Astrotech Corporation — Q2 FY2013 Form 10-Q
Reporting period: Quarter and six months ended December 31, 2012. Financial statements are unaudited. Astrotech provides satellite processing and launch support through Astrotech Space Operations (ASO), alongside technology-development businesses 1st Detect and Astrogenetix. ASO generated 99% of consolidated revenue in the six-month period.
Financial results
| Metric | Quarter ended Dec. 31, 2012 | Quarter ended Dec. 31, 2011 | Six months ended Dec. 31, 2012 | Six months ended Dec. 31, 2011 |
|---|---|---|---|---|
| Revenue | $4.122 million | $3.676 million | $10.251 million | $8.516 million |
| Gross profit / margin | $0.997 million / 24% | $0.568 million / 15% | $2.219 million / 22% | $2.482 million / 29% |
| Operating expenses | $1.877 million | $2.454 million | $4.618 million | $5.141 million |
| Operating loss | $(0.880) million | $(1.886) million | $(2.399) million | $(2.659) million |
| Net loss attributable to Astrotech | $(0.810) million | $(1.786) million | $(2.227) million | $(2.452) million |
| Loss per share, basic and diluted | $(0.04) | $(0.10) | $(0.12) | $(0.13) |
- Quarterly revenue rose 12%, mainly due to the timing of mission launches. Gross profit and margin improved as revenue increased against near-term fixed costs for satellite processing. SG&A declined with lower headcount and incentive compensation; R&D fell partly because two 1st Detect evaluation units were delivered and installation costs offset R&D expense.
- Six-month revenue increased 20%, primarily from U.S. Government ground support equipment fabrication and propellant services. Gross profit fell despite higher revenue, as a greater mix of lower-margin projects reduced margin to 22% from 29%. Net loss narrowed, reflecting lower operating expenses, including lower R&D.
- Cash flow: Six-month operating cash use was $4.506 million, versus $1.012 million used in the prior-year period. The filing attributes the deterioration mainly to increased receivables and payment timing for accounts payable related to the ground support equipment project. Investing cash use was $0.588 million, versus $0.253 million, chiefly for facility capital expenditures. Financing used $0.145 million, compared with $0.723 million provided in the prior year, when the company received a Texas Emerging Technology Fund installment.
- Liquidity: Cash and equivalents were $4.938 million at December 31, 2012, down $5.239 million from June 30, 2012; working capital was approximately $2.6 million. Management said existing cash should fund operating expenses, capital equipment and other expected liquidity needs for the next 12 months, while noting dependence on receivable collections, launch schedules, product-development management and other potential expenditures.
- Debt: Term-loan balance was $6.229 million, including $0.380 million current and $5.849 million long-term, compared with $6.414 million at June 30. The secured term loan matures in October 2015, carries interest at prime plus 0.25% with a 4% floor, and requires monthly principal and interest payments. The $3 million revolver expired in October 2012 with no balance outstanding. The company reported compliance with all loan covenants at December 31.
Outlook, risks and unusual items
- Results and cash generation are sensitive to spacecraft launch timing, government funding, contract performance, competition, and the ability to commercialize products and meet development milestones. U.S. Government contracts accounted for approximately 58% of six-month revenue, versus 63% in the prior-year period.
- Management’s 12-month liquidity assessment is a statement of expectation, not a guarantee; it identifies uncertain launch schedules, collections, development needs, litigation, and potential business-evaluation expenditures as factors that could change capital requirements. The filing provides no revenue or earnings guidance.
- A former CFO filed a lawsuit on January 10, 2013, alleging contract breaches related to his August 2012 termination and seeking at least $639,808. The company intends to defend the matter and recorded an estimated probable-loss liability at December 31; the filing does not state the recorded amount.
- NASDAQ notified the company on November 13, 2012 that its share price had been below the $1 minimum bid for 30 consecutive trading days. Regaining compliance required a closing bid of at least $1 for ten consecutive business days; the company gave no assurance it would do so. Potential delisting could affect trading liquidity, share price and access to capital.
- The Texas Emerging Technology Fund had disbursed $1.8 million to 1st Detect. Its related note accrues interest at 8%, but ordinarily requires no payment unless specified events occur; the State also holds a share-purchase right if a qualifying financing event occurs. The deadline for such an event had been extended to March 31, 2013. The company accounted for the funding as an equity contribution, citing remote likelihood of repayment or default.
- The company had a full valuation allowance against net deferred tax assets and disclosed $64,000 of unrecognized tax benefits ($42,000 net of federal benefit). The IRS was examining tax years 2008–2010.
Key facts for investors to verify
- Whether ASO launch activity and project mix sustain revenue while restoring gross margin after the six-month decline.
- Whether receivables are collected and operating cash outflows moderate, given the $5.239 million six-month reduction in cash.
- Whether management’s stated liquidity runway remains supportable under actual operating needs and launch schedules.
- NASDAQ bid-price compliance status and any resulting effect on trading or financing access.
- The outcome and financial impact of the former CFO’s lawsuit, including the amount of the accrued liability.
- Progress on 1st Detect commercialization and the Texas funding share-purchase deadline and terms.