percentage increased to 29% from 27% in the prior year period.
• Operating loss was $(0.4) million compared to $(0.3) million in the prior year period.
• Other income, net increased to $0.7 million from $0.3 million in the prior year period.
• Income tax benefit of $(115) thousand compared to an expense of $13 thousand in the prior year period.
• Net income was $472 thousand compared to a net loss of $(73) thousand in the prior year period.

Sales

• TS segment sales increased by $0.6 million, while HPP segment sales decreased by $0.3 million.
• Sales to the Americas increased by $0.9 million, while sales to Europe and Asia-Pacific decreased by $0.3 million and $0.4 million, respectively.

Gross Margins

• Overall gross margin increased to 29% from 27% in the prior year period.
• TS segment gross margin increased to 29% from 26%, while HPP segment gross margin increased to 50% from 47%.
• The increase in TS segment gross margin was due to higher service gross margins, while the increase in HPP segment gross margin was due to higher product and service gross margins.

Engineering and Development Expenses

• Increased by $0.1 million in the HPP segment due to increased consulting and stock compensation expense.

Selling, General and Administrative Expenses

• Increased by $0.4 million, with the TS segment increasing by $0.3 million and the HPP segment increasing by $0.1 million.
• The increases were primarily due to higher commissions, stock compensation expense, and trade show expenses.

Other Income/Expenses

• Total other income, net increased by $0.4 million, primarily due to a net increase in foreign exchange gain.
• Interest income decreased by $7 thousand, while interest expense decreased by $28 thousand.

Income Taxes

• An income tax benefit of $115 thousand was recorded compared to an expense of $13 thousand in the prior year period.
• The difference was due to the impact of tax credits and changes in the valuation allowance.

Liquidity and Capital Resources

• Cash and cash equivalents increased by $0.1 million to $30.7 million.
• Cash provided by operating activities remained flat at $1.7 million.
• Cash used in investing activities decreased to $47 thousand from $126 thousand in the prior year.
• Cash used in financing activities increased to $1.6 million from $1.2 million in the prior year, primarily due to increased net payments on the line of credit.
• The company maintains a $15 million line of credit, with $12.4 million available as of December 31, 2024.
• Management believes the company’s available cash, cash generated from operations, and line of credit will be sufficient to meet its working capital and capital expenditure requirements for at least the next 12 months.