Business context and reporting period
This is American Electric Technologies, Inc. (AETI), not Stabilis Solutions, Inc., as specified in the request metadata. It reports the quarter and six months ended June 30, 2018. Following an August 2018 agreement to sell its U.S. business, those operations are presented as discontinued operations; the sale closed August 12, 2018. Continuing operations principally comprise the Brazilian business and AETI’s investment in its Chinese joint venture.
Financial performance and condition
Amounts below are in millions of dollars unless otherwise stated. Revenue and operating results for continuing operations exclude the U.S. business classified as discontinued.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Continuing revenue | $2.075 | $1.331 | $3.951 | $2.546 |
| Gross margin | $0.509 (25%) | $0.359 (27%) | $0.837 (21%) | $0.504 (20%) |
| Loss from continuing operations | $(0.058) | $(0.267) | $(0.289) | $(0.776) |
| Net equity income from foreign joint ventures | $0.234 | $0.070 | $0.345 | $0.058 |
| Net loss from discontinued operations | $(1.979) | $(0.944) | $(4.838) | $(2.949) |
| Net loss attributable to common stockholders | $(2.028) | $(1.148) | $(5.082) | $(3.732) |
| Basic and diluted loss per share | $(0.23) | $(0.13) | $(0.58) | $(0.44) |
- Continuing revenue grew 56% in Q2 and 55% for the first half. Management attributed growth to international sales, including industrial and power-generation market penetration and higher field-service orders.
- Q2 continuing gross margin percentage declined to 25% from 27%, attributed mainly to competitive pricing pressure in industrial markets. First-half margin improved to 21% from 20%.
- BOMAY, AETI’s 40%-owned Chinese joint venture, contributed $0.234 million of net equity income in Q2 and $0.345 million for the first half. AETI received $1.127 million in joint-venture dividends during the first half.
- At June 30, cash and cash equivalents were $0.477 million on the balance sheet, versus $0.243 million at year-end. The held-for-sale U.S. business separately included $2.858 million of cash.
- Six-month operating cash flow was $0.350 million, investing cash flow was $0.962 million, and financing cash flow was $(0.216) million. Investing inflows chiefly reflected BOMAY dividends. The cash-flow statement’s component totals imply a $1.046 million increase in cash; its line labels that change a “net decrease,” an apparent inconsistency.
- Working capital was $(7.571) million and the current ratio was 0.7:1, compared with $0.752 million and 1:1 at December 31, 2017. Management reported no borrowing availability under the credit agreement.
- Debt disclosures are not fully consistent: the balance sheet lists $5.629 million of short-term notes and $0.360 million of current long-term debt, while MD&A reports $6.11 million of total outstanding debt at June 30. The senior secured note carried a fixed 11.5% rate; AETI disclosed covenant noncompliance at June 30.
Material changes, outlook, and risks
The August sale agreement set a $17.3 million purchase price, with approximately $10.8 million of expected cash proceeds after working-capital and other closing adjustments. The buyer assumed approximately $12.8 million of liabilities. AETI said it would repay $6.5 million of long-term debt and expected approximately $4.3 million of additional working capital after the sale. The filing states the transaction subsequently closed August 12.
Management said the sale would improve financial flexibility and provide funds to repay secured debt and support near-term operations. It described signs of recovery in international drilling, expected opportunities in Brazil, and anticipated market growth at BOMAY in China. Backlog was $2.1 million at June 30, versus $2.2 million at year-end, and was expected to be recognized during the rest of 2018 and in 2019. No quantified earnings or revenue guidance was provided.
Risks include a history of losses and negative operating cash flows, limited liquidity and uncertain access to additional capital, cyclical and oil-and-gas-sensitive demand, foreign-currency movements, commodity-price increases, and estimation uncertainty in long-term contract costs and revenues. The company reported a full valuation allowance on deferred tax assets. It stated that there were no material changes to the risk factors in its 2017 Form 10-K and that pending legal matters were not expected to have a material effect.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is AETI’s 10-Q, not a Stabilis Solutions filing.
- Review the completed U.S. business sale’s final proceeds, working-capital adjustments, liabilities assumed, debt repayment, and resulting liquidity.
- Reconcile the cash-flow statement’s “net decrease” label with its reported cash-flow components and ending cash.
- Reconcile the June 30 debt figures, including the balance-sheet amounts, the $6.11 million MD&A disclosure, and the $6.5 million debt repayment stated in the sale discussion.
- Assess the severity and resolution of the disclosed loan-covenant noncompliance and the post-sale funding position.
- Monitor continuing-operation margins, international backlog conversion, BOMAY distributions and earnings, and preferred-stock dividends and redemption rights.