Astrotech Corporation — Form 10-Q Summary
Period and filing-date note: The supplied filing is for the quarter ended March 31, 2015 (fiscal 2015 third quarter), not 2013 Q3 as stated in the request metadata. It was signed May 11, 2015. Financial statements are unaudited.
Business context
After selling substantially all assets of its Astrotech Space Operations (ASO) business to Lockheed Martin on August 22, 2014, Astrotech operated as a single reportable segment, Spacetech. Its activities included 1st Detect mass spectrometry products, Astrogenetix vaccine research, and Astral Images’ film defect-correction technology. In the third quarter, Astral acquired selected Image Trends software assets for $1.6 million; the acquisition excluded the seller’s consulting business, customer contracts, and liabilities.
Financial performance
| Metric | Three months ended March 31, 2015 | Three months ended March 31, 2014 | Nine months ended March 31, 2015 | Nine months ended March 31, 2014 |
|---|---|---|---|---|
| Revenue | $12,000 | $48,000 | $336,000 | $130,000 |
| Gross profit | $12,000 | $48,000 | $55,000 | $130,000 |
| Operating expenses | $2.340 million | $2.077 million | $7.988 million | $6.807 million |
| Operating loss | $(2.328) million | $(2.029) million | $(7.933) million | $(6.677) million |
| Loss from continuing operations | $(1.358) million | $(2.389) million | $(4.868) million | $(5.297) million |
| Net income (loss) attributable to Astrotech | $(2.100) million | $(2.837) million | $18.761 million | $(4.140) million |
| Basic and diluted earnings (loss) per share | $(0.11) | $(0.14) | $0.93 | $(0.22) |
The nine-month 2015 reported profit primarily reflects the ASO sale, not continuing operations: the company recorded a $25.6 million pretax sale gain ($23.7 million after tax). Continuing operations remained loss-making. Q3 revenue fell 75% year over year; management attributed the prior-year quarter’s revenue to a legacy handrail project and the current quarter’s revenue to an incentive-grant project. Nine-month revenue rose mainly from the first phase of a subcontract on the Next Generation Chemical Detector program. Nine-month gross margin was 16%, versus no cost of revenue recorded in the comparable 2014 period; Q3 gross margin was effectively 100% on very small revenue.
Cash flow, liquidity, and debt
- At March 31, 2015, cash and cash equivalents were $6.7 million, short-term investments $23.9 million, and long-term investments $9.3 million. Cash plus short-term investments totaled $30.6 million.
- Working capital was approximately $34.7 million, excluding the $6.1 million indemnity holdback receivable. Total assets were $49.5 million and total liabilities $3.0 million.
- The company reported no outstanding debt. It had repaid the former ASO term loan balance of $5.7 million and settled the State of Texas Emerging Technology Fund arrangement for $2.3 million during fiscal 2015.
- For the nine months, cash used in operating activities was $7.2 million overall, including $4.8 million from continuing operations and $2.3 million from discontinued operations. Investing activities provided $18.2 million net, including $53.2 million of sale proceeds, while financing activities used $8.2 million. Cash increased $2.8 million to $6.7 million.
- The $6.1 million indemnity holdback was held in escrow until February 2016, subject to buyer claims. Management said it expected to realize the full amount and believed available liquidity would fund expected needs for the coming year.
Changes, outlook, and risks
- Compared with the prior-year nine-month period, operating expenses increased 17%: SG&A rose 13%, mainly due to transaction-related legal costs and additional headcount, and R&D rose 30%, mainly due to additional headcount.
- The company’s plans included commercializing mass spectrometry products, developing film restoration technology for UHD 4K applications, and pursuing a Salmonella vaccine IND with NASA support. Further Astrogenetix investment had been scaled back as work focused on that IND; a NASA agreement contemplated at least 28 additional space flights following successful IND filing.
- Management identified risks including product demand and market acceptance, competition, government funding and procurement uncertainty, access to space, development milestones, contract execution, and the need to raise capital if liquidity requirements exceed available resources.
- Income tax accounting included a full valuation allowance against deferred tax assets except amounts expected to offset the ASO sale gain and related income. The filing estimated the net federal and state tax impact of the disposition at $362,000, including $337,000 of alternative minimum tax and $25,000 of state tax.
- The filing disclosed no material pending legal proceeding beyond a previously closed Florida foreclosure matter, no off-balance-sheet arrangements, and effective disclosure controls. On April 7, 2015, after quarter-end, the company issued 1.8 million shares to directors and certain employees, of which 286,000 were restricted and scheduled to vest over three years.
Key facts for investors to verify
- Whether the $6.1 million escrow holdback was released in February 2016 and whether any buyer claims reduced it.
- Cash burn and operating progress in continuing operations, given nine-month continuing-operations cash use of $4.8 million and a $4.9 million continuing-operations loss.
- Commercial traction and revenue contribution from 1st Detect, the NGCD subcontract, Astral Images, and the company’s other development programs.
- The impact of the April 2015 issuance of 1.8 million shares on dilution and share-based compensation.
- Tax outcomes related to the ASO sale, including the use of loss carryforwards and the reported alternative minimum tax exposure.