Filing summary
Issuer and period: The supplied filing is American Electric Technologies, Inc. and subsidiaries’ Form 10-Q for the quarter ended June 30, 2013, filed August 14, 2013. This does not match the request metadata identifying Stabilis Solutions, Inc.; verify the issuer before relying on this summary. Unless stated otherwise, amounts below are in thousands of dollars.
Business context and results
AETI provides power-delivery products and services, electrical and instrumentation construction, and formed-metal and cabling products. It reports three segments: Technical Products and Services (TP&S), Electrical and Instrumentation Construction (E&I), and American Access Technologies (AAT). The filing compares the second quarter and first six months of 2013 with the same 2012 periods.
- Second quarter: Revenue was $15,169, up 18% from $12,872. Gross profit was $2,396 versus $2,172; gross margin was 16% versus 17%. Operating income from domestic operations was $396 versus $168. Net equity income from foreign joint ventures was $1,161 versus $931. Net income attributable to common stockholders was $1,063 versus $761; diluted EPS was $0.12 versus $0.09.
- First six months: Revenue was $29,599, up 8% from $27,304. Gross profit was $5,376 versus $3,945; gross margin improved to 18% from 14%. Domestic operations generated income of $998, compared with a loss of $30. Net equity income from foreign joint ventures was $2,568 versus $1,602. Net income attributable to common stockholders was $2,716 versus $1,095; diluted EPS was $0.31 versus $0.13.
- Segments: TP&S drove revenue growth: second-quarter revenue rose to $11,157 from $8,647, and six-month revenue to $21,637 from $18,470. E&I revenue declined to $2,342 for the quarter and $4,870 for six months, while its six-month gross profit rose to $1,165 from $532. AAT six-month revenue was $3,092 versus $3,227, with gross profit of $522 versus $456.
- Costs and earnings mix: Six-month R&D expense rose to $244 from $35, primarily for Amnor automation technology development. Second-quarter interest expense and other, net was $29; six-month expense was $45. Six-month income-tax provision was $635, with an 18% effective rate versus 23% a year earlier. Results include significant equity-method income from foreign joint ventures, not solely domestic operating earnings.
Cash flow, liquidity and capital
- Cash from operating activities was $1,725 for the first six months, compared with cash used of $2,091 in 2012. Investing activities used $444; financing activities used $336. Cash increased by $945 to $5,422 at June 30.
- Working capital was $14,281, versus $12,239 at year-end 2012; the current ratio was 2.2:1 at both dates. The filing reports debt at 2% of total capitalization.
- Borrowings under the revolving credit facility were $500, unchanged from year-end, with $4,900 of additional capacity. The facility matures July 1, 2014, bears interest at 30-day LIBOR plus 3.25%, and is secured by specified company assets. Covenants include a minimum 2.0:1 current ratio, a leverage test, and a trailing-six-month net profitability test.
- Series A redeemable convertible preferred stock had a reported carrying value of $4,215. It accrues cumulative dividends at 6% annually and is convertible into 1,000,000 common shares at $5 per share, subject to adjustment. Warrants for 325,000 shares were also issued in the 2012 financing. The six-month cash-flow statement reports $150 of preferred dividends paid.
Changes, outlook and risks
- Management attributed TP&S growth to demand for power conversion and distribution equipment and favorable oil-and-gas conditions. It reported that U.S. shale activity was supporting demand, while BOMAY’s China demand was beginning to slow.
- The company was phasing out municipal water/wastewater construction, expected to be complete in the third quarter of 2013, and refocusing E&I on energy, power and marine/industrial markets.
- Backlog was $26.2 million at June 30, versus $15.5 million at December 31, 2012. TP&S backlog was $21.9 million, with approximately 95% expected to become revenue during the remainder of fiscal 2013. This is management’s expectation, not a guarantee.
- No formal revenue or earnings guidance is provided in the supplied text. Management said cash, working capital, unused credit and operating earnings were expected to meet working-capital needs for the next 12 months, while noting it could seek debt or equity financing for growth opportunities.
- Risks highlighted include cyclical energy-market demand, commodity-price increases (especially copper, steel and aluminum) that may not be recoverable from customers, foreign-currency translation, and reliance on equity-method joint ventures. BOMAY investors may be required to guarantee BOMAY bank loans proportionately; AETI said it had provided no such guarantees as of the filing. Management reported no impairment of joint-venture investments and no material change in previously disclosed risk factors.
- Legal proceedings were described as arising in the normal course of business; management did not expect their resolution to materially affect financial position or results. Disclosure controls were concluded effective, with no material internal-control change reported during the quarter.
Important facts for investors to verify
- Confirm whether this AETI filing, rather than a Stabilis Solutions filing, is the intended document.
- Track conversion of the $26.2 million backlog into revenue and cash, including the stated 95% TP&S realization expectation.
- Assess the quality and cash accessibility of joint-venture earnings, including BOMAY’s slowing demand and the accrued $1,189 BOMAY dividend received in July 2013.
- Review facility covenant compliance and refinancing needs ahead of the July 2014 maturity, along with the preferred stock’s cumulative dividend and potential dilution.
- Monitor working-capital consumption, contract estimates, material-cost recovery, foreign-exchange effects and any future joint-venture guarantees or impairment indicators.