Stabilis Energy, Inc. — FY2019 Form 10-K
Reporting period: Year ended December 31, 2019. Although the request identifies 2019 Q4, this is an annual filing; the provided filing text does not give standalone fourth-quarter results. Amounts below are U.S. dollars unless stated otherwise.
Business context and reporting period
Stabilis provides small-scale LNG production, sales, transportation, equipment rental and field services, primarily in North America. It also provides power-delivery services in Brazil and holds a 40% interest in a Chinese joint venture. The company operated one LNG liquefier with capacity of 100,000 gallons per day; a second 25,000-gallon-per-day plant was in storage awaiting deployment.
Comparability is affected by major transactions: the July 26, 2019 Share Exchange with American Electric was accounted for as a reverse acquisition, so American Electric’s results are included only after closing. Stabilis also acquired Diversenergy, expanding its Mexican LNG distribution business. The filing’s FY2018 comparison largely reflects the historical LNG business, not a full-year combined company.
Financial and operating highlights
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $47.1 million | $37.3 million |
| Operating loss | $4.3 million | $7.3 million |
| Net loss | $5.5 million | $11.1 million |
| Net loss attributable to Stabilis | $5.7 million | $11.0 million |
| Operating cash flow | $4.1 million | $(0.4) million |
| Capital expenditures | $2.1 million | $0.8 million |
| Cash at year-end | $4.0 million | $1.2 million |
Revenue increased 26.1%. LNG product revenue rose 13.4% to $34.2 million; rental, service and other revenue rose 79.6% to $12.8 million, including $3.4 million from the acquired Power Delivery business after the Share Exchange. LNG gallons delivered increased 17.1% to 42.5 million, and George West plant utilization rose to 69.6% from 48.9%.
Direct costs of LNG product were $23.5 million, yielding an LNG product gross margin of approximately 31% versus 21% in 2018. Across LNG product and rental/service/other, gross profit was approximately $15.1 million, or 32% of revenue, compared with approximately $8.9 million, or 24%, in 2018. Management attributed the LNG margin improvement mainly to higher plant utilization and lower gas prices. These calculations are derived from reported revenue and direct-cost line items.
Total assets were $90.3 million and total liabilities were $22.5 million at year-end. Current assets of $13.7 million were below current liabilities of $15.1 million, implying negative working capital of approximately $1.4 million. Cash was $4.0 million. Principal debt was $7.6 million; debt and finance-lease obligations together were approximately $11.7 million. Approximately $5.0 million of debt and finance-lease obligations was due within 12 months. The company reported compliance with its debt covenants.
Management reported that FY2019 operating cash flow improved by $4.5 million year over year, citing reduced operating losses and working-capital changes. Investing cash flow was $(3.2) million, principally reflecting acquisitions and equipment purchases; financing cash flow was $1.9 million.
Material changes versus the prior comparable period
- FY2019 revenue increased $9.7 million, led by LNG plant product sales, rental/service growth and the partial-year addition of Power Delivery operations.
- Operating loss narrowed by $3.0 million. The company nevertheless remained loss-making; SG&A increased 53.8% to $11.3 million, including transaction-related audit, legal and consulting costs.
- Interest expense related to parties fell substantially, principally because of prior-year debt conversion to equity and repayment. In August 2019, $7.0 million of Chart E&C debt was exchanged for 1,470,807 shares; the transaction also released certain collateral, including the LNG plant, and removed certain covenants.
- Diversenergy was acquired for $2.0 million in cash and 684,963 shares. The acquisition generated $4.3 million of goodwill. American Electric was acquired through the Share Exchange; the associated purchase accounting recorded $0.1 million of goodwill.
- The company formed a 50%-owned Mexican natural-gas joint venture, Energía Superior, but had made no material investment in it by year-end.
Outlook, risks, contingencies and unusual items
Management forecast $3–$4 million of 2020 capital expenditures, primarily for expansion in Mexico, and expected approximately $0.9 million of 2020 interest payments. Management believed operating cash flows would fund operations for the next 12 months, supported by sales growth and improved cost ratios. This outlook should be considered alongside the company’s recurring losses, negative working capital and stated need for possible additional financing; management also disclosed reliance on assumptions about growth and cash generation.
Key risks include customer concentration and generally short-term contracts, LNG demand and commodity-price volatility, supply and transportation availability, competition from other fuels and providers, execution and financing needs for expansion, permitting and environmental requirements, severe weather, and uninsured losses. One customer represented 20% of FY2019 revenue. The company stated it did not carry business-interruption insurance for hurricanes and other natural disasters. It had no derivative hedges for commodity, interest-rate or foreign-exchange exposures.
The filing identifies an unresolved potential $4.3 million working-capital adjustment claim related to American Electric’s 2018 sale of substantially all its U.S. business; management was working with counsel and said no update had occurred by year-end. In January 2020, a subsidiary was named in a class-action suit arising from a 2017 industrial-site fire; the company expected insurance-supported defense and did not anticipate a material adverse effect. Management also flagged the coronavirus outbreak as a potential risk, without quantifying an effect on results.
Stabilis reported a $0.1 million gain on debt extinguishment associated with the Chart exchange. It recognized $1.1 million of net equity income from foreign joint ventures, largely reflecting its share of BOMAY earnings after the Share Exchange. The independent auditor issued an unqualified opinion on the financial statements; the auditor did not attest to internal-control effectiveness. Management reported disclosure controls and internal control over financial reporting effective at year-end and said a previously identified material weakness had been remediated.
Important facts for investors to verify
- Assess liquidity and refinancing capacity against negative working capital, the near-term maturity and lease-payment schedule, and management’s cash-flow assumptions.
- Review the customer mix, contract duration and exposure to the customer responsible for 20% of FY2019 revenue, as well as the reported decline in oilfield distribution sales.
- Evaluate whether the planned Mexico expansion and capital spending can be financed and executed within budget, including permits and the deployment of the idle liquefier.
- Track resolution and potential financial exposure from the $4.3 million working-capital claim and the 2020 class-action lawsuit.
- Consider related-party financing and leases, including the $5.0 million loan from M/G Finance, whose leadership and ownership have ties to the company’s executive chairman and a director.
- Reconcile reported net loss of $5.5 million with the $5.7 million loss attributable to Stabilis, and note that FY2019 and FY2018 are not fully comparable because of acquisition timing and reverse-acquisition accounting.