Stabilis Solutions, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Stabilis provides LNG and hydrogen production, distribution, equipment rental and services in North America, and power-delivery products and services in Brazil and China.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $17.664 million | $13.838 million |
| Operating income (loss) before joint-venture equity income | $1 thousand | $(633) thousand |
| Net equity income (loss) from foreign joint ventures | $354 thousand | $(174) thousand |
| Net income (loss) | $175 thousand | $(1.050) million |
| Net cash provided by operating activities | $2.563 million | $349 thousand |
- Revenue increased 27.6%. LNG product revenue was $11.695 million, rental/service/other revenue was $4.425 million, and power-delivery revenue was $1.544 million.
- Net income was approximately 1.0% of revenue. Operating income before equity income was nearly breakeven; joint-venture income materially contributed to the reported profit. The filing does not provide a consolidated gross-margin figure.
- Cash and cash equivalents were $3.062 million at quarter-end, versus $1.814 million at December 31, 2020. Current assets of $12.885 million were below current liabilities of $15.209 million, a working-capital deficit of approximately $2.324 million.
- At March 31, the company reported $7.013 million of debt principal, plus finance-lease obligations; management described total indebtedness and finance-lease obligations as $7.1 million, with $4.3 million due within 12 months. Debt covenants were reported as satisfied. Full-year 2021 interest payments were estimated at approximately $0.6 million.
- Operating cash flow benefited in part from higher accounts payable and accrued liabilities. Investing cash outflow was $298 thousand and financing cash outflow was $1.079 million, including $783 thousand of repayments on related-party long-term borrowings.
Changes versus the prior-year quarter
- Revenue rose across all reported categories. Management attributed LNG growth to greater activity, including power-generation and aerospace customers, and expansion in Mexico; rental/service growth reflected power-generation and seasonal winter-peaking activity.
- LNG product costs increased 44.5%, faster than LNG product revenue growth of 28.1%. Those costs rose from 67% to 75% of LNG product revenue, reflecting more gallons delivered, higher liquefaction and transportation costs, and a higher gas index.
- The LNG segment moved from a $199 thousand operating loss before equity income to $268 thousand of operating income. Power Delivery improved its operating result, including equity income from BOMAY, to $87 thousand from a $608 thousand loss.
- Operating cash flow improved to $2.563 million from $349 thousand, while net income improved from a $1.050 million loss. The comparison also reflects a significant year-over-year increase in payables and accrued liabilities.
Outlook, risks and notable items
- No formal revenue or earnings guidance is provided. Management said Q1 revenue was the company’s highest quarterly revenue to date and expects operating cash flows to fund the business for the next 12 months, citing renewed customer activity and opportunities, particularly in Mexico and power generation.
- The company disclosed recurring operating losses historically, negative working capital, uncertainty around LNG demand and the continuing effects of COVID-19. It concluded its liquidity plans supported going-concern accounting and stated it expected sufficient operating cash flow for the next 12 months; those expectations are not assured.
- After quarter-end, on April 8, 2021, Stabilis entered into a USDA-backed advancing loan facility of up to $10 million and had drawn $2 million by the filing date. The facility matures in 2031, carries 5.75% interest through April 2026 and thereafter bears interest at prime plus 2.5%. Specified subsidiary equipment collateral secures the loan.
- The company was awaiting a decision on forgiveness of its $1.1 million PPP loan; management believed it met the requirements but gave no assurance of forgiveness.
- A prior dispute over a potential $4.3 million working-capital adjustment related to the Myers asset sale was amicably resolved during the quarter, and the lawsuit was dismissed with prejudice. The resolution contributed to $90 thousand of other income.
- Related-party purchases increased: Q1 payments totaled $366 thousand to Applied Cryo Technologies and $530 thousand to a Modern Group subsidiary. Environmental and other legal matters were not expected by management to have a material adverse effect. Nasdaq trading under ticker SLNG began April 29, 2021.
Important facts for investors to verify
- Whether the April 2021 loan facility can be drawn as needed, its collateral and covenants, and how borrowing affects liquidity and debt-service requirements.
- Whether operating cash generation continues after considering the working-capital deficit and the Q1 cash-flow contribution from increased payables and accrued liabilities.
- Whether LNG cost pressures, especially product costs at 75% of LNG product revenue, persist or improve as sales volumes and pricing change.
- Whether the reported recovery in Mexico, power generation and other customer activity translates into sustained revenue and operating profitability.
- The outcome of the PPP forgiveness application and the company’s ability to meet near-term debt maturities and maintain covenant compliance.