Filing summary: American Electric Technologies, Inc. (AETI), Q1 2017
Entity mismatch: The filing provided is for American Electric Technologies, Inc., not Stabilis Solutions, Inc. Investors should verify that this is the intended filing before relying on the figures below.
Business context and reporting period
This unaudited Form 10-Q covers the three months ended March 31, 2017, with comparison to Q1 2016. AETI supplies custom power distribution, conversion, automation and electrical services to oil and gas, power generation, marine and industrial markets. Its manufacturing operations at South Coast Electric Systems were sold in June 2016; the company retained the service organization. Results include its wholly owned Brazil subsidiary and equity-method joint ventures, including BOMAY in China.
Key financial metrics
| Metric | Q1 2017 | Q1 2016 / prior date |
|---|---|---|
| Revenue | $8.03 million | $8.30 million |
| Gross profit (loss) and margin | $(0.56) million; (6.9%) | $0.09 million; 1.1% |
| Operating loss | $(2.37) million | $(2.65) million |
| Net loss attributable to common stockholders; diluted EPS | $(2.58) million; $(0.31) | $(2.97) million; $(0.36) |
| EBITDA, as reported by the company | $(2.16) million | $(2.67) million |
| Cash from operating activities | $(0.96) million | $(1.64) million |
| Capital expenditures and other investing outflow | $(0.07) million | $(0.11) million |
| Cash and cash equivalents at quarter-end | $1.56 million | $1.62 million at Dec. 31, 2016 |
| Working capital; current ratio | $3.49 million; 1.3:1 | $3.30 million; 1.3:1 at Dec. 31, 2016 |
| Debt outstanding; debt as percentage of total capitalization | $6.67 million; 41% | Debt mix included a $1.50 million revolver and notes; 26% at Dec. 31, 2016 |
Q1 2017 revenue fell about 3% year over year. Gross margin deteriorated to a loss, primarily from lower revenue, competitive pricing pressure and $0.51 million of cost overruns. Operating expenses declined to $1.81 million from $2.75 million, reflecting lower R&D after completion of IntelliSafe development and cost reductions. Interest expense and other, net, was $0.10 million versus $0.04 million. Equity-method joint venture results improved to a net loss of $0.01 million from $0.25 million.
Material changes and liquidity
- On March 23, 2017, AETI issued a $7.00 million senior secured term note at a fixed 11.5% interest rate, using proceeds to repay and terminate its revolving credit facilities; approximately $1.00 million was available for working capital and general purposes. The balance sheet reports $0.50 million current and $6.17 million long-term note payable.
- The note requires a $0.50 million principal payment by June 30, 2017, with the remaining balance due March 23, 2021. It is secured by substantially all specified assets and has financial and other covenants. AETI reported compliance at March 31, 2017. Covenant failure could lead to acceleration or other default consequences.
- Financing activities provided $0.96 million in Q1. Cash declined by $0.06 million to $1.56 million; the company reported no availability for additional borrowings under its credit agreements. Management said it may seek debt, equity or a combination depending on cash needs.
- Redeemable Series A preferred stock was reported at $4.40 million and carries a 6% cumulative dividend. The company issued 149,422 common shares to settle $0.30 million of accrued preferred dividends. The term-note arrangements restrict cash dividends and preferred-stock redemption during a standstill period, subject to the stated terms.
Outlook, commentary and risks
Management cited potential 2017 opportunities in power generation and distribution, midstream and downstream oil and gas, LNG, refining, petrochemical and IntelliSafe markets. It also said higher oil prices could help its services business. Management expected China energy markets to remain flat at 2016 levels and described Brazil as uncertain amid political and economic challenges. No formal earnings or revenue guidance was provided.
Backlog was $26.64 million at March 31, 2017, up from $13.50 million at December 31, 2016; management expected the majority to be recognized during the remainder of 2017. Backlog is not a guarantee of revenue. Key risks include cyclical customer demand and oil and gas prices, project timing and execution, competitive pricing and cost overruns, liquidity and covenant compliance, and copper, steel and aluminum price increases that may not be recoverable from customers. The company reported no material change to the risk factors in its 2016 Form 10-K, no material legal-proceeding impact anticipated by management, and effective disclosure controls as of quarter-end.
Important facts for investors to verify
- Confirm the issuer: this filing names American Electric Technologies, Inc.; it does not identify Stabilis Solutions, Inc.
- Review the note agreement’s covenants, required principal payment, collateral, make-whole provision and preferred-stock standstill terms; assess the company’s capacity to meet them.
- Assess whether negative gross margins and reported cost overruns are temporary, and whether the backlog converts to revenue and cash as expected.
- Reconcile liquidity needs with operating cash use, restricted short-term investments of $0.51 million, and the company’s stated possibility of additional financing.
- Consider the 6% cumulative preferred dividend, potential redemption rights after the standstill period, and resulting dilution from share-based dividend payments.