Business context and reporting period
The filing is a Form 10-Q for the three months ended March 31, 2018. The registrant named in the filing is American Electric Technologies, Inc. (AETI), an electrical power distribution, conversion, automation and services provider serving oil and gas, power generation, marine and industrial markets. This differs from the request metadata, which names Stabilis Solutions, Inc.; verify the issuer and filing identity.
Financial results and condition
Unless otherwise noted, amounts are in millions of U.S. dollars.
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Net sales | $8.289 | $8.030 |
| Gross margin | $(0.989); (12%) | $(0.556); (7%) |
| Operating loss | $(2.837) | $(2.365) |
| Net loss | $(2.964) | $(2.495) |
| Net loss attributable to common stockholders | $(3.054); $(0.35) per share | $(2.584); $(0.31) per share |
| Net cash used in operating activities | $(1.514) | $(0.958) |
| Cash and cash equivalents at period end | $0.627 | $2.289 at Dec. 31, 2017 |
| Total debt | $6.12 | — |
| Working capital | $0.136 | $1.032 at Dec. 31, 2017 |
Q1 investing cash use was $0.079 million and financing cash use was $0.072 million. Current assets were $14.791 million and current liabilities $14.655 million; the company reported a 1.0-to-1 current ratio. The senior secured note bears fixed interest of 11.5%. The company had no availability for additional borrowings under its credit agreement.
Material changes and operating developments
- Sales rose 3%, but gross loss widened by $0.433 million. Management attributed the weaker gross margin mainly to competitive pricing pressure and $0.66 million of Q1 cost overruns.
- Oil and gas revenue increased to $4.570 million from $3.913 million; power generation and distribution revenue fell to $1.974 million from $2.855 million. Marine and other industrial revenue increased to $1.745 million from $1.262 million.
- Net equity income from foreign joint ventures was $0.110 million, versus a $0.012 million loss, primarily reflecting improved BOMAY performance. BOMAY approved a $2.91 million dividend distribution; AETI’s $1.05 million share was accrued as a current asset, with distribution expected in June 2018.
- Order backlog was $24.9 million at March 31, up from $18.9 million at year-end but down $1.7 million year over year. Management expected backlog to convert to revenue during the remainder of 2018 and in 2019.
- Foreign-currency translation income was $0.375 million, principally from the strengthening of the Chinese yuan; accumulated other comprehensive income increased to $0.776 million.
Outlook, risks and unusual items
Management cited potential opportunities from natural-gas-related projects, IntelliSafe switchgear, and energy-market recovery, while noting that recovery may not continue. It also planned to expand Brazilian services and diversify the China joint venture. No specific revenue or earnings guidance was provided.
The filing states that recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. Management believed asset monetization, financing actions and operating initiatives would probably meet estimated liquidity needs for 12 months from issuance, but acknowledged uncertainty. The company had hired an investment banker and was exploring value realization from assets, including its Beaumont, Texas facility. Asset-sale and financing options may be constrained by debt and preferred-stock agreements; additional capital may not be available on favorable terms.
AETI was not in compliance with the senior note’s minimum monthly EBITDA covenant at March 31, 2018, but received a waiver for the period. Future covenant failures could lead to default, accelerated repayment or additional interest if waivers are unavailable. The note requires monthly principal reductions of $30,000 beginning in April 2018. The company also reported $4.453 million of redeemable convertible preferred stock, with a 6% cumulative dividend and potential redemption rights subject to contractual restrictions. A shareholder vote was planned for June 2018 regarding issuance limits tied to conversion and warrant exercise.
In 2017, Hurricane Harvey delayed customer projects and reduced revenue by an estimated $2.5 million. AETI received $0.12 million of business-interruption insurance proceeds in January 2018; any additional recovery was uncertain and, if received, was expected to be recorded no earlier than Q2 2018. The company adopted the new revenue-recognition standard on January 1, 2018 and reported no material impact apart from enhanced disclosures.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is for American Electric Technologies, Inc., not Stabilis Solutions, Inc.
- Assess whether planned liquidity actions can be completed in time, given $0.627 million of cash, thin working capital and the going-concern uncertainty.
- Monitor covenant compliance, lender waivers, scheduled principal payments and any risk of debt acceleration.
- Track whether the company can improve gross margins after Q1 cost overruns and pricing pressure.
- Verify backlog conversion, collection and timing of the BOMAY dividend, and any additional Hurricane Harvey insurance recovery.
- Review potential preferred-stock redemption, dilution from conversion or warrants, and the outcome of the planned shareholder approval.