Astrotech Corporation — Form 10-Q Summary
Reporting period: Quarter ended March 31, 2013 (the third quarter of Astrotech’s fiscal 2013), with nine-month results for the period ended March 31, 2013. This differs from the request metadata’s “2012 Q3.” Financial statements are unaudited; amounts below are in millions unless stated otherwise.
Business context
Astrotech’s Astrotech Space Operations (ASO) business provides satellite processing, launch support, and related equipment and services. ASO generated 99% of consolidated revenue for the nine months. Spacetech includes 1st Detect, which develops miniature mass spectrometers, and Astrogenetix, which pursues microgravity-based biotechnology opportunities.
Financial performance
| Metric | Three months ended March 31, 2013 | Three months ended March 31, 2012 | Nine months ended March 31, 2013 | Nine months ended March 31, 2012 |
|---|---|---|---|---|
| Revenue | $4.565 | $10.013 | $14.815 | $18.529 |
| Gross profit / margin | $2.015 / 44% | $3.243 / 32% | $4.234 / 29% | $5.725 / 31% |
| Operating expenses | $2.217 | $2.289 | $6.835 | $7.430 |
| Operating income (loss) | $(0.202) | $0.954 | $(2.601) | $(1.705) |
| Net income (loss) attributable to Astrotech | $(0.113) | $1.014 | $(2.340) | $(1.438) |
| Basic and diluted EPS | $(0.01) | $0.05 | $(0.12) | $(0.08) |
- Management attributed lower revenue to reduced U.S. Government ground support equipment (GSE) fabrication; the nine-month decline also reflected a reduced launch schedule.
- Quarterly gross margin improved as the revenue mix shifted toward satellite payload processing, which management says is generally near-term fixed-price. Nine-month gross margin declined.
- Nine-month SG&A decreased to $5.341 million from $5.451 million, primarily due to lower headcount and employee incentive compensation. R&D decreased to $1.494 million from $1.979 million, partly reflecting evaluation-unit deliveries recorded as an offset to R&D expense.
Cash, liquidity, and debt
- Cash and cash equivalents were $8.034 million at March 31, 2013, down $2.143 million from June 30, 2012. Working capital was approximately $2.8 million.
- For the nine months, operating cash flow was $(0.968) million, investing cash flow $(0.936) million, and financing cash flow $(0.239) million. Investing outflows included capital expenditures for 1st Detect facilities.
- Term debt was $6.135 million, including $0.383 million current and $5.752 million long-term. The $3.0 million revolving facility expired in October 2012 and had no balance outstanding. The term loan matures in October 2015.
- Astrotech was not in compliance with its 1.00-to-1.00 debt-service-coverage covenant at March 31, 2013, but the bank had granted a waiver.
- Management said existing cash was expected to cover operating, capital equipment, and other expected liquidity requirements for the next 12 months. The filing also identifies a risk that cash may be insufficient; needs depend on launch timing, receivable collections, product development, litigation, and other factors.
Outlook, risks, and unusual items
- Results remain exposed to spacecraft launch schedules, government funding, contract timing and performance, competition, and demand and market acceptance for Spacetech products. Management provided no specific revenue or earnings guidance.
- U.S. Government contracts accounted for approximately 64% of nine-month revenue, versus 65% in the prior-year period, creating customer and funding concentration risk.
- NASDAQ notified the company that its share price failed the $1.00 minimum bid-price requirement. It received an additional compliance period through November 11, 2013, and indicated it might effect a reverse stock split; regaining compliance was not assured.
- A former CFO’s lawsuit seeks at least $639,808 in damages; the company recorded an estimated probable-loss liability. A shareholder derivative suit alleges fiduciary-duty breaches involving, among other matters, subsidiary loans and share purchases. Astrotech intends to defend both cases.
- In April 2013, Astrotech received the remaining approximately $0.1 million balance related to resolution of issues with ARES and completion of government audits.
- 1st Detect’s $1.8 million Texas Emerging Technology Fund support includes a note and a stock purchase right. No qualifying financing event had occurred by March 31, 2013; the filing treated the funds as an equity contribution and stated no default had occurred.
Most important facts for investors to verify
- Whether launch activity and U.S. Government GSE work recover, and the resulting effect on ASO revenue, margins, and cash generation.
- Cash burn, working-capital movements, capital spending, and whether management’s 12-month liquidity expectation remains supportable.
- Status of the debt covenant waiver, term-loan payments, and any further lender requirements.
- Progress toward NASDAQ bid-price compliance by November 11, 2013, including whether a reverse stock split is pursued.
- Developments and potential financial exposure from the former executive and shareholder derivative lawsuits.
- Commercial adoption and funding needs for 1st Detect and Astrogenetix, and the terms or status of the Texas funding-related rights.