this "game changing" acquisition might push GTAT over the cliff finally
about reading an income statement or a balance sheet. Obviously you don't know there's also an additional cash flow statement in every earnings release.
So showing a profit on the income statement really has nothing to do with cash - just look at last quarter for example when they also earned a profit but burned through close to $100 mln in cash.
here are the net cash levels (cash minus debt) shown on the balance sheet starting with December, 31, 2011:
December 2011: $303 mln (balance sheet was debt free at this point)
March 2012: $276 mln (debt load at $75 mln)
June 2012: $187 mln (debt load at $145 mln)
September 2012: $181 mln (debt load at $298 mln)
so the company showed profits in every quarter but net cash is melting down while the debt load skyrockets. So what's wrong here ?
when GTAT get's an order the customer has to make a sizeable upfront payment to cover the risks of cancellation, non-acceptance or push-out. So there's cash in advance but no revenues against this at first. So when GTAT books new orders cash is flowing in. When they finally deliver the product and get customer acceptance the revenue will be booked in the income statement and the remaining balance of the purchase price will be collected subsequently (hopefully).
This is what has happened for some time now as the company has suffered from a negative net order intake for some quarters now. So they are trying to work their way through the remaining backlog instead which means a substantial portion of the purchase price has already be collected in advance.
Example: product order in 2011, order volume $50 mln, upfront payment $20 mln, delivery, customer acceptance and invoicing in 2012, remaining cash payment $30mln, revenue shown in the income statement $50 mln.
So GTAT generates very strong cash flows when the business is booming but suffers from poor inflows in a downturn. An anticyclical cash flow would be much better but this is a problem many businesses have to deal with.
So GTAT will go on with shipping orders out of the backlog and might show further profits on the income statement but cash flows will continue to be weak and net cash will go down further. This death spiral can only be reversed when business picks up substantially finally - but I doubt this will come as fast as GTAT needs it.
One good thing for you: last quarters' cash burn was only $6 mln which was the lowest in a couple of quarters but this for sure looks like like an exception that proves the rule as the company will have to invest heavily into the newly acquired ion implant technology for at least two years from now.
Dependent on spending levels I expect cash to run out six to eight quarters from now and definitely before the commerzialization of the ion implant business.