Astrotech Corporation — Form 10-Q Summary
Period discrepancy: The request identifies “2015 Q1,” but the supplied filing is for the three months ended September 30, 2016 (the first quarter of fiscal 2017), filed November 14, 2016. The comparison period is the three months ended September 30, 2015. Amounts below are in U.S. dollars; financial statement figures are generally in thousands unless stated otherwise.
Business context and reporting period
Astrotech develops and commercializes technology through Astro Scientific and Astral. Astro Scientific includes 1st Detect, which develops chemical analyzers and earns most of its revenue from government-related subcontract work, and Astrogenetix, which is developing vaccines and therapeutics. Astral provides film digitization, restoration, and enhancement services. The statements are unaudited.
Financial performance and liquidity
| Metric | Three months ended Sept. 30, 2016 | Prior comparable period |
|---|---|---|
| Revenue | $1.006 million | $0 |
| Cost of revenue / gross profit | $731,000 / $275,000 | $0 / $0 |
| Gross margin | 27% | Not applicable |
| Operating expenses | $3.840 million | $3.550 million |
| Operating loss | $3.565 million | $3.550 million |
| Net loss attributable to Astrotech | $3.415 million; $0.17 per share | $3.364 million; $0.16 per share |
| Net cash used in operations | $3.116 million | $4.338 million |
At September 30, 2016, cash and cash equivalents were $3.543 million; short-term investments were $15.198 million and long-term investments were $3.545 million. Cash plus investments totaled approximately $22.3 million. Working capital was approximately $19.0 million, versus $21.1 million at June 30. Total assets were $27.503 million and total liabilities were $1.748 million. The presented balance sheet reports no borrowing or interest-bearing debt line item.
Operating cash outflow improved year over year, while investing activities provided $2.568 million and financing activities used $308,000. Cash and cash equivalents declined $856,000 during the quarter to $3.543 million. Management stated that available liquidity was sufficient to fund operating expenses, capital needs, and other expected requirements during the next fiscal year.
Material changes versus the prior comparable period
- Revenue rose from zero to $1.006 million, entirely from research-based, fixed-price government-related subcontract agreements. Management expects further revenue from these agreements.
- Despite the new revenue and $275,000 gross profit, the company remained loss-making; the attributable net loss increased from $3.364 million to $3.415 million.
- Operating expenses increased $290,000. SG&A rose $262,000, primarily due to higher equity compensation; research and development increased $28,000.
- Operating cash use improved by $1.222 million, partly reflecting lower cash use in other assets and liabilities and higher noncash stock compensation, offset by increased receivables.
Outlook, risks, contingencies, and unusual items
- Revenue is concentrated: two customers accounted for 100% of quarterly revenue, with one representing 62% and the other 38%. One customer represented 92% of trade receivables at quarter-end.
- Management’s liquidity outlook depends on product development and market acceptance, contract performance and collections, government funding, manufacturing and development costs, and potential strategic actions or acquisitions. No quantified earnings or revenue guidance is provided.
- Stock-based compensation was $862,000, including $843,000 for restricted stock; this materially contributed to the period’s noncash expense. In August, 192,397 shares were surrendered by employees for tax withholding obligations at an average $1.60 per share. The filing says no shares were repurchased under the public buyback program during the quarter.
- The company had a full valuation allowance against net deferred tax assets and reported an approximately 0% effective tax rate. It disclosed no material pending legal proceeding expected to have a material adverse effect and no off-balance-sheet arrangements.
- Management reported completing remediation of a material weakness identified in the fiscal 2016 annual report, including implementing contract-revenue accounting procedures and expanding employee training. Management concluded disclosure controls were effective.
- Key stated risks include limited capital availability, uncertain government funding and procurement, customer demand and competition, contract delays or cost-estimate changes, and technology-development challenges. Contract revenue recognition relies on estimates of costs and progress toward completion.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing covers fiscal Q1 2017, not 2015 Q1.
- Review the government subcontract awards, expected follow-on revenue, contract milestones, and the assumptions used to recognize revenue and estimate contract costs.
- Assess dependence on the two revenue customers and the collectability and timing of associated receivables.
- Track quarterly cash burn, investment balances, working capital, and management’s stated liquidity runway.
- Evaluate the effect of stock-based compensation and employee share withholding on expenses, dilution, and share counts, as well as the status of the control remediation.