Astrotech Corp. 10-Q Summary: Quarter Ended March 31, 2010
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for Astrotech Corporation (Nasdaq: ASTC) for the period ended March 31, 2010. Astrotech is a commercial aerospace company providing spacecraft payload processing, government services, and space hardware design. The company operates through two primary segments: Astrotech Space Operations (ASO), which handles satellite launch processing, and Spacetech, an incubator for commercializing space technologies (including 1st Detect and Astrogenetix). The company is classified as a smaller reporting company.
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 2010 | Nine Months Ended Mar 31, 2010 | As of Mar 31, 2010 |
|---|---|---|---|
| Revenue | $6.6 million | $22.5 million | - |
| Gross Profit | $3.3 million | $13.5 million | - |
| Gross Margin | 49% | 60% | - |
| Net Income (Loss) Attributable to Astrotech | ($0.6 million) | $1.8 million | - |
| EPS (Basic) | ($0.04) | $0.11 | - |
| Cash and Cash Equivalents | - | - | $6.3 million |
| Working Capital | - | - | $3.5 million |
| Total Debt (Current + Long Term) | - | - | $8.5 million |
| Operating Cash Flow (9 months) | - | $3.0 million | - |
Note: All figures in millions unless otherwise noted. Debt includes a $3.4 million term note and $5.1 million in senior convertible notes.
Material Changes vs. Prior Period
- Revenue Decline (QoQ): Revenue for the three months ended March 31, 2010, dropped 44% to $6.6 million from $11.8 million in the prior year quarter. This was driven by a decreased launch schedule at ASO and the completion of a construction project at Vandenberg Air Force Base that contributed revenue in the prior year.
- Profitability Shift: The company reported a net loss of $0.6 million for the quarter, compared to a net income of $3.6 million in the prior year quarter. Operating expenses increased to $4.3 million from $3.2 million, primarily due to higher incentive compensation and R&D spending.
- Year-to-Date Growth: For the nine months ended March 31, 2010, revenue increased 4% to $22.5 million, and net income attributable to Astrotech was $1.8 million compared to $2.1 million in the prior year period.
- Segment Performance: ASO generated all consolidated revenue ($6.6 million for the quarter). The Spacetech unit reported no revenue and a pre-tax loss of $1.9 million for the quarter.
Guidance, Outlook, and Risks
Management Commentary: Management attributes the quarterly revenue decline to the cyclical nature of satellite launches and the one-time nature of the Vandenberg construction revenue in the prior year. Gross margins for the nine-month period improved to 60% due to increased payload processing volume. The company is actively investing in R&D for the 1st Detect chemical detector and Astrogenetix microgravity platform.
Strategic Alternatives: In September 2009, the Board engaged Lazard Ltd. to explore strategic financial and business alternatives, including potential acquisitions or asset sales. No assurance is given that a transaction will occur.
Liquidity and Debt: The company holds $6.3 million in cash. Significant debt maturities are approaching: $5.1 million in senior convertible notes due October 2010 and a $3.4 million term loan due February 2011. Management believes working capital is sufficient to repay the convertible notes, but the term loan requires refinancing.
Risks and Contingencies:
- Spacetech Viability: The Spacetech unit is in an early development stage with no commercial sales and significant operating losses. Future profitability is uncertain.
- Legal Proceedings: The company has an unresolved dispute with ARES Corporation regarding the termination of a subcontract, involving a receivable of approximately $1.5 million.
- Government Dependence: Approximately 53% of revenue for the nine months ended March 31, 2010, was derived from U.S. Government contracts.
Investor Verification Checklist
- Debt Refinancing: Verify the status of refinancing the $3.4 million term loan maturing in February 2011 and the repayment plan for the $5.1 million convertible notes due October 2010.
- Spacetech Burn Rate: Assess the funding requirements and timeline for profitability for the Spacetech unit, which currently generates no revenue.
- Launch Schedule: Confirm the projected satellite launch schedule for the remainder of fiscal 2010 to validate revenue recovery assumptions.
- ARES Dispute: Monitor the resolution of the $1.5 million receivable dispute with ARES Corporation.
- Strategic Alternatives: Track updates on the strategic review process initiated with Lazard Ltd.