Stabilis Solutions, Inc. annual report, FY2011

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Business context and reporting period

This filing is American Electric Technologies, Inc. (AETI), not Stabilis Solutions, Inc. It is a Form 10-K for the fiscal year ended December 31, 2011; the filing also reports fourth-quarter results. AETI operated three segments: Technical Products and Services (TP&S), Electrical and Instrumentation Construction (E&I), and American Access Technologies (AAT), serving energy, industrial, infrastructure, and related markets.

Financial performance and position

  • Revenue: $51.94 million in 2011, up 33% from $38.96 million in 2010. TP&S revenue was $28.93 million (+41%), E&I $15.48 million (+35%), and AAT $7.53 million (+10%).
  • Profitability: Gross profit rose to $7.16 million from $3.66 million; gross margin improved to 13.8% from 9.4%. Domestic operations recorded a $1.71 million loss, improved from a $4.33 million loss. Net loss widened to $5.89 million from $1.69 million, or $(0.75) per diluted share versus $(0.22).
  • Key earnings item: The 2011 net loss included a $5.4 million non-cash income-tax expense, reflecting a valuation allowance against deferred tax assets. Before tax, the company lost $446,000, compared with a $2.78 million loss in 2010.
  • Cash flow: Operating activities provided $1.05 million, versus $1.73 million used in 2010. Investing activities provided $502,000, including $1.16 million in joint-venture distributions; capital expenditures were $533,000. Financing activities provided $831,000. Year-end cash was $3.75 million, up from $1.36 million.
  • Liquidity and debt: Working capital was $11.24 million (2010: $11.98 million); current ratio was about 2.0 (2010: 2.9). Total debt, including capital lease obligations, was $5.21 million, versus $4.42 million; revolving borrowings were $5.0 million. The credit facility had $3.7 million of stated additional availability at year-end and matured July 2013.
  • Balance sheet: Total assets were $36.23 million; liabilities $18.71 million; stockholders’ equity $17.52 million. Debt was 23% of total capitalization, compared with 16% in 2010.
  • Fourth quarter: Revenue was $14.74 million and gross profit $2.27 million. Net loss was $5.20 million, largely reflecting the deferred-tax valuation allowance.

Material changes versus prior period

  • Revenue and gross margin recovered from a weak 2010, led by land-drilling demand and lower indirect cost of sales. Gross profit improved in each quarter of 2011.
  • All three segments grew sales. TP&S gross profit increased to $4.59 million from $1.16 million; E&I gross profit rose to $1.23 million from $834,000. AAT gross profit fell to $1.33 million from $1.67 million, and its gross margin declined to 18% from 24%.
  • Net equity income from foreign joint ventures declined to $1.48 million from $1.87 million. The prior-year result benefited from a $660,000 reversal of an old BOMAY accrual.
  • Cash from operations turned positive, while cash, debt, and working-capital movements reflected growth-related receivables, inventory, customer deposits, and additional revolver borrowings.

Outlook, risks, and unusual items

  • Management entered 2012 with backlog of $21.2 million, up from $13.9 million a year earlier, but expected short-term sales to be flat amid uncertainty in energy and financial markets. It cited opportunities across the segments and in the Chinese and Brazilian joint ventures, and expected existing cash, working capital, credit availability, and operating earnings to cover the next 12 months.
  • Planned 2012 spending included approximately $760,000 for Beaumont facility expansion and AAT ERP upgrades. Management said it might raise debt or equity depending on cash needs.
  • On March 28, 2012, after year-end, Chase amended covenants effective December 31, 2011, lowering or relaxing certain minimum tangible-net-worth, current-ratio, and leverage requirements, with thresholds scheduled to tighten during 2012.
  • On March 8, 2012, AETI acquired Amnor Technologies’ automation and control technology for $100,000 cash plus 44,000 shares, with some shares to be issued over time.
  • Material risks include dependence on oil and gas spending, competition, fixed-price project overruns, percentage-of-completion estimates and possible backlog cancellations, skilled-labor availability, commodity costs, international and joint-venture exposure, and customer acceptance of solar products.
  • AETI reported a favorable binding arbitration decision in an E&I contract dispute, awