LGL Group, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Financial statement amounts below are in thousands of dollars unless noted. LGL is now a holding company whose continuing manufacturing business is PTF, which designs and manufactures frequency and time reference standards. MtronPTI was spun off on October 7, 2022; its prior-period results are reported as discontinued operations.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Continuing revenue | $441 | $417 |
| Gross margin | 56.5% | 42.0% |
| Operating loss | $(309) | $(847) |
| Other income, net | $531 | $42 |
| Continuing operations net income (loss) | $157 | $(639) |
| Net income, including discontinued operations | $157 | $169 |
| Basic and diluted EPS | $0.03 | $0.03 |
| Cash used in operating activities | $(50) | $(554) |
Revenue rose 5.8%, which management attributed to higher shipments to a key customer. Gross margin improved with product mix and higher volume. Engineering, selling and administrative expense fell to $558 from $1,022, primarily because former LGL executives’ compensation shifted to MtronPTI after the spin-off. The operating loss narrowed, while higher interest income and investment income drove continuing operations back to profit. The 2022 total net income included $808 of discontinued-operations income, so total net income is not a like-for-like comparison.
Liquidity, assets and capital resources
- At March 31, cash and cash equivalents were $21.500 million, marketable securities were $16.887 million, and total assets were $40.067 million.
- Total liabilities were $1.420 million; the filing reports no debt balance. Stockholders’ equity was $38.647 million.
- Operating cash use was $50; investing activities provided $43, including proceeds from sale of 100,000 IronNet shares. Cash declined by $7 during the quarter.
- Management said cash, cash equivalents, marketable securities and operating cash generation should be sufficient for working capital and capital expenditures for the next 12 months. The company does not expect to pay cash dividends for the foreseeable future.
- The balance sheet reports current assets of $39.684 million and current liabilities of $777, yielding working capital of $38.907 million. MD&A instead cites current assets of $39.576 million and working capital of $38.799 million; the filing does not explain this difference.
Material developments, outlook and risks
- Backlog was $399 at March 31, up 10.8% from December 31, 2022 and 138.9% from March 31, 2022. Management says orders are generally expected to ship within 90 days, though backlog can change with cancellations, deferrals and scope revisions.
- LGL reported approximately $37.8 million invested through cash equivalents and marketable securities. Q1 other income included $198 of net interest income and $345 of investment income. Marketable securities included 98,750 IronNet shares valued at $35, against a reported basis of $2.128 million.
- Management noted inflation could increase manufacturing and administrative costs faster than revenue. Higher interest rates may benefit returns on the company’s substantial Treasury fund holdings, but investment performance and fair values can fluctuate.
- The company identifies no specific material trends beyond broader economic conditions and risks described in its 2022 Form 10-K. No quantitative earnings or revenue guidance is provided. Management reported no impairment-triggering events in the quarter and no material pending litigation beyond routine matters.
- Related-party investments are managed by an entity whose executive officer is LGL’s non-executive chairman and a greater-than-10% stockholder. The company reported approximately $37.772 million held with that manager at quarter-end and estimated annual management fees at approximately 0.40% of assets under management.
- In April 2023, LGL established Lynch Systems Acquisition Holding Company, LLC, intended to advance its investment activities.
Important facts for investors to verify
- Reconcile the March 31 current-asset and working-capital figures reported in the balance sheet versus MD&A.
- Review the valuation, concentration and realized/unrealized performance of the investment portfolio, particularly the IronNet holding and mutual funds.
- Assess the related-party fund-management relationship, assets under management and associated fees.
- Evaluate dependence on the key customer cited as driving revenue growth and the modest absolute backlog of $399,000.
- Compare post-spin-off results with continuing-operations or pro forma figures, rather than total 2022 results that include MtronPTI.