Business context and reporting period
This is American Electric Technologies, Inc. (AETI), not Stabilis Solutions, Inc., as indicated in the request metadata. The unaudited Form 10-Q covers the quarter and nine months ended September 30, 2016. AETI supplies power distribution, conversion, automation and related services, principally to energy, power-generation, marine and industrial markets.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $8.67 million | $13.78 million | $28.42 million | $41.39 million |
| Gross profit (loss) / margin | ($0.45) million / (5%) | $2.56 million / 19% | $0.87 million / 3% | $6.89 million / 17% |
| Operating income (loss) | ($2.65) million | $0.22 million | ($5.67) million | $0.70 million |
| Net income (loss) attributable to common stockholders | ($2.71) million | $0.12 million | ($5.62) million | $0.76 million |
| Basic loss per share | ($0.33) | $0.01 earnings | ($0.68) | $0.09 earnings |
| Operating cash flow | Not separately reported | Not separately reported | ($5.56) million | $3.78 million |
At September 30, cash was $2.90 million, total assets $36.50 million, working capital $5.71 million and the current ratio 1.5:1. Total borrowings under the bank facilities were $5.85 million; debt was 24% of total capitalization. The company reported no additional borrowing capacity under Facility A. Nine-month EBITDA, a non-GAAP measure, was a loss of $4.47 million, versus $1.68 million income a year earlier.
Material changes versus the prior comparable period
- Revenue fell 37% in Q3 and 31% for the nine-month period, primarily due to lower oil-and-gas activity and reduced product sales. Management cited competitive pricing and lower volumes.
- Gross margin deteriorated sharply, including a Q3 gross loss. Management attributed this mainly to $1.20 million of cost overruns on a single power-generation project, alongside pricing pressure and lower revenue.
- Cash declined $5.09 million from year-end. Operating activities used $5.56 million, including a $3.05 million cash outflow from increased costs and estimated earnings in excess of billings on uncompleted contracts, partly offset by higher accounts payable.
- Oil-and-gas revenue for the nine months fell to $14.38 million from $33.55 million. Power-generation and distribution revenue rose to $9.18 million from $3.39 million, but that segment recorded a gross loss of $0.74 million versus gross profit of $0.70 million.
- Backlog was $10.93 million at September 30, down from $11.60 million at June 30; management expected most of it to be recognized during the remainder of 2016.
Outlook, risks and unusual items
Management described continued weakness in energy markets, delayed or cancelled customer projects and pricing pressure, and said these conditions continued into Q4 2016. It was emphasizing power-generation and distribution, refining and petrochemical markets, and its IntelliSafe arc-resistant switchgear, while continuing cost-reduction measures. Management viewed Brazil as flat and China demand as down. The filing provides no quantified revenue or earnings guidance.
- The company breached the fixed-charge-coverage covenant at September 30 and received a waiver for the period. Facility A was capped at $1.50 million until covenant compliance returns, leaving no borrowing availability; management cautioned that future compliance or waivers were not assured.
- Credit facilities bear interest at LIBOR plus 4.00% according to the loan note. The market-risk discussion separately describes LIBOR plus 2.75%; this inconsistency should be checked against the executed loan documents.
- Series A preferred stock accrues a 6% annual dividend. Holders of a majority may require redemption on or before April 30, 2017; repayment is in 36 monthly installments plus interest. Accrued unpaid dividends were $0.08 million at quarter-end.
- AETI sold its South Coast Electric manufacturing facility and related assets in June 2016, recognizing a $0.18 million gain. It retained the entity and service organization.
- The Singapore joint venture MIEFE was inactive and its investment was written down to zero in Q1; the company also accrued $0.27 million for its intended share of further losses. BOMAY remained profitable.
- Legal proceedings in the ordinary course were not expected by management to materially affect financial position or results. The filing reported no material change in previously disclosed risk factors.
Important facts for investors to verify
- Confirm the issuer identity: the provided filing is AETI’s, not Stabilis Solutions’.
- Review the project cost overruns, remaining contract estimates, and recoverability of contract assets and receivables.
- Confirm covenant status, waiver terms, borrowing availability, and the conflicting stated interest-rate spreads.
- Assess near-term cash needs, preferred-stock redemption exposure, and potential access to additional financing.
- Track backlog conversion, segment gross margins, and the effect of continuing energy-market weakness.