The LGL (LGL) - 2022 Q3 - Quarterly Report

PART I Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, and notes the MtronPTI spin-off and quarterly net loss Condensed Consolidated Balance Sheets The balance sheets show total assets decreased to $57.9 million, driven by reduced cash, while liabilities increased and stockholders' equity declined Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $52,784 | $55,836 | | Cash and cash equivalents | $22,291 | $29,016 | | Marketable securities | $17,070 | $16,167 | | Inventories, net | $7,584 | $5,492 | | Total Assets | $57,904 | $59,906 | | Total Current Liabilities | $5,132 | $4,426 | | Total Liabilities | $5,725 | $5,163 | | Total Stockholders' Equity | $52,179 | $54,743 | Condensed Consolidated Statements of Operations Revenues increased in Q3 2022, but the company reported a net loss of $1.46 million due to the absence of a prior-year investment gain and current investment losses Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $8,761 | $7,501 | $24,303 | $20,919 | | Operating Income (Loss) | $121 | $(746) | $466 | $(190) | | Gain on equity investment | $— | $60,205 | $— | $59,453 | | Investment loss | $(2,121) | $(18,867) | $(4,449) | $(18,665) | | Net (Loss) Income | $(1,459) | $31,780 | $(3,088) | $31,789 | | Diluted Net (Loss) Income per Share | $(0.27) | $5.97 | $(0.58) | $5.96 | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased to $52.2 million due to a net loss for the nine-month period, partially offset by compensation and option exercises - Total stockholders' equity decreased to $52,179,000 at September 30, 2022, from $54,743,000 at December 31, 2021. The change was driven by a net loss of $3,088,000 for the nine-month period, offset by stock-based compensation and option exercises[17] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased, and cash used in investing activities rose due to marketable securities purchases, leading to a $6.7 million decrease in cash and cash equivalents Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(831) | $227 | | Net cash used in investing activities | $(6,015) | $(2,996) | | Net cash provided by financing activities | $121 | $31 | | Decrease in cash and cash equivalents | $(6,725) | $(2,738) | | Cash and cash equivalents at end of period | $22,291 | $15,593 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies and events, including the MtronPTI spin-off, a $4.4 million investment loss from IronNet securities, and subsequent adjustments to warrant exercise prices - On October 7, 2022, the company completed the separation of its MtronPTI business into an independent, publicly-traded company. LGL stockholders received one-half share of MtronPTI for every share of LGL. LGL retained no ownership interest. MtronPTI's historical financial results will be reflected as discontinued operations starting in Q4 2022[24][25][68] - The company's investment in IronNet (IRNT) securities is classified as marketable securities. For the nine months ended September 30, 2022, the company recognized an investment loss of $4,449,000, primarily related to these holdings[35][36] - Following the MtronPTI spin-off, the exercise price of LGL's outstanding warrants was adjusted from $12.50 to $4.75, and the acceleration trigger price was adjusted from $17.50 to $6.65, effective October 18, 2022[71][74] - As of September 30, 2022, the company had no borrowings outstanding under its $5 million revolving line of credit with Fifth Third Bank[62][63] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses operational performance, financial condition, and the MtronPTI spin-off, highlighting record order backlog, Q3 revenue growth, IronNet investment volatility, and sufficient liquidity Overview The company operates as a holding company for electronic component businesses serving aerospace and defense, with the MtronPTI spin-off and a volatile IronNet investment as key strategic events - The company is a holding company for businesses designing and manufacturing frequency and spectrum control products for the aerospace and defense markets[79] - On October 7, 2022, the company completed the spin-off of its MtronPTI business into an independent, publicly-traded company (NYSE: MPTI). LGL's historical financials will reflect MtronPTI as discontinued operations starting in Q4 2022[81][82][83] Results of Operations The company achieved a record order backlog and increased Q3 revenues, but gross margin declined, resulting in a net loss primarily due to investment losses and the absence of a prior-year gain - Order backlog reached a record $44,202,000 as of