Business context and reporting period
This is American Electric Technologies, Inc. (AETI), not Stabilis Solutions, Inc., for the quarter ended June 30, 2017. The unaudited 10-Q covers the three and six months ended June 30, 2017, with comparisons to 2016. AETI provides electrical power distribution, conversion, automation, and related services, including for oil and gas, power generation, marine, and industrial markets.
Financial performance
Amounts below are in millions of U.S. dollars except per-share data and ratios.
| Metric | Q2 2017 | Q2 2016 | H1 2017 | H1 2016 |
|---|---|---|---|---|
| Revenue | 12.96 | 11.44 | 20.99 | 19.74 |
| Gross profit | 0.82 | 1.23 | 0.26 | 1.32 |
| Gross margin | 6% | 11% | 1% | 7% |
| Operating loss | (0.85) | (0.37) | (3.22) | (3.02) |
| Net income (loss) attributable to common stockholders | (1.15) | 0.06 | (3.73) | (2.91) |
| Basic and diluted EPS | (0.13) | 0.01 | (0.44) | (0.35) |
| EBITDA, as reported by the company | (0.69) | 0.49 | (2.85) | (2.19) |
Revenue rose 13% in Q2 and 6% in H1, but gross profit and margins fell. Management attributed margin pressure to competitive pricing and project cost overruns: $0.20 million on power-generation projects in Q2 and $0.41 million in H1. Q2 oil-and-gas revenue increased substantially, while power-generation revenue fell 76%; for H1, oil-and-gas revenue increased and power-generation revenue declined 35%. Power generation and marine/other industrial sectors reported negative gross profit in H1.
Cash flow, liquidity, and debt
- Cash and cash equivalents were $3.24 million at June 30, versus $1.62 million at year-end 2016. H1 operating cash flow was positive $0.43 million, compared with negative $4.22 million in H1 2016; the company cited advance payments on two projects. Investing cash flow was positive $0.65 million, and financing cash flow was positive $0.55 million.
- Working capital was $2.85 million, down from $3.30 million; the current ratio was 1.2 versus 1.3. Current assets were $18.63 million and current liabilities $15.79 million.
- AETI issued a $7.0 million senior secured term note in March 2017, bearing fixed interest at 11.5%, with $0.5 million principal paid in June and the remaining principal due in 2021. The note is secured by substantially all specified assets and includes financial and other covenants. The balance sheet reports $6.104 million of long-term notes payable, net, and a $0.299 million short-term note payable. The filing’s MD&A separately states total outstanding debt of $6.10 million; the exact reconciliation is not clear from the text.
- The company had no availability under its credit agreements. The note requires minimum monthly EBITDA and other financial tests; AETI was not in compliance with the minimum monthly EBITDA covenant at June 30 but received a waiver for that period. Management warned that future noncompliance could lead to default, accelerated repayment, or an additional interest rate and principal amortization.
Outlook, risks, and unusual items
- Backlog was $22.67 million at June 30, down from $26.64 million at March 31. Management expected most of it to be recognized as revenue during the remainder of 2017; this is an expectation, not formal earnings guidance.
- Management cited potential opportunities in natural-gas power generation, midstream and downstream oil and gas, LNG, and IntelliSafe switchgear. It described China as likely flat and Brazil as uncertain amid political and economic challenges, and said it would adjust costs and expenditures to conditions. It may seek additional debt, equity, or combined financing depending on cash needs.
- The company identifies cyclical energy demand and oil and gas prices, liquidity and access to financing, covenant compliance, foreign currency movements, and copper, steel, and aluminum prices as risks. Competitive pricing and project overruns are already affecting margins.
- Series A redeemable convertible preferred stock carries a 6% cumulative dividend. Holders had redemption rights beginning April 30, 2017, but agreed to a standstill through the earlier of March 22, 2018 or repayment of the term note; cash dividends and redemptions are restricted during that period. On August 1, 2017, after quarter-end, the company entered a repricing agreement changing preferred-stock conversion and warrant exercise prices and limiting issuance above 19.99% of common stock or voting power without shareholder approval.
- Legal proceedings in the ordinary course were not expected by management to have a material effect. The filing reported no material changes to the risk factors in the 2016 Form 10-K and no material changes to internal control over financial reporting during the quarter.
Most important facts to verify
- Confirm the issuer: the supplied filing is for American Electric Technologies, Inc., despite the request metadata naming Stabilis Solutions, Inc.
- Review the senior-note covenant waiver, ongoing compliance, and the lender’s remedies if future tests are missed.
- Assess whether the $22.67 million backlog converts to revenue and cash as management expected, and whether project execution improves gross margins.
- Reconcile reported debt, including the $0.299 million short-term note, and evaluate liquidity given no remaining credit availability and the 11.5% secured borrowing.
- Review preferred-stock redemption, dividend restrictions, the August 1 repricing terms, and required shareholder approval for potential additional share issuance.