Business context and reporting period
Filing identity: The supplied filing is American Electric Technologies, Inc. (AETI), not Stabilis Solutions, Inc. It is a Form 10-Q for the quarter ended September 30, 2013; figures below are in thousands of dollars unless stated otherwise.
AETI provides electrical power delivery products and services through Technical Products and Services (TP&S), Electrical and Instrumentation Construction (E&I), and American Access Technologies (AAT). It also holds equity-method interests in joint ventures in China, Singapore, and Brazil.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $17,585 | $11,725 | $47,184 | $39,029 |
| Gross profit / margin | $2,867 / 16% | $1,689 / 14% | $8,243 / 17% | $5,634 / 14% |
| Income from domestic operations | $756 | $123 | $1,754 | $92 |
| Net equity income from foreign joint ventures | $368 | $723 | $2,936 | $2,325 |
| Net income attributable to common stockholders | $901 | $500 | $3,617 | $1,595 |
| Diluted earnings per share | $0.10 | $0.06 | $0.41 | $0.19 |
| EBITDA (company-defined, non-GAAP) | $1,357 | $1,055 | $5,310 | $3,093 |
- Q3 revenue increased 50%; nine-month revenue rose 21%. TP&S was the main growth driver. Nine-month revenue increased $8,155, while gross profit rose $2,609.
- Q3 pretax income was $1,097 versus $817 a year earlier; nine-month pretax income was $4,618 versus $2,301. Effective tax rates were 10% and 16%, respectively, for the quarter and nine-month period, versus 28% and 24% in 2012.
- Cash from operations was negative $511 for the first nine months, compared with positive $1,153 in 2012. Working-capital use, including higher inventory and contract costs in excess of billings, contributed to the outflow. Investing activities provided $613; financing activities used $403.
- Cash was $4,176 at September 30, 2013, down from $4,477 at year-end 2012. Working capital was $14,581; the current ratio was 2.15:1, compared with 2.2:1 at year-end.
- Total assets were $45,710 and total liabilities $16,533. Debt included $500 of short-term notes; the company reported $5,200 of additional borrowing capacity. Debt was 2% of total capitalization.
- Series A redeemable convertible preferred stock was recorded at $4,225 and accrues cumulative dividends at 6% annually. Preferred dividends attributable to common-stock earnings were $256 for the nine months.
Material changes and operating drivers
- TP&S Q3 revenue increased $5,067 year over year, reflecting stronger demand for power conversion and distribution equipment, particularly for energy projects. Nine-month TP&S revenue rose 30% to $35,607.
- E&I Q3 revenue rose to $2,266 from $1,495. Nine-month revenue was nearly flat, but gross margin increased to 21% from 8%, which management attributed to exiting the lower-margin municipal water/wastewater business and replacing much of that work with oil and gas projects.
- AAT Q3 revenue was $1,349, slightly above the prior year; nine-month revenue declined to $4,441 from $4,554. The segment remained focused on cost containment and marketing.
- Net equity income from foreign joint ventures fell $355 in Q3, mainly from lower BOMAY and AAG performance, but increased $611 for the nine-month period, supported by improved MIEFE and AAG results.
- Backlog was $31.1 million at September 30, 2013, up from $15.5 million at year-end 2012. TP&S backlog was $25.6 million, and approximately 60% of total backlog was expected to convert to revenue during the remainder of 2013.
Outlook, risks and other matters
- Management said existing cash, working capital, unused credit capacity, and operating earnings were expected to meet working-capital needs for the next 12 months. It was negotiating a replacement credit facility with Chase; the existing facility matures July 1, 2014. Management also said future growth needs could lead to debt or equity financing.
- The company described U.S. shale activity as supporting demand, while energy-market conditions in China, Singapore, and Brazil were slowing. Management warned that CNPC-related investigations and possible organizational changes could cause further project delays at BOMAY; it said BOMAY and its partner were not understood to be involved in the allegations.
- Commodity-price exposure, particularly copper, steel, and aluminum, could pressure margins if cost increases cannot be passed through to customers. Foreign-currency translation also affects reported equity-method investment values.
- Management reported compliance with credit covenants; the minimum current-ratio covenant was 2.0:1. The filing states that legal matters in the normal course of business were not expected to materially affect financial position or results. No material risk-factor changes or material control changes were reported; disclosure controls were deemed effective.
- No specific earnings or revenue guidance was provided. The filing cautions that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is for American Electric Technologies, Inc., not Stabilis Solutions, Inc.
- Assess whether backlog converts as expected and whether continued working-capital needs affect cash generation.
- Monitor the Chase facility renewal, its July 2014 maturity, borrowing availability, and covenant headroom.
- Evaluate the sustainability of joint-venture earnings and distributions, especially amid slowing demand and possible BOMAY project delays.
- Review the dilution and cash cost associated with the preferred stock, its cumulative 6% dividend, and conversion rights.