September 30, 2022, a 102.3% increase from $21,849,000 a year prior. This growth is attributed to the recovery in the avionics market and strong defense orders[85] Q3 2022 vs. Q3 2021 Performance | Metric | Q3 2022 | Q3 2021 | Change | | :--- | :--- | :--- | :--- | | Revenues | $8,761,000 | $7,501,000 | +16.8% | | Gross Margin | 32.8% | 36.2% | -3.4 p.p. | | Operating Income (Loss) | $121,000 | $(746,000) | N/A | | Net (Loss) Income | $(1,459,000) | $31,780,000 | N/A | Nine Months 2022 vs. Nine Months 2021 Performance | Metric | Nine Months 2022 | Nine Months 2021 | Change | | :--- | :--- | :--- | :--- | | Revenues | $24,303,000 | $20,919,000 | +16.2% | | Gross Margin | 35.8% | 36.3% | -0.5 p.p. | | Operating Income (Loss) | $466,000 | $(190,000) | N/A | | Net (Loss) Income | $(3,088,000) | $31,789,000 | N/A | Liquidity and Capital Resources The company held $22.3 million in cash and $47.7 million in working capital, with management confident in sufficient liquidity for the next 12 months, and no anticipated cash dividends - Cash and cash equivalents stood at $22,291,000 as of September 30, 2022, down from $29,016,000 at December 31, 2021[103] - Consolidated working capital was $47,652,000 with a current ratio of 10.29 to 1.00 as of September 30, 2022[107] - Management believes existing cash and cash generated from operations will provide sufficient liquidity for the next 12 months[110] - The company has a policy of not paying cash dividends to support long-term growth objectives and does not expect to pay any in the foreseeable future[111] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section on market risk disclosures is stated as not applicable for the current reporting period - The report states that Quantitative and Qualitative Disclosures About Market Risk are not applicable[117] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[119] - No changes in the Company's internal control over financial reporting occurred during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[120] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports no awareness of any material pending legal proceedings beyond routine litigation incidental to its business - The company is not aware of any material pending legal proceedings outside of the ordinary course of business[122] Item 1A. Risk Factors This section highlights new risks from the MtronPTI spin-off, including potential negative business impacts, earnings dilution, and failure to achieve expected strategic benefits - The completed spin-off of the MtronPTI business introduces risks that could negatively impact the company's business and financial results[124] - Potential risks from the spin-off include earnings per share dilution, failure to achieve expected strategic and financial benefits, loss of synergies, and the possibility that the combined stock value will not exceed LGL's pre-spin-off value[124][125] Item 5. Other Information This section provides unaudited pro forma consolidated financial information illustrating the MtronPTI spin-off's financial impact, presenting results as if the spin-off occurred on January 1, 2021 Unaudited Pro Forma Consolidated Financial Information The pro forma financials adjust for the MtronPTI spin-off, showing a pro forma revenue of $1.1 million, a net loss of $4.2 million, and total assets of $40.3 million - Unaudited pro forma financial statements are provided to illustrate the company's financial position and results as if the MtronPTI spin-off had occurred on January 1, 2021 (for income statements) and September 30, 2022 (for the balance sheet)[128] Unaudited Pro Forma Consolidated Statement of Income - Nine Months Ended Sep 30, 2022 (in thousands) | Description | Historical LGL (as reported) | Discontinued Operations (MtronPTI) | Pro Forma LGL | | :--- | :--- | :--- | :--- | | REVENUES | $24,303 | $(23,172) | $1,131 | | OPERATING INCOME (LOSS) | $466 | $(2,047) | $(1,006) | | NET LOSS (INCOME) | $(3,088) | $(1,608) | $(4,244) | Unaudited Pro Forma Consolidated Balance Sheet - As of Sep 30, 2022 (in thousands) | Description | Historical LGL (as reported) | Discontinued Operations (MtronPTI) | Pro Forma LGL | | :--- | :--- | :--- | :--- | | Total Assets | $57,904 | $(17,460) | $40,250 | | Total Liabilities | $5,725 | $(4,814) | $911 | | Total Stockholders' Equity | $52,179 | $(12,646) | $39,339 | Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, credit agreements, and Sarbanes-Oxley certifications - Lists exhibits filed with the report, including corporate governance documents, credit agreements, and Sarbanes-Oxley certifications[143]