Astrotech Corporation — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter and six months ended December 31, 2016 (Astrotech fiscal 2017 Q2), not 2015 Q2. The financial statements are unaudited; amounts below are in millions unless noted.
Business context
Astrotech develops and commercializes technology through Astro Scientific, which includes chemical-analyzer developer 1st Detect and biotechnology company Astrogenetix, and Astral, which provides film digitization and enhancement services. During the reported periods, revenue came from Astro Scientific; Astral reported no revenue.
Financial performance
| Metric | Three months ended Dec. 31, 2016 | Three months ended Dec. 31, 2015 | Six months ended Dec. 31, 2016 | Six months ended Dec. 31, 2015 |
|---|---|---|---|---|
| Revenue | $0.520 | $0.927 | $1.526 | $0.927 |
| Gross profit / margin | $0.201 / 39% | $0.295 / 32% | $0.476 / 31% | $0.295 / 32% |
| Operating expenses | $2.890 | $2.997 | $6.730 | $6.547 |
| Operating loss | $(2.689) | $(2.702) | $(6.254) | $(6.252) |
| Net loss attributable to Astrotech | $(2.603) | $(2.526) | $(6.018) | $(5.890) |
| Loss per share, basic and diluted | $(0.13) | $(0.12) | $(0.29) | $(0.28) |
For the six-month period, operating cash used was $4.777 million, compared with $6.864 million a year earlier. Investing activities provided $6.593 million, primarily from investment sales and maturities; financing activities used $1.283 million, mainly for share repurchases. Cash and cash equivalents were $4.932 million at December 31. Cash plus short-term investments totaled $16.113 million; including long-term investments, cash and investments totaled approximately $19.4 million.
Current assets were $17.650 million and current liabilities $1.926 million, yielding reported working capital of approximately $15.7 million. Total liabilities were $1.989 million; the balance sheet lists no debt. Total assets were $24.187 million and stockholders’ equity $22.198 million.
Changes and management commentary
- Quarterly revenue declined $0.407 million year over year, partly because the prior-year quarter included a $0.242 million space-grade handrail sale. Management attributed the improved quarterly gross margin to higher-margin work.
- Six-month revenue increased $0.599 million, reflecting activity on two major government-related subcontract projects versus primarily one major project in the prior-year period. Six-month gross margin eased to 31% from 32%.
- Quarterly SG&A and R&D declined, which management attributed mainly to workforce reductions associated with a 1st Detect realignment. Six-month SG&A rose by $0.227 million, primarily due to increased equity compensation.
- Management stated that available liquidity was sufficient to fund operating expenses, capital needs, and other expected requirements through fiscal 2018. This is not a revenue or earnings forecast; the filing provides no specific financial guidance.
Liquidity, risks and unusual items
- Two customers accounted for 100% of revenue in each six-month comparison period. For the six months ended December 31, 2016, the Next Generation Chemical Detector partner represented 53% of sales and the Department of Homeland Security Science and Technology Directorate partner 47%.
- Management identifies risks including dependence on government funding and contracts, customer concentration, product acceptance and competition, contract timing and performance, technology-development milestones, and access to sufficient capital. Contract revenue uses percentage-of-completion estimates, and anticipated contract losses are recognized when identified.
- The company repurchased 601,852 shares from its CEO in December for $0.975 million ($1.62 per share) and 192,000 shares from its CFO and COO in August for $0.308 million to satisfy tax withholding obligations. These purchases were separate from the public repurchase program, which expired December 31, 2016.
- Stock-based compensation totaled $0.954 million for the six months, substantially above the prior-year $0.249 million. The company maintained a full valuation allowance against net deferred tax assets; the effective tax rate was approximately zero.
- The filing reports no material pending legal proceeding and no off-balance-sheet arrangements. Disclosure controls and procedures were reported effective.
Important facts for investors to verify
- Whether government subcontract work converts into sustained revenue, and how customer concentration changes.
- Cash burn, investment liquidity and management’s fiscal 2018 funding runway assumption.
- Progress and commercial adoption of 1st Detect products and Astral’s 4K/HDR services; Astral had no reported revenue in these periods.
- Terms and governance of the related-party share repurchases, and the effect of equity compensation and share activity on dilution.
- Key assumptions and cost estimates underlying fixed-price, percentage-of-completion contracts.