Stabilis Solutions, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Financial statement amounts below are in U.S. dollars; unless otherwise stated, amounts are in millions. Stabilis supplies LNG and related services in North America and provides power-delivery equipment and services in Brazil, with a 40% interest in China-based BOMAY.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $25.8 | $16.1 | $48.8 | $33.7 |
| Operating loss | $(1.7) | $(1.6) | $(2.0) | $(1.3) |
| Net loss | $(2.2) | $(1.0) | $(2.6) | $(0.8) |
| Net loss per share | $(0.12) | $(0.06) | $(0.14) | $(0.05) |
| Operating cash flow | Not stated separately | Not stated separately | $3.7 | $2.6 |
- Q2 revenue increased 60.6%; first-half revenue increased 44.8%. LNG product revenue was $20.3 million in Q2 and $37.1 million for the first half. Power Delivery revenue was $2.6 million and $5.4 million, respectively.
- Operating loss widened despite revenue growth. LNG segment operating losses were $2.5 million in Q2 and $2.8 million in the first half; Power Delivery generated operating income of $0.7 million in each period, including BOMAY equity income.
- LNG product costs were 83% of LNG product revenue in Q2, versus 77% a year earlier, reflecting higher natural gas, transportation, liquefaction and electricity costs.
- At June 30, cash was $4.1 million; current assets were $20.8 million and current liabilities $16.5 million, implying working capital of approximately $4.2 million. Debt, net of issuance costs, was $12.2 million; finance and operating lease obligations totaled $0.7 million. Management reported total debt and lease obligations of $12.3 million, with $2.2 million due within 12 months.
- First-half investing cash outflow was $1.1 million and financing cash outflow was $0.6 million. Cash increased $2.0 million to $4.1 million.
- Total assets were $87.1 million and stockholders’ equity $59.0 million at June 30, 2022. The company had 18,279,939 common shares outstanding at June 30.
Material changes versus comparable periods
- Revenue growth was driven by more LNG gallons delivered, higher natural gas prices and customer pricing increases; Power Delivery sales also rose as demand recovered and new contracts began.
- Higher LNG costs outpaced product revenue growth, while the company also recorded a $0.9 million unrealized derivative loss in Q2 and the first half. The natural gas options were obtained to manage input-price exposure under a long-term customer contract, not for speculation.
- Net loss increased year over year. The prior-year periods included approximately $1.1 million of Paycheck Protection Program loan-forgiveness income, which was absent in 2022. First-half SG&A rose 17.9%, primarily due to stock-based compensation and additional staffing.
- First-half operating cash flow improved by $1.1 million. Investing outflow fell substantially from 2021, when the company paid $5.0 million in cash for the Port Allen liquefaction facility.
- The carrying value of the BOMAY investment declined to $11.0 million from $12.3 million at year-end, reflecting distributions and foreign-currency translation, partly offset by equity income.
Outlook, risks and unusual items
- Management said it expects higher natural gas, liquefaction and transportation costs to continue in the near term. It has raised customer pricing and implemented cost controls but cannot pass through all cost increases; margin pressure remains a risk.
- Management cited inflation, supply-chain constraints, Russia’s invasion of Ukraine and COVID-19-related disruptions as factors affecting costs and operations. It remained optimistic about LNG’s long-term prospects.
- Management believed cash, operating cash generation and remaining loan availability would fund operations for at least 12 months after issuance, and concluded there was no substantial doubt about the company’s ability to continue as a going concern. The company had $1.0 million of availability under its $10.0 million AmeriState facility at June 30 and reported compliance with debt covenants.
- An effective shelf registration permits up to $100 million of securities, subject to Form S-3 public-float limits. The company cautioned that it may not be able to raise capital on acceptable terms or at all; an equity issuance could dilute shareholders.
- The related-party M/G Finance note was amended to reduce its rate to 6% and defer payments; installments were scheduled to resume in October 2022. The company also classified $1.8 million of assets as held for sale, expecting net proceeds approximately equal to carrying value, with no impairment recorded.
- Legal matters arise in the ordinary course; management did not expect their resolution to materially affect the company. No material changes to previously disclosed risk factors were reported for the quarter. No formal financial guidance was provided.
Important facts for investors to verify
- Whether LNG price increases and operating efficiencies can offset continuing input-cost inflation and restore segment margins.
- Actual delivery volumes, customer concentration and the economics of the long-term LNG contract associated with the natural gas options.
- Cash generation, working-capital needs, debt repayments and the remaining availability and terms of the AmeriState facility.
- Whether the planned asset sale is completed near carrying value, and whether the company uses the shelf registration to raise capital.
- The effect of continued losses, stock-based compensation and potential share issuance on liquidity and existing shareholders.