Business context and reporting period
This is American Electric Technologies, Inc. (AETI), not Stabilis Solutions, Inc.; the filing identifies AETI as the registrant. It reports the quarter and six months ended June 30, 2015. AETI provides power-delivery products and services, principally to energy markets, and accounts for its Chinese and Singapore joint ventures under the equity method. Its former American Access Technologies (AAT) business was sold in August 2014; remaining real estate is held for sale.
Financial results and liquidity
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q2 2015 | Q2 2014 | H1 2015 | H1 2014 |
|---|---|---|---|---|
| Revenue | 12.30 | 13.43 | 27.61 | 29.28 |
| Gross profit / margin | 2.04 / 16.6% | 2.03 / 15.1% | 4.33 / 15.7% | 4.46 / 15.2% |
| Continuing-operations net income | 0.55 | 1.06 | 0.82 | 1.91 |
| Net income (loss) attributable to common stockholders | 0.46 | (1.41) | 0.65 | (0.91) |
| Diluted continuing-operations EPS | $0.06 | $0.11 | $0.08 | $0.20 |
- Operating expenses were $1.84 million in Q2 and $3.85 million in H1. Lower joint-venture earnings weighed on results: net equity income was $0.18 million in Q2 and $0.19 million in H1, versus $0.93 million and $1.29 million, respectively, in 2014.
- H1 operating cash flow was $2.71 million, compared with $0.48 million in 2014. Investing activities provided $0.72 million; financing activities provided $1.27 million. Cash increased to $8.25 million from $3.55 million at year-end.
- At June 30, working capital was $12.30 million and the current ratio was 2.2:1. Borrowings totaled $5.41 million, comprising a $1.50 million revolving-credit balance and approximately $3.91 million under the term loan; debt was 12% of total capitalization. The balance sheet reports $267,000 of current term-note principal.
- The March 2015 refinancing established a revolver maturing December 31, 2015, with a $4.00 million commitment subject to borrowing-base limits, and a term loan maturing March 31, 2020. The term loan requires quarterly principal payments of about $70,000 and a $2.71 million balloon at maturity. The company said it was in compliance with covenants.
Material changes and management commentary
- Revenue fell 8% in Q2 and 6% in H1, mainly due to reduced oil-and-gas activity following lower energy prices, project cancellations and postponements, and weaker power-generation revenue. New Brazilian subsidiary revenue partly offset the decline.
- Gross margin improved year over year to 16.6% in Q2 and 15.7% in H1, with management citing contributions from Brazil. General and administrative expense rose, partly reflecting the Brazilian operation.
- Joint-venture equity income declined sharply amid completed projects and weaker demand in China. BOMAY reported substantially lower revenue and earnings than in the comparable 2014 quarter and half-year.
- Backlog was $16.51 million at June 30, down from $20.34 million at March 31, 2015, which management attributed to project completions and lower demand. It was up from $15.31 million at June 30, 2014, partly due to Brazil and late-quarter change orders.
- There was no AAT operating result in 2015. The 2014 comparison included impairment charges of $2.30 million and discontinued-operation losses of $2.38 million for Q2 and $2.65 million for H1.
- The company deferred the preferred-stock dividend due June 20, 2015 and accrued approximately $80,000. Series A preferred stock carries a 6% cumulative dividend.
Outlook, risks and other matters
No specific revenue or earnings guidance is provided. Management stated that cash, working capital, the credit facility, and operating earnings should be sufficient for working-capital needs over the next 12 months, while noting it may seek debt or equity financing for growth opportunities. The filing cites cyclical customer spending tied to oil and gas prices, uncertain energy demand in China and Singapore, project timing, and possible copper, steel, and aluminum cost increases that may pressure margins if not recovered from customers. Foreign-currency translation reduced accumulated other comprehensive income during H1, principally due to the stronger U.S. dollar against the Brazilian real. The company reported no material change in its previously disclosed risk factors, no material legal-proceeding impact expected, effective disclosure controls, and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm issuer identity: this filing is for American Electric Technologies, Inc., not Stabilis Solutions, Inc.
- Assess the sustainability of revenue, backlog, and margins given falling oil-and-gas demand, project cancellations, and the quarter-over-quarter backlog decline.
- Review joint-venture performance and the extent to which lower equity income may continue to affect earnings and cash generation.
- Check refinancing availability and borrowing-base capacity, the revolver’s December 2015 maturity, term-loan collateral and balloon payment, and covenant status.
- Verify the status and cumulative obligations of the deferred preferred dividend, and the assumptions supporting management’s 12-month liquidity assessment.
- Consider the remaining $650,000 AAT real-estate asset held for sale and the timing and proceeds of any disposition.