Stabilis Solutions, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Stabilis provides LNG production, delivery, equipment rental and related services, primarily in North America, and owns a 40% interest in China-based BOMAY, accounted for under the equity method. Results are presented as continuing operations; the Brazil business, sold in October 2022, is reported as discontinued operations.
Financial performance
Amounts below are in millions of dollars except per-share data. Percentages for gross margin are calculated from reported revenue and cost of revenue.
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $12.9 | $23.2 | $39.7 | $43.4 |
| Gross margin | 18.0% | 15.6% | 22.4% | 19.3% |
| Operating loss, including equity income | $(1.8) | $(1.9) | $(0.4) | $(2.1) |
| Net loss | $(2.2) | $(2.2) | $(1.1) | $(2.6) |
| Basic and diluted loss per share | $(0.12) | $(0.12) | $(0.06) | $(0.14) |
- Revenue and margins: Q2 revenue fell 44.2% year over year; first-half revenue fell 8.4%. LNG product revenue was $10.6 million in Q2 and $32.5 million in the first half. First-half cost of revenue fell faster than revenue, lowering cost of revenue to 78% of sales from 81% a year earlier.
- Cash flow: First-half operating cash flow was $3.9 million, versus $4.6 million in 2022. Capital expenditures were $5.2 million, compared with $1.0 million; operating cash flow less capital expenditures was therefore approximately negative $1.3 million. Financing used $2.0 million, mainly for debt repayments. Cash declined $3.3 million to $8.1 million.
- Liquidity and debt: At June 30, cash was $8.1 million. The company disclosed $10.2 million of outstanding debt and lease obligations, with $1.7 million due within 12 months. It reported $4.0 million of total availability under its revolving and term loan facilities. No borrowings were outstanding under the new revolver.
- Balance sheet: Total assets were $81.7 million and stockholders’ equity was $59.5 million. Current assets were $14.0 million versus current liabilities of $13.7 million.
Material changes and operating drivers
- Q2 revenue decreased $10.2 million, primarily from lower natural gas prices passed through to customers, fewer LNG gallons delivered, customer mix and lower rental and service revenue. Take-or-pay revenue partly offset the declines.
- Management attributed lower delivered volumes in part to feed-gas composition changes at the South Texas production facility. For the first half, increased customer pricing, take-or-pay revenue and higher rental, service and other revenue partly offset lower gas prices and volumes.
- Q2 gross margin improved year over year despite lower revenue, while reported net loss was broadly unchanged. For the first half, net loss improved by $1.5 million, supported by lower operating costs and higher BOMAY equity income.
- Foreign joint venture equity income was $1.0 million for the first half, up from $0.8 million. A $0.6 million foreign-currency translation loss reduced the carrying value of the investment during the period.
- Property, plant and equipment purchases included additional liquefaction assets and rolling stock. Open capital expenditure purchase orders were approximately $4.0 million at quarter-end.
Outlook, risks and notable items
- Management believes operating cash flow and availability under debt agreements will fund the business for the next 12 months, but cautions that future cash generation and access to additional financing are uncertain. No specific revenue or earnings guidance was provided.
- The June 2023 Cadence Bank revolving facility has a $10.0 million maximum commitment, subject to a borrowing base, and matures June 9, 2026. It is secured by accounts receivable and deposit accounts and carries financial covenants; the company reported compliance at June 30. The AmeriState secured term loan had $1.0 million available for future draws, according to management.
- The company’s liquidity outlook depends on LNG demand and volumes, commodity prices, production reliability, customer mix, transportation and other inflationary costs, and continued access to financing. It specifically notes that feed-gas composition affected production volumes.
- Natural-gas call options covering 0.9 million MMBtu extended into Q2 2024 and were held to manage price exposure related to customer commitments. Derivative fair-value changes affect earnings; the company reported a Q2 unrealized gain of $0.2 million, compared with a $0.9 million loss in Q2 2022.
- A shelf registration permits potential issuance of up to $100 million in securities, subject to limitations and market conditions; no shares were issued under it during the first half. A 685,437-unit stock appreciation rights award was granted in June, with vesting tied to the share price reaching a specified threshold.
- Management reported no material change in risk factors from the 2022 Form 10-K, no material expected environmental compliance expenditures, and no anticipated material effect from ordinary-course legal matters. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Key facts for investors to verify
- Whether LNG deliveries recover from the feed-gas composition constraint and how volumes, pricing and take-or-pay contracts affect revenue and margins.
- Whether cash generation can support planned capital spending, debt service and the approximately $4.0 million of open capital expenditure orders.
- The actual borrowing capacity available under the Cadence borrowing base and the company’s compliance with all facility covenants in future periods.
- How inflationary transport and liquefaction costs, natural-gas derivative settlements and fair-value movements affect reported profitability.
- The timing and terms of any future financing or securities issuance, including potential dilution from equity awards or use of the shelf registration.