Astrotech Corporation — Form 10-Q Summary
Period clarification: The request metadata says “2012 Q2,” but the filing covers the quarter and six months ended December 31, 2013—Astrotech’s fiscal second quarter of fiscal 2014. The financial statements are unaudited; amounts below are in millions unless noted.
Business context
Astrotech operates Astrotech Space Operations (ASO), which supports satellite processing and launches, and Spacetech, which includes mass-spectrometer developer 1st Detect and biotechnology venture Astrogenetix. ASO generated 97% of quarterly and 99% of six-month revenue. Results are sensitive to launch schedules and mission volume.
Financial performance and position
| Metric | Three months ended Dec. 31, 2013 | Prior-year quarter | Six months ended Dec. 31, 2013 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $2.538 | $4.122 | $9.227 | $10.251 |
| Gross profit (loss) | $(0.144) | $0.997 | $3.459 | $2.219 |
| Gross margin | (6)% | 24% | 37% | 22% |
| Operating expenses | $2.559 | $1.877 | $5.103 | $4.618 |
| Net loss attributable to Astrotech | $(2.554) | $(0.810) | $(1.301) | $(2.227) |
| Loss per share, basic and diluted | $(0.13) | $(0.04) | $(0.07) | $(0.12) |
Quarterly revenue fell 38.4%, primarily due to two fewer missions and lower non-mission project revenue. The quarter’s gross loss and wider parent-company loss reflected lower revenue and higher operating expenses. Six-month gross profit and margin improved despite lower revenue, while the six-month parent-company loss narrowed. Management attributed the margin improvement partly to the end of costs associated with the former Spacehab facility leaseback.
- Cash flow: Six-month operating cash flow was $1.972, versus $(4.506) in the prior-year period; the improvement was mainly due to lower accounts receivable and payment timing. Investing cash outflow was $0.221 and financing cash outflow was $0.188. Cash increased $1.563 to $6.659.
- Liquidity: Working capital was approximately $3.8 at December 31, 2013. Current assets were $7.727 and current liabilities $3.895.
- Debt: Term debt was approximately $5.9, secured by ASO assets; the revolving credit facility had expired and had no balance. Reported remaining principal payments were $0.196 for the rest of fiscal 2014, $0.403 in fiscal 2015, and $5.252 in fiscal 2016.
- Other balance-sheet items: Total assets were $43.847 and stockholders’ equity was $34.319 at December 31, 2013.
Outlook, risks and notable items
- Management said existing cash and expected operating proceeds, together with backlog, should fund operations for at least the next fiscal year. The filing provides no quantified revenue or earnings guidance.
- A customer deferred a booked payload-processing mission, first by several weeks and then by additional weeks. The delay raised the possibility of failing debt-service-coverage and minimum-tangible-net-worth covenants in the quarter ending March 31, 2014. Astrotech was compliant at December 31, 2013, but said it would monitor compliance and seek another amendment if needed.
- A debt amendment provided temporary covenant adjustments, lowered the minimum tangible-net-worth threshold to $32.0 for fiscal Q3 and Q4, and required minimum bank cash of $2.0 through June 30, 2014 and $0.75 thereafter. A covenant breach could allow the bank to accelerate debt, stop extending credit, or foreclose on collateral.
- Quarterly SG&A rose by $0.7, mainly due to immediate vesting of stock options after the stock reached $1.50, former CFO severance, and consulting costs. The six-month cash-flow reconciliation includes $0.603 of stock-based compensation.
- Risks include mission delays and launch-volume variability, government funding and customer concentration, product-market acceptance and development risks, liquidity and covenant compliance, and potential Nasdaq bid-price compliance. The company had regained Nasdaq’s $1.00 minimum-bid compliance in October 2013 but warned it might not maintain it.
- Disclosed legal matters include a former CFO’s contract suit seeking at least $639,808, a shareholder derivative suit, and a Florida foreclosure action in which no monetary relief was requested from Astrotech. The company said it was defending the first two suits.
- The $1.8 Texas Emerging Technology Fund award to 1st Detect is accounted for as equity, subject to a contingent note and stock-purchase right; no default event had occurred. The IRS was examining fiscal years 2008–2010. Management reported effective disclosure controls and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether the deferred mission occurred on the revised schedule and how it affected revenue, cash collections, and debt-covenant calculations.
- Whether Astrotech remained compliant with amended covenants after December 31, 2013, and whether any further bank amendment was required.
- ASO launch schedules, customer concentration, backlog conversion, and the company’s ability to sustain operating cash flow.
- Whether 1st Detect’s products gain commercial traction and whether Astrogenetix’s platform receives the anticipated independent validation.
- Developments in the disclosed lawsuits, IRS examination, and Texas funding arrangements.