Astrotech Corporation — Form 10-Q Summary
Reporting period: Three months ended September 30, 2012, the company’s first fiscal quarter of fiscal 2013. Financial statements are unaudited and amounts below are in U.S. dollars unless stated otherwise.
Business context
Astrotech provides spacecraft processing and launch-support services through Astrotech Space Operations (ASO), and develops space-related technologies through Spacetech, including 1st Detect and Astrogenetix. ASO generated 98% of consolidated revenue in the quarter. Revenue and cash flow depend substantially on launch activity, government contracts, and government equipment fabrication.
Financial performance and liquidity
| Metric | Quarter ended Sep. 30, 2012 | Prior-year quarter |
|---|---|---|
| Revenue | $6.128 million | $4.840 million |
| Gross profit / gross margin | $1.221 million / 20% | $1.914 million / 40% |
| Operating expenses | $2.741 million | $2.687 million |
| Operating loss | $1.520 million | $0.773 million |
| Consolidated net loss | $1.558 million | $0.852 million |
| Net loss attributable to Astrotech | $1.417 million; $0.07 per share | $0.666 million; $0.04 per share |
| Cash used in operations | $4.830 million | Cash provided: $0.708 million |
Revenue rose 27%, primarily from U.S. Government ground support equipment (GSE) fabrication. Gross profit and margin fell as the launch schedule decreased and more work carried lower margins. SG&A increased mainly due to outside legal fees; research and development expense declined, partly reflecting a shift in investment toward 1st Detect.
Cash and cash equivalents were $5.078 million at quarter-end, down $5.099 million from June 30, 2012. Working capital was approximately $3.6 million. Operating cash use reflected higher receivables and the timing of accounts-payable payments related to the GSE project. Capital expenditures were $0.212 million.
Total liabilities were $13.127 million. Term debt was $6.322 million, including $0.375 million current; the company reported compliance with loan covenants. Its $3 million revolving credit facility expired in October 2012 with no balance outstanding. The company had no income tax expense for the quarter and reported a full valuation allowance against net deferred tax assets.
Material changes, outlook, risks, and unusual items
- U.S. Government contracts represented approximately 60% of quarterly revenue, versus 68% in the prior-year quarter. Government customers accounted for 31% of quarter-end receivables.
- Management gave no numerical revenue or earnings guidance. It noted that operating results for the quarter are not necessarily indicative of full-year results. Performance remains exposed to launch timing, government funding, contract delays, customer demand, and access to space.
- Cash conversion weakened sharply: receivables increased by $2.795 million in the cash-flow reconciliation, while accounts payable decreased by $1.913 million.
- A former CFO demanded approximately $1.0 million following his termination. The company said it intended to contest the claims and recorded a liability for its estimate of the probable loss; the filing does not provide a clear amount for that recorded liability.
- After quarter-end, the former CFO notified the company of his intent to nominate four director candidates. The CEO subsequently purchased 1,783,746 shares at $0.90 per share after the board approved related waivers.
- NASDAQ notified the company on November 13, 2012 that its share price had failed the $1.00 minimum-bid requirement. The company had until May 13, 2013 to regain compliance, subject to NASDAQ rules; delisting could affect share liquidity and access to capital.
- The company was under IRS examination for fiscal years 2008–2010 and reported $64,000 of unrecognized tax benefits. Management identified potential risks including capital availability, government-program funding, competition, product adoption, and technology-development challenges.
Important facts for investors to verify
- Whether GSE-related receivables were collected and operating cash flow improved after quarter-end.
- Whether launch activity and contract mix supported a recovery in gross margin from 20%.
- The amount and eventual resolution of the former CFO’s claim and the related recorded liability.
- Whether the company regained NASDAQ minimum-bid compliance and how the revolving facility’s expiration affected liquidity.
- Progress in commercial sales and funding for 1st Detect and Astrogenetix, given ASO’s concentration in revenue and the company’s cash use.