Astrotech Corporation — Form 10-Q Summary
Period covered: Three months ended September 30, 2014 (first quarter of fiscal 2015), compared with the three months ended September 30, 2013. The request metadata says “2013 Q1,” but the filing covers 2014 Q1. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise. Unaudited interim results.
Business context
Astrotech completed the sale of substantially all assets of its Astrotech Space Operations (ASO) business to Lockheed Martin on August 22, 2014. The company’s continuing business is Spacetech, comprising 1st Detect, which develops compact mass spectrometers, and Astrogenetix, which pursues microgravity-based biotechnology and vaccine development.
Financial results and liquidity
| Metric | Quarter ended Sep. 30, 2014 | Quarter ended Sep. 30, 2013 |
|---|---|---|
| Continuing-operations revenue | $0.320 million | $0 |
| Gross profit / margin | $0.043 million / 13% | $0 |
| Operating expenses | $2.652 million | $2.356 million |
| Loss from continuing operations, after tax | $1.272 million | $1.171 million |
| Net income attributable to Astrotech | $23.283 million | $1.253 million |
| Reported diluted EPS | $1.16 | $0.06 |
- Continuing revenue came from the first phase of a new subcontract on the Next Generation Chemical Detector program. SG&A rose $0.409 million, primarily from transaction costs and increased 1st Detect headcount; R&D fell $0.113 million.
- Reported net income was largely driven by the $25.630 million pretax gain on the ASO sale ($23.7 million after tax). Continuing operations remained loss-making; the filing reports continuing-operations EPS of $(0.09).
- Operating cash flow was negative $3.119 million, including negative $1.749 million from continuing operations and negative $1.370 million from discontinued operations. Investing cash flow was positive $52.545 million, principally reflecting $52.591 million of ASO sale proceeds. Financing cash flow was negative $7.986 million, including repayment of the $5.655 million ASO term loan and $2.331 million paid to settle State of Texas funding.
- Cash and cash equivalents were $45.271 million at September 30, 2014, versus $3.831 million at June 30, 2014. Working capital was approximately $44.1 million, excluding the $6.1 million indemnity holdback receivable.
- The company reported no bank debt at quarter-end. Total liabilities were $2.744 million; total assets were $53.998 million and stockholders’ equity was $51.254 million.
Material changes, outlook, and risks
- The ASO sale was for an agreed $61.0 million, subject to working-capital adjustment; the estimated purchase price at quarter-end was $59.3 million. Astrotech had received $52.6 million and recorded $0.6 million as a working-capital holdback receivable and $6.1 million as an indemnity holdback. The working-capital amount was to be settled within 12 months; the indemnity escrow was scheduled for release in February 2016, subject to claims. Management expected to realize the indemnity holdback.
- Management stated existing cash was sufficient for expected operating, capital, and other liquidity needs over the coming year. No specific financial guidance was provided. Capital needs remain dependent on product-market development, R&D, manufacturing, strategic arrangements, acquisitions, litigation, and intellectual-property costs.
- Astrotech expects to focus on commercializing sensor products and space-based technologies. NASA-supported work on a Salmonella vaccine IND is a key Astrogenetix effort; investment has been scaled back as work concentrates on that filing. A NASA agreement contemplates at least 28 additional space flights after successful filing of the IND.
- The ASO disposal created a taxable gain of approximately $27.0 million. The company expected tax attributes to offset all but $2.8 million of the gain and estimated the net federal and state tax impact at $1.1 million; further fiscal-year losses could change the tax outcome.
- Disclosed risks include product demand and market acceptance, competition, dependence on government funding and space access, technology-development challenges, contract delays, and the ability to fund and execute the business plan. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
- A Florida foreclosure matter involving Astrotech’s inferior lien was resolved after the company received $50,000 less legal fees and released its mortgage; the lawsuit was dismissed in October 2014. The filing reported no other material pending legal proceedings.
Important facts for investors to verify
- Whether the $0.6 million working-capital holdback is settled at the expected amount and whether any adjustment is payable to the buyer.
- Whether the $6.1 million indemnity escrow is ultimately released in full in February 2016 or reduced by buyer claims.
- Whether continuing businesses can grow revenue and improve margins enough to offset recurring operating cash use.
- Whether the estimated $1.1 million tax impact changes as fiscal 2015 losses, tax attributes, and final sale adjustments are determined.
- Progress toward the Salmonella IND filing and commercial adoption of 1st Detect products, including the Thermo iMS2 integration.