Astrotech Corporation — Form 10-Q Summary
Reporting period: The filing covers the three months ended September 30, 2013, Astrotech’s fiscal 2014 first quarter—not 2012 Q1 as indicated in the request metadata. The filing is unaudited; comparative results are for the three months ended September 30, 2012. Unless noted otherwise, amounts below are in millions of dollars.
Business context
Astrotech operates Astrotech Space Operations (ASO), which provides satellite and payload processing, launch support, and related equipment and services, and Spacetech, which includes mass-spectrometer developer 1st Detect and biotechnology business Astrogenetix. ASO generated all consolidated revenue this quarter. Results depend substantially on launch schedules, government and commercial contracts, and customer demand; Spacetech generated no revenue in the quarter.
Financial performance
| Metric | Q1 FY2014 | Q1 FY2013 |
|---|---|---|
| Revenue | $6.689 | $6.128 |
| Gross profit | $3.603 | $1.221 |
| Gross margin | 54% | 20% |
| Operating income (loss) | $1.060 | ($1.520) |
| Consolidated net income (loss) | $1.008 | ($1.558) |
| Net income (loss) attributable to Astrotech | $1.253 | ($1.417) |
| Basic and diluted EPS attributable to Astrotech | $0.06 | ($0.07) |
| Operating cash flow | ($0.535) | ($4.830) |
| Capital expenditures | $0.048 | $0.212 |
Revenue rose about 9%, primarily on increased mission-related services from a higher launch schedule, partly offset by lower U.S. government ground-support-equipment fabrication revenue. Gross profit and margin improved as revenue shifted toward higher-margin launch services. Selling, general and administrative expense declined to $1.738 million from $2.099 million, while research and development expense increased to $0.805 million from $0.642 million. Interest and other expense was $0.052 million; income tax expense was zero.
Operating cash use narrowed year over year but remained negative despite reported earnings. The filing attributes the improvement mainly to higher earnings and less accounts-receivable growth. Cash declined $0.678 million during the quarter to $4.418 million.
Balance sheet, debt and liquidity
- At September 30, 2013, cash was $4.418 million, working capital approximately $6.5 million, total assets $47.936 million, total liabilities $11.432 million, and stockholders’ equity $36.504 million.
- Accounts receivable was $6.407 million, up from $5.317 million at June 30; accounts payable fell to $0.328 million from $2.488 million. Deferred revenue totaled $2.400 million, including current and noncurrent balances.
- Term-note debt was approximately $5.947 million, versus $6.042 million at June 30. The loan is secured by ASO assets, bears interest at prime plus 0.25% subject to a 4% floor, and matures in October 2015. The revolving facility expired in October 2012 with no balance outstanding.
- Scheduled term-note repayments were $0.292 million in fiscal 2014, $0.403 million in fiscal 2015, and $5.252 million in fiscal 2016. The filing reports covenant compliance at quarter-end, but notes a prior fiscal 2013 debt-service-coverage noncompliance for which the bank granted a waiver.
Outlook, material developments and risks
- Management said existing cash and expected operating proceeds, together with backlog, should fund ongoing operations for at least the next fiscal year. This is management’s assessment, not formal earnings guidance; no revenue or profit forecast is provided.
- Projections indicated possible noncompliance with debt-service-coverage and minimum tangible-net-worth covenants by fiscal Q3 2014. A post-quarter October 11, 2013 amendment adjusted covenant calculations and the tangible-net-worth threshold and imposed minimum bank cash balances of $2.0 million through June 30, 2014 and $0.75 million thereafter. Management expected compliance through June 30, 2014 under the amendment.
- The filing says a customer deferred a previously booked payload-processing contract by several weeks and that this could result in a minimum tangible-net-worth covenant shortfall. The text dates this notification to “October, 2014,” which is inconsistent with the November 2013 filing chronology; the correct date is unclear from the filing text.
- U.S. government contracts represented approximately 43% of quarterly revenue, down from 60% a year earlier. Government customers accounted for 72% of quarter-end accounts receivable. Launch timing, government funding, contract delays, competition, product-market acceptance, liquidity and development execution are identified risks.
- Two lawsuits are disclosed: a former CFO’s contract-claims suit seeking at least $639,808, and a shareholder derivative action alleging fiduciary-duty breaches related to corporate transactions. Astrotech says it intends to defend both. The IRS was examining fiscal 2008–2010; the filing does not quantify a potential exposure.
- Astrotech regained Nasdaq minimum-bid-price compliance on October 30, 2013 after the share price met the $1.00 threshold for ten business days. It cautions that future compliance is not assured. The CFO resigned effective October 30; Eric Stober was appointed CFO on November 13.
- Astrotech has a full valuation allowance against deferred tax assets. The $1.8 million Texas Emerging Technology Fund award to 1st Detect is accounted for as equity contribution; a related stock purchase right remains outstanding, with its exercise deadline extended to June 30, 2014. No default under the funding arrangement had occurred.
Most important facts for investors to verify
- Whether the deferred payload-processing contract affects fiscal 2014 results, cash receipts, or compliance with the amended tangible-net-worth covenant; confirm the contract-notification date.
- Cash conversion and collections: operating cash flow remained negative, receivables increased, and the bank amendment requires minimum cash balances.
- Ongoing compliance with debt covenants, the status of any further bank amendments, and the substantial scheduled fiscal 2016 debt repayment.
- Launch schedules, customer concentration, and the mix and margins of mission services versus government fabrication work.
- Potential outcomes and financial exposure from the two lawsuits and the IRS examination.
- Whether Astrotech maintains Nasdaq listing compliance and whether Spacetech products progress toward commercial revenue.