Stabilis Solutions, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Stabilis provides LNG production, transportation, equipment rental and support services, primarily in the U.S. and Mexico, and holds a 40% interest in China-based BOMAY. Results are unaudited; dollar amounts below are in millions unless noted.
Financial performance and liquidity
- Q3 revenue: $15.3, down 40.7% from $25.8 a year earlier. LNG product revenue fell 44.5% to $12.1; rental revenue was $1.3 and service revenue $1.6.
- Q3 earnings: Gross profit was $3.3, or about 21% of revenue, versus $5.9, or about 23%, in Q3 2022. Operating loss was $0.2, including $0.3 of net equity income from BOMAY and a $1.0 gain related to fire-damaged assets. Net loss was $0.2, compared with a $0.3 net loss in the prior-year quarter, which included a $1.3 loss from discontinued operations. Loss per share was $0.01.
- First nine months: Revenue was $55.1, down 20.5% from $69.2. Net loss was $1.3 versus $2.9; continuing-operations net loss was $1.3 versus $1.4. BOMAY equity income was $1.3, up from $0.9.
- Cash flow: For the nine months, operating cash flow was $5.4 versus $11.5; capital expenditures were $9.0 versus $1.7, leaving investing cash outflow of $9.0. Financing cash outflow was $2.9. Cash declined $6.5 from year-end 2022 to $4.9 at September 30.
- Balance sheet: Cash was $4.9; current assets were $14.6 and current liabilities $13.4. Total assets were $81.1 and stockholders’ equity $59.6. Debt and lease obligations together were approximately $10.6, of which $2.5 was due within 12 months, per management.
Changes versus comparable periods
- Q3 LNG product revenue was lower mainly because natural gas prices fell (about $5.2 impact) and deliveries declined by 3.0 million gallons (about $4.4 impact). Total revenue also reflects weaker rental and service activity versus a prior-year marine bunkering project.
- For the first nine months, LNG deliveries declined 8.9 million gallons. Lower gas prices also reduced revenue; take-or-pay revenue partly offset these decreases.
- Management said feedstock composition changes reduced George West production and profitability in Q2 and Q3. Additional pretreatment equipment was installed in August, allowing production to resume at full rates.
- Brazil operations were sold on October 31, 2022 and are presented as discontinued operations. Accordingly, prior-year results include Brazil losses, while 2023 results do not.
Outlook, risks and unusual items
- Management expects operating cash flows and available borrowing capacity to fund the business for the next 12 months, but gives no quantified revenue or earnings guidance. It cautions that future cash generation and access to financing are uncertain.
- A new $10.0 revolving credit facility, maturing June 2026, was undrawn at quarter-end; availability is subject to an accounts-receivable borrowing base. The company also reported $1.0 of remaining availability under its AmeriState term facility. The company said it was compliant with applicable debt covenants.
- Fire-damaged assets were written off in Q3. An insurance settlement reached in October provided for approximately $1.4 of proceeds, including remediation costs; a $1.0 gain was recorded in Q3.
- Natural-gas call options covering 0.5 million MMBtu extend into Q2 2024. They are not designated as hedges, so fair-value changes affect earnings. The company reported $0.3 of derivative-related unrealized gain in Q3.
- The DOE has authorized LNG exports to free-trade and non-free-trade countries, but Stabilis had not exported under that authorization or made related sales commitments. The filing notes that commencement timing or an extension/reapplication may be required.
- The filing reports ordinary-course litigation and environmental matters, but management does not expect their resolution or compliance costs to materially affect the company. It reported no material changes to previously disclosed risk factors and no material changes in internal control over financial reporting.
Key facts for investors to verify
- Whether George West has sustained full-rate production after the pretreatment upgrade, and whether deliveries and LNG margins recover.
- How the sharp year-over-year revenue decline and lower operating cash flow affect liquidity, particularly with $9.0 of year-to-date capital spending.
- Remaining borrowing availability, covenant headroom and debt/lease maturities; verify the reported $2.5 due within 12 months.
- Receipt and accounting treatment of the fire-insurance settlement and any further costs or operational impacts.
- Progress toward use of the DOE export authorization, including required timing and any associated customer commitments or financing needs.