Stabilis Solutions, Inc. — 2018 Q3 10-Q Summary
Entity discrepancy: The supplied filing is for American Electric Technologies, Inc. (AETI), not Stabilis Solutions, Inc. It covers the quarter and nine months ended September 30, 2018. Verify the filing and issuer before relying on this summary.
Business context and reporting period
AETI sold its U.S. business in August 2018 and thereafter operated through its Brazilian subsidiary and a 40% equity-method interest in China’s BOMAY joint venture. The financial statements classify the sold U.S. business as discontinued operations; continuing revenue was from international operations, principally Brazil. Unless otherwise indicated, figures below are in millions of dollars.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Continuing revenue | $1.934 | $1.456 | $5.885 | $4.002 |
| Gross profit / margin | $0.557 / 29% | $0.294 / 20% | $1.395 / 24% | $0.798 / 20% |
| Operating expenses | $1.488 | $1.252 | $3.888 | $3.508 |
| Loss from continuing operations, net | $(0.824) | $(0.928) | $(2.162) | $(2.508) |
| Net equity income from foreign joint ventures | $0.219 | $0.030 | $0.564 | $0.089 |
| Net income (loss) attributable to common stockholders | $3.499 | $(1.129) | $(1.584) | $(4.861) |
| Operating cash flow | Not separately stated for Q3 | $(1.851) | $(2.036) |
- Q3 reported net income included $4.413 million from discontinued operations, including a $6.279 million gain on the U.S. asset sale. Nine-month discontinued-operations income was $0.848 million.
- Cash was $5.653 million at September 30, 2018, including $2.96 million of buyer deposits also recorded as a liability. Working capital was $2.547 million and the current ratio was 1.5:1.
- Total liabilities were $5.419 million. Long-term secured debt was paid off in August; short-term debt was $0.199 million. The filing reported debt equal to 0% of total capitalization, but also disclosed $0.20 million of outstanding debt.
- Nine-month investing cash flow was positive $12.673 million, chiefly reflecting the sale proceeds and BOMAY dividends. Financing cash flow was negative $7.407 million, mainly from debt repayment. Cash ended the period at $5.653 million.
- The filing reports no separate continuing-operations cash flow margin. Continuing EBITDA, a non-GAAP measure, was negative $0.680 million for Q3 and negative $1.794 million for the nine-month period.
Material changes versus prior comparable periods
- Continuing revenue rose 33% in Q3 and 47% for the nine-month period. Gross margin increased to 29% and 24%, respectively, from 20% in both prior periods.
- Continuing operating losses narrowed, helped by higher gross profit and stronger BOMAY equity income; general and administrative expense increased to $1.390 million in Q3 and $3.599 million for nine months.
- The U.S. business sale generated $12.4 million of cash proceeds at closing after estimated working-capital and other adjustments; the buyer also assumed about $12.8 million of liabilities. The sale enabled repayment of approximately $6.5 million of secured debt.
- Accumulated other comprehensive income moved from positive $0.401 million at year-end 2017 to negative $0.644 million at September 30, 2018, principally due to foreign-currency translation and the disposal of the MIEFE joint-venture interest.
Outlook, risks, contingencies and unusual items
- Management cited signs of recovery among international drilling customers, potential Brazilian growth as oil prices stabilized and major oil companies returned, and anticipated BOMAY market growth in China. It also said it was evaluating U.S. investment opportunities. No quantified financial guidance was provided.
- The buyer subsequently asserted a roughly $4.3 million decrease in working capital versus the estimate used at closing. AETI disagreed and said supporting documentation was insufficient; no adjustment was included in the reported sale gain. The company was to respond by November 28, 2018, with unresolved items potentially going to an independent accounting arbitrator. Any final adjustment was expected to be reflected in Q4 2018.
- AETI reported recurring losses and negative operating cash flows in recent years, said it was monitoring liquidity, and warned that additional debt or equity financing might be needed; access and terms were not assured.
- The Series A preferred stock carries cumulative 6% dividends and is redeemable at the holders’ option under stated terms. After repayment of the secured note, restrictions on cash dividends and redemption no longer applied. The preferred stock was reported at $4.483 million, with accrued unpaid dividends of approximately $0.08 million.
- Key risks include cyclical customer demand tied to oil and gas prices, foreign-currency exposure, and copper, steel and aluminum price increases that may not be recoverable from customers. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm issuer identity: the supplied text identifies AETI, whereas the request names Stabilis Solutions, Inc.
- Review the final net-working-capital determination and any resulting purchase-price adjustment to the U.S. asset sale.
- Reconcile cash available for operations with the $2.96 million of buyer deposits included in cash and liabilities, and assess ongoing cash burn and financing needs.
- Assess the terms, potential redemption timing, and dividend obligations of the Series A preferred stock.
- Evaluate whether Brazil and BOMAY growth can offset the loss of the U.S. operating business, including foreign-exchange and commodity-cost risks.