Filing summary: 2015 third quarter
Entity discrepancy: The request identifies Stabilis Solutions, Inc., but this filing is for American Electric Technologies, Inc. (AETI), not Stabilis Solutions. Confirm the filing is for the intended company before relying on this summary.
Business context and reporting period
This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2015. AETI supplies power-delivery products and services to energy, power-generation, marine, and industrial markets. Following a 2015 reorganization, it reported continuing operations as one segment. The American Access Technologies (AAT) business was sold in 2014; its remaining real estate was still reported as held for sale at year-end 2014, then transferred out of that classification during the third quarter of 2015.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are in thousands unless noted.
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Net sales | 2015: $13.78 million; 2014: $14.28 million | 2015: $41.39 million; 2014: $43.56 million |
| Gross profit / margin | 2015: $2.56 million / 19%; 2014: $0.50 million / 3% | 2015: $6.89 million / 17%; 2014: $4.96 million / 11% |
| Net income (loss) from continuing operations | 2015: $0.20 million; 2014: $(1.98) million | 2015: $1.03 million; 2014: $(0.07) million |
| Net income (loss) attributable to common stockholders | 2015: $0.12 million; 2014: $(2.09) million | 2015: $0.76 million; 2014: $(3.00) million |
| Cash from (used in) operating activities | Not presented separately | 2015: $3.78 million; 2014: $(0.07) million |
At September 30, cash was $9.17 million, working capital was $12.45 million, and the current ratio was 2.3 to 1. Total borrowings were approximately $5.35 million: a $1.50 million revolving-credit balance and a term loan. Total assets were $42.29 million. Nine-month investing activities provided $0.61 million and financing activities provided $1.22 million. The company reported $1.17 million of joint-venture dividends received during the nine months.
Material changes versus the prior comparable period
- Quarterly sales declined 4%; nine-month sales declined 5%. Management attributed the nine-month decline mainly to lower oil prices and reduced oil-and-gas activity. Brazilian subsidiary revenue partly offset the decrease.
- Gross profit and margin improved substantially in both periods. Management cited better project execution, productivity improvements, and improved methods at the Beaumont plant; 2014 quarterly margins had been hurt by project overruns, delays, and capacity constraints.
- Nine-month net equity income from foreign joint ventures, after related expenses, fell to $0.32 million from $1.52 million, reflecting completed projects and weaker demand in China and Southeast Asia.
- Operating cash flow improved, which management attributed primarily to lower working-capital requirements, including reductions in receivables and inventory. Cash increased from $3.55 million at December 31, 2014 to $9.17 million.
- Order backlog fell to $8.84 million at September 30 from $16.51 million at June 30, primarily due to project cancellations and delayed orders.
Outlook, risks, and unusual items
- Management described a challenging energy-market environment: lower oil prices were reducing drilling-related demand, and midstream orders were sporadic. It also cited customer capital-spending delays, project cancellations, and pricing pressure that could erode margins.
- Management said refining and petrochemical, industrial, and power-generation and distribution markets appeared comparatively stronger. Its responses included cost and cash management, pursuing service work and international opportunities, and developing the IntelliSafe switchgear product. It expected long-term demand to increase but gave no quantified financial guidance.
- The revolving facility matures December 31, 2015; the company said it was discussing an extension and believed it had sufficient working capital to repay the outstanding balance if no extension were obtained. The term loan matures March 31, 2020, includes quarterly principal payments and a $2.71 million balloon payment. The company reported compliance with debt covenants.
- Series A preferred stock carries cumulative 6% annual dividends. The company deferred the dividend due June 2015; $0.15 million for the second and third quarters was accrued. Preferred dividends reduced earnings attributable to common stockholders.
- Foreign-currency translation reduced accumulated other comprehensive income by $0.41 million over nine months. The quarter also included a $0.13 million foreign-transaction loss. Copper, steel, and aluminum price increases could pressure margins if not recovered from customers.
- Management stated that legal proceedings in the normal course of business were not expected to have a material effect. It reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Verify the registrant identity: this is AETI’s filing, despite the request naming Stabilis Solutions, Inc.
- Review the sharp backlog decline and subsequent order activity, cancellations, and customer project delays.
- Assess whether improved gross margins and operating cash flow are sustainable, particularly given lower sales and reduced joint-venture income.
- Confirm the revolving-credit extension or repayment arrangements before its December 31, 2015 maturity, and review collateral, covenants, and the term-loan balloon obligation.
- Track payment or further deferral of cumulative preferred dividends and the availability of cash from foreign joint ventures, including statutory reserves that are not distributable as cash dividends.