Business context and reporting period
The supplied filing is American Electric Technologies, Inc. and subsidiaries’ unaudited Form 10-Q for the three months ended March 31, 2014. The company provides power-delivery products and services, electrical and instrumentation construction, and cabling and formed-metal products. It reports three segments: Technical Products and Services (TP&S), Electrical and Instrumentation Construction (E&I), and American Access Technologies (AAT). The filing entity does not match the request metadata naming Stabilis Solutions, Inc.; verify the intended company and filing before relying on this summary.
Financial results and position
Unless noted otherwise, figures are in millions of dollars. The comparable period is the three months ended March 31, 2013.
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Revenue | $17.400 | $14.430 |
| Gross profit / margin | $2.572 / 14.8% | $2.980 / 20.7% |
| Domestic operating income | $0.230 | $0.602 |
| Net equity income from foreign joint ventures | $0.362 | $1.407 |
| Net income before preferred dividends | $0.580 | $1.738 |
| Net income attributable to common stockholders | $0.494 | $1.653 |
| Basic / diluted EPS | $0.06 / $0.06 | $0.21 / $0.18 |
| Operating cash flow | $(2.134) | $1.259 |
| Cash and cash equivalents | $1.725 at Mar. 31, 2014 | $4.148 at Dec. 31, 2013 |
| Working capital / current ratio | $15.540 / 2.4:1 | $15.282 / 2.4:1 at Dec. 31, 2013 |
| Credit-facility borrowings | $1.500 | $0.500 at Dec. 31, 2013 |
Cash used in investing activities was $0.831 million, including $1.661 million of capital expenditures and $0.830 million of joint-venture dividends received. Financing activities provided $0.542 million, including $1.000 million of credit-line borrowing, offset partly by treasury-stock purchases and preferred dividends. Cash declined by $2.423 million during the quarter. EBITDA, a non-GAAP measure, was $0.824 million versus $2.195 million.
Material changes versus the prior comparable period
- Revenue rose $2.970 million, or about 21%, led by TP&S, whose revenue increased 34% to $14.086 million. E&I revenue fell 30% to $1.762 million; AAT revenue increased 9% to $1.552 million.
- Gross profit fell $0.408 million and gross margin declined to 14.8% from 20.7%. E&I and AAT gross profit weakened, partly offset by TP&S growth.
- Joint-venture equity income dropped $1.045 million. Management cited weaker China activity and the completion of non-recurring Brazil projects. BOMAY returned to profitability in Q1 after losses late in 2013.
- Operating cash flow swung from $1.259 million provided to $2.134 million used, with management attributing the change chiefly to working-capital use, including higher inventory and contract billings.
- Segment details: TP&S gross profit rose to $2.130 million; E&I fell to $0.305 million, partly due to extended work on fixed-price contracts; AAT fell to $0.137 million, with margin declining to 9% from 15%.
Outlook, commentary, risks and unusual items
- No numerical company-wide earnings or revenue guidance is provided. Management said Q1 backlog of $19.6 million, down from $23.6 million at year-end, was expected to convert to revenue during the remainder of fiscal 2014.
- Management expected BOMAY to be profitable for 2014, while noting results were below Q1 2013. BOMAY activity is seasonal.
- The company said it was considering alternatives for AAT, including a sale of the segment or assets, or redeployment of assets. No decision had been made; management expected to resolve the uncertainty during 2014, and AAT continued operating as a going concern.
- On April 15, 2014, the company notified its Brazilian joint-venture partner of its intent to withdraw from AAG and said it was organizing a wholly owned subsidiary to continue Brazilian operations. Transition start-up costs could affect consolidated expenses.
- Liquidity: the $10 million revolving facility matures October 1, 2015; $8.4 million of additional borrowing capacity was reported at March 31, 2014. The facility is secured by specified real estate, receivables, equipment, inventory and work-in-progress, and has financial covenants. Management believed cash, working capital, unused facility capacity and operating earnings would meet needs for the next 12 months.
- Risks discussed include cyclical and capital-intensive energy markets, weaker foreign joint-venture conditions, competitive pricing and foreign competition at AAT, commodity-price exposure (notably copper, steel and aluminum), and working-capital demands. Management said legal proceedings in the ordinary course were not expected to have a material effect; no material risk-factor changes were reported.
- Disclosure controls were deemed effective as of March 31, 2014, with no material quarterly change in internal control over financial reporting. The filing reports no defaults on senior securities.
Important facts for investors to verify
- Confirm the intended issuer: the filing is for American Electric Technologies, Inc., not Stabilis Solutions, Inc.
- Review the deterioration in gross margin and earnings despite higher sales, particularly E&I fixed-price contract performance and AAT profitability.
- Assess cash conversion, working-capital needs, remaining liquidity, and compliance with the credit facility’s covenants.
- Track joint-venture earnings and distributions, especially BOMAY’s 2014 performance and the proposed AAG exit and Brazil transition costs.
- Monitor the AAT strategic review and the conversion of the reduced $19.6 million backlog into revenue.