Business context and reporting period
The supplied filing is American Electric Technologies, Inc. (AETI), not Stabilis Solutions, Inc. It is an annual Form 10-K for the fiscal year ended December 31, 2014; the filing also reports fourth-quarter results. AETI provides power-delivery products and services, mainly to energy markets, through Technical Products and Services (TP&S) and Electrical and Instrumentation Construction (E&I). Results below are for continuing operations unless noted. The American Access Technologies (AAT) business was sold during 2014 and reported as discontinued operations.
Key financial metrics
| Metric | 2014 | 2013 |
|---|---|---|
| Continuing-operations revenue | $57.3 million | $59.2 million |
| Gross profit / margin | $5.0 million / 9% | $11.2 million / 19% |
| Continuing-operations loss attributable to common stockholders | $(2.4) million; $(0.29) per share | $4.9 million; $0.62 per share |
| Total net loss attributable to common stockholders, including discontinued operations | $(5.1) million; $(0.62) per share | $4.2 million; $0.53 per share |
| Operating cash flow | $(2.2) million | $0.9 million |
| Cash and cash equivalents at year-end | $3.6 million | $4.1 million |
| Total debt at year-end | $4.0 million | $0.5 million |
- TP&S revenue increased 2% to $50.0 million; gross profit fell to $4.1 million from $9.1 million. E&I revenue declined 28% to $7.3 million; gross profit fell to $0.9 million from $2.1 million.
- Working capital was $11.3 million and the current ratio was 2.1 to 1 at year-end. The company reported $3.2 million of unused credit capacity under its facility at December 31, 2014.
- Capital expenditures were $4.9 million, primarily for the Beaumont facility expansion. Investing activities used $2.0 million; financing activities provided $2.8 million.
- Non-GAAP EBITDA was a loss of $1.5 million, versus EBITDA of $6.4 million in 2013.
- In the fourth quarter, continuing-operations revenue was $13.7 million, gross profit was $37,000, and continuing-operations net loss was $2.0 million, or $0.25 per share.
Material changes versus the prior comparable period
- Revenue decreased 3%, but gross profit declined 55% and the gross margin contracted by 10 percentage points. Management attributed the deterioration principally to execution issues on large power distribution center projects, manufacturing cost overruns on new arc-resistant products, increased warranty reserves, and a write-down of remaining solar-business assets.
- Operating cash flow shifted from a $0.9 million inflow to a $2.2 million outflow. Cash declined by $0.6 million during 2014.
- AAT’s sale resulted in a reported $2.3 million impairment charge; discontinued operations recorded a total 2014 loss of $2.7 million, compared with a $0.7 million loss in 2013.
- Net equity income from foreign joint ventures, after related expenses, declined to $1.7 million from $2.8 million, mainly following AETI’s April 2014 exit from its Brazilian AAG joint venture.
- Backlog at December 31, 2014 was $26.5 million under the revised calculation method, compared with $20.0 million at December 31, 2013 under that method. The prior method showed $35.1 million versus $23.6 million. The methods are not directly comparable.
Outlook, commentary, risks and unusual items
- Management entered 2015 with $26.5 million of backlog and said it expected backlog work to support revenue, while cautioning that low oil prices could delay or cancel orders. It planned to adjust costs and expenditures as conditions required; the filing provides no specific revenue or earnings guidance.
- Management said available working capital, a new term loan, unused credit capacity and operating earnings were expected to cover working-capital needs for the next 12 months. It also said it could seek debt or equity financing depending on cash needs.
- After year-end, in March 2015, AETI refinanced the $4.0 million revolving borrowing with a $4.0 million term loan, secured by a mortgage on the Beaumont facility, bearing interest at adjusted LIBOR plus 3.50% and maturing March 31, 2020. The revolving facility maturity was set for December 31, 2015. The term loan requires $222,222 of principal payments in 2015.
- Key risks include dependence on oil and gas customers (72% of 2014 sales), the potential effects of lower oil prices, fixed-price project overruns and percentage-of-completion estimates, cancellations or changes to backlog, raw-material price increases, skilled-labor availability, and international, currency and China joint-venture risks.
- AETI’s 40% BOMAY investment generated $2.1 million of equity income in 2014. BOMAY’s 12-year term was due to expire in 2018 unless extended; AETI said it had no indication it would not be extended. The filing also warns that U.S. regulators may be unable to inspect BOMAY audit work papers prepared in China.
- The company’s $4.3 million redeemable convertible preferred stock accrues cumulative dividends at 6%; holders may require redemption after a material default or after April 30, 2017, subject to the contractual terms. Common-stock cash dividends were not paid and were restricted by the loan agreement.
- Management reported effective disclosure controls and internal control over financial reporting. The independent auditor issued an unqualified opinion on the financial statements, but did not attest to internal-control effectiveness.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for American Electric Technologies, Inc. (AETI), not Stabilis Solutions, Inc.
- Review the full statements and notes for the drivers, timing and cash implications of project overruns, warranty reserves, the solar-asset write-down and the AAT impairment.
- Verify the post-year-end loan terms, covenant compliance, required principal payments and remaining revolving-credit availability.
- Assess backlog quality and cancellation exposure, keeping in mind the changed calculation method and that joint-venture backlog is excluded.
- Evaluate the concentration in oil and gas, the effect of lower oil prices, and the accessibility of earnings and distributions from foreign joint ventures.
- Review preferred-stock redemption and dividend obligations, and the value and timing of proceeds from the remaining AAT real estate held for sale.