Amplitech Group, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited consolidated results include AmpliTech’s microwave businesses and Spectrum Semiconductor Materials, acquired in December 2021. Accordingly, year-over-year comparisons include Spectrum in 2022 but not in reported 2021 results.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $5.44 million | $1.06 million | $15.12 million | $2.55 million |
| Gross profit / margin | $2.66 million / 48.95% | $0.31 million / 29.68% | $7.02 million / 46.45% | $0.71 million / 27.93% |
| Operating income (loss) | $0.59 million | ($0.54 million) | $0.24 million | ($2.09 million) |
| Net income (loss) | $0.58 million | ($0.59 million) | $0.21 million | ($1.95 million) |
| Net income (loss) per share, diluted | $0.06 | ($0.06) | $0.02 | ($0.25) |
| Operating cash flow | Not presented separately for the quarter | ($3.51 million) | ($2.51 million) | |
| Cash and cash equivalents, September 30 | $13.05 million | Compared with $18.02 million at December 31, 2021 |
- At September 30, 2022, current assets were $22.62 million and current liabilities $2.45 million; reported working capital was $20.17 million. Total assets were $37.51 million, total liabilities $7.92 million, and stockholders’ equity $29.59 million.
- Notes payable totaled approximately $278,000. Lease liabilities comprised $4.49 million of operating leases and approximately $95,000 of financing leases. A $1.37 million Spectrum revenue earnout liability was also recorded.
- Inventory was $6.25 million, net of a $1.11 million obsolescence reserve. Accounts receivable was $2.67 million.
Material changes and business drivers
- Q3 revenue rose 414% year over year, primarily reflecting $3.43 million of Spectrum sales; AmpliTech’s amplifier and microwave components sales also increased. Nine-month revenue rose 492%, including $10.61 million from Spectrum.
- Gross margin improved year over year. Management attributed the change to the acquisition and higher LNA and RF subsystem sales. Q3 gross margins were 51.97% for AmpliTech and 47.19% for Spectrum; nine-month margins were 45.73% and 46.75%, respectively.
- Q3 operating expenses were $2.07 million, including $1.85 million of selling, general and administrative expense and $223,000 of R&D. Nine-month operating expenses were $6.79 million. R&D increased substantially as the company developed 5G/6G subsystems and MMIC designs.
- Nine-month operating cash use increased to $3.51 million. Inventory increased by $2.06 million and accounts receivable by $1.01 million during the period; investing cash use was $1.29 million, principally equipment purchases, securities purchases, and the SN2N investment.
- Cash declined by $4.96 million from year-end 2021. Financing activities used $167,000 in the first nine months of 2022; the comparable 2021 period included $31.90 million of net proceeds from equity offerings and warrant exercises.
Outlook, risks, and unusual items
- Management stated that cash on hand and cash provided from operations should fund operations for the next 12 months. No specific revenue or earnings guidance was provided.
- The company formed its True G Speed Services division in August 2022 to plan and configure 5G radio systems for Open RAN compliance. Management also described ongoing development of 5G/6G, satellite, and MMIC products.
- The revolving credit line had no outstanding balance at September 30, 2022. Its maturity was subsequently extended from November 2022 to January 30, 2023. The facility is secured by company assets and guaranteed by the CEO.
- The Spectrum acquisition includes a revenue adjustment based on two-year net revenues, with a recorded fair-value liability of $1.37 million. The revenue calculation is due after December 31, 2022; acquisition-related escrow release is scheduled for March 31, 2023.
- Management identified potential exposure to COVID-19-related disruption and uncertainty. The filing also describes risks to estimates involving inventory recoverability, receivables, and contingencies. No pending legal proceedings were reported.
- Management concluded disclosure controls and procedures were not effective as of September 30, 2022. No material change in internal control over financial reporting during the quarter was reported.
Important facts for investors to verify
- Reconcile the marketable-securities disclosure: the balance sheet reports $493,323, while the note’s table also includes a $1,507,839 money market fund and states that this amount was cash in the securities account.
- Check diluted weighted-average share figures: the statements report 9,716,868 for the nine months, while the EPS note reports 9,716,686.
- Assess whether operating cash use and working-capital investment are sustainable as the company scales, and compare actual results with management’s 12-month liquidity expectation.
- Monitor Spectrum’s contribution, gross margins, and the potential acquisition revenue adjustment, alongside the company’s elevated R&D and selling, general and administrative costs.
- Review remediation of the disclosed ineffective disclosure controls and the status of the credit-line extension and acquisition escrow arrangements.