Business context and reporting period
Astrotech Corporation’s filing is an unaudited Form 10-Q for the quarter ended March 31, 2014 (fiscal Q3 2014), with nine-month results through that date. This differs from the request metadata’s “2012 Q3.” The company’s Astrotech Space Operations (ASO) unit provides spacecraft processing and launch support; Spacetech includes 1st Detect and Astrogenetix. ASO generated 97% of quarterly and 99% of nine-month revenue.
Financial results and liquidity
Amounts below are in thousands of dollars except per-share data.
| Metric | Three months ended March 31, 2014 | 2013 comparable | Nine months ended March 31, 2014 | 2013 comparable |
|---|---|---|---|---|
| Revenue | $1,556 | $4,565 | $10,783 | $14,815 |
| Gross profit (loss) | $(752) | $2,015 | $2,707 | $4,234 |
| Gross margin | (48)% | 44% | 25% | 29% |
| Operating expenses | $2,238 | $2,217 | $7,341 | $6,835 |
| Consolidated net loss | $(3,053) | $(238) | $(4,821) | $(2,722) |
| Net loss attributable to Astrotech | $(2,837) | $(113) | $(4,140) | $(2,340) |
| Astrotech loss per share, basic and diluted | $(0.15) | $(0.01) | $(0.21) | $(0.12) |
For the nine months, operating cash flow was $34, versus cash used of $968 in 2013; investing cash use was $305 and financing cash use was $273. Cash declined $544 to $4,552 from June 30, 2013. At March 31, cash was $4.6 million and working capital was approximately negative $3.9 million. Total assets were $42.9 million and stockholders’ equity was $31.3 million.
Debt was approximately $5.8 million. Because of covenant violations, the company reclassified the term loan as current; $5.753 million is reported in current liabilities. The loan is secured by ASO assets. Reported scheduled repayments, before considering covenant consequences, include $98 in the remaining three months of FY2014, $403 in FY2015, $418 in FY2016 and $4,834 thereafter. Interest expense and other expense, net, was $61 for the quarter and $178 for the nine months.
Material changes versus comparable periods
Quarterly revenue fell 65.9%, principally because two fewer missions occurred than in the prior-year quarter. Quarterly gross profit swung to a loss, and Astrotech’s attributable net loss increased to $2.837 million. Nine-month revenue declined 27.2%, reflecting lower mission and non-mission project revenue; gross profit fell 36.1%, and operating expenses rose 7.4%. Management cited stock-option vesting, consulting costs and severance among the nine-month expense increases, partly offset by lower legal, incentive-compensation and marketing costs.
Nine-month U.S. Government contracts accounted for approximately 53% of revenue, down from 64% in the prior-year period. Accounts receivable was $2.146 million, of which 29% was attributable to the U.S. Government.
Outlook, risks and unusual items
Management said existing cash and expected operating proceeds, together with backlog, should fund ongoing operations for at least the next fiscal year. This outlook is subject to launch timing, receivable collections, product development and other capital needs. No numerical revenue or earnings guidance is provided.
The deferral of a customer mission contributed to noncompliance at March 31, 2014 with the debt-service coverage and minimum tangible-net-worth covenants. The company said it was probable it would also be noncompliant at June 30, 2014. A May 7, 2014 bank waiver covered the existing defaults for the current quarter; the filing does not establish a waiver for future periods. The bank may accelerate borrowings, stop extending credit or foreclose on collateral if defaults are not addressed. The company stated it might need new financing if the bank accelerates repayment.
The company settled a former CFO’s lawsuit on April 28, 2014 and accrued a liability at March 31; the settlement amount is not stated in the filing text. A shareholder derivative suit was dismissed in February 2014. A Florida foreclosure action names Astrotech because it holds an inferior lien; no monetary relief was requested against the company. The $1.8 million Texas Emerging Technology Fund award to 1st Detect carries conditional stock-purchase and note provisions; management considered default remote, and no default had occurred.
Other risks include dependence on spacecraft launch schedules and government funding, customer and market acceptance of Spacetech products, competition, access to space, financing needs and maintaining Nasdaq listing requirements. The company reported it had regained compliance with Nasdaq’s $1 minimum bid rule in October 2013, but could not assure continued compliance. A full valuation allowance was recorded against net deferred tax assets. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Important facts for investors to verify
- Confirm the bank waiver’s scope and duration, covenant status at June 30, 2014, and whether further amendment or refinancing is required.
- Assess launch schedules and the timing and financial impact of the deferred customer mission; ASO revenue and cash flow depend substantially on launches.
- Monitor cash, negative working capital, receivable collections and the ability to meet debt obligations if the bank accelerates repayment.
- Review the amount and payment terms of the former CFO settlement, which are not specified in the filing text.
- Track commercial traction and funding needs for 1st Detect and Astrogenetix, alongside continuing government-contract and Nasdaq listing risks.