Astrotech Corporation — Form 10-K Summary
Period clarification: The supplied filing is for the fiscal year ended June 30, 2015, not 2013 Q4. Comparisons below are to fiscal 2014 unless noted. Amounts are in U.S. dollars.
Business context and reporting period
Following its August 2014 sale of substantially all Astrotech Space Operations (ASO) assets to Lockheed Martin, Astrotech reported one continuing segment, Spacetech. Its activities included 1st Detect mass spectrometry, Astral Images film-restoration technology, and Astrogenetix vaccine research. The former ASO results are presented as discontinued operations.
Financial results and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Continuing-operations revenue | $0.513 million | $0.130 million |
| Gross profit / gross margin | $0.089 million / 17% | $0.130 million / 100% |
| Operating expenses | $16.200 million | $10.614 million |
| Continuing-operations loss, attributable to Astrotech | $9.823 million | $5.417 million |
| Net income (loss), attributable to Astrotech | $10.778 million | $(4.960) million |
| Net cash used in continuing operating activities | $5.513 million | $4.431 million |
- FY2015 continuing revenue was primarily from the first phase of a Battelle subcontract for the Next Generation Chemical Detector program. The company said prototype MMS-1000 sales were recorded as offsets to R&D expense until full production.
- FY2015 net income was driven by the ASO sale, including a $25.436 million pretax gain ($20.6 million after tax); it does not represent continuing-business profitability. Continuing-operations loss attributable to Astrotech widened from FY2014.
- SG&A rose $4.857 million, primarily reflecting a $4.4 million increase in equity compensation expense following awards in the fourth quarter. R&D expense rose $0.729 million to $3.234 million.
- At June 30, 2015, cash and cash equivalents were $2.330 million; short-term investments were $23.161 million, long-term investments $8.516 million, and working capital approximately $30.2 million. A separate $6.1 million ASO indemnity holdback receivable was in escrow, subject to transaction terms. The filing also describes accessible cash including the investment portfolio as $31.7 million.
- Astrotech reported no outstanding debt at year-end, after repaying the $5.7 million ASO term loan and settling the Texas Emerging Technology Fund obligation for $2.3 million. Total assets were $44.218 million and total liabilities $2.490 million.
- Cash used in investing activities from continuing operations was $33.945 million, mainly reflecting purchases of investments funded with ASO sale proceeds. The overall net decrease in cash and cash equivalents was $1.501 million.
Material changes versus FY2014
- ASO was sold for a net purchase price of $59.3 million after a $1.7 million working-capital adjustment. Astrotech had received $53.2 million in cash by year-end and recorded the $6.1 million indemnity holdback receivable.
- Astrotech acquired selected Image Trends film-defect correction assets for $1.8 million through Astral Images. The acquired processes critical to generating sales were not included; Astral hired several engineers involved in developing the technology.
- Continuing revenue increased $0.383 million, but remained limited; continuing operating expenses increased $5.586 million. Reported attributable net income shifted from a loss to a profit primarily because of the discontinued-operation sale gain.
- Current assets increased substantially due to sale proceeds and investments; current liabilities fell, chiefly following debt repayment. The company also repurchased shares and issued equity awards.
Outlook, risks, contingencies and unusual items
- Management said existing cash and cash equivalents were sufficient for operating expenses, capital equipment and expected liquidity requirements for the coming year, with resources intended to support Spacetech. No quantified revenue or earnings guidance was provided.
- Management identified risks including the ability to raise capital, commercial acceptance and product demand, execution and technology milestones, government funding and procurement uncertainty, contract delays, competition, and reliable access to space. The filing also notes dependence on one customer for all continuing-operations revenue.
- 1st Detect products and partnerships were still developing: the OEM-1000 had been integrated into a Rigaku instrument and selected for Battelle’s NGCD program, but these developments do not establish future sales volume. Astrogenetix was pursuing an FDA Investigational New Drug application for a Salmonella vaccine; NASA was funding much of the research.
- The $6.1 million sale holdback was expected by management to be fully realized in February 2016, but remained subject to the asset-purchase agreement. The company stated it knew of no pending claims against the holdback.
- Astrotech reported no material pending legal proceeding expected to have a material adverse effect. It had a full valuation allowance against net deferred tax assets and reported approximately $31.1 million in federal tax-loss carryforwards, subject to utilization limits.
- The independent auditor issued an unqualified opinion on the financial statements. The auditor did not attest to internal control effectiveness; management concluded controls were effective as of June 30, 2015.
Important facts for investors to verify
- Confirm the reporting period: this is FY2015, rather than 2013 Q4.
- Track continuing-business revenue, customer concentration, and conversion of Battelle/Rigaku relationships into recurring commercial sales.
- Assess ongoing cash burn against the company’s investment portfolio, planned development spending, and management’s one-year liquidity statement.
- Verify receipt and any deductions from the $6.1 million ASO indemnity holdback, and review any post-sale claims or obligations.
- Evaluate Astral’s ability to commercialize acquired software despite not acquiring the processes previously used to produce sales, and monitor the Salmonella IND milestone.
- Separate operating performance from the ASO disposal gain when assessing earnings; also review equity compensation, share repurchases, and potential dilution from outstanding awards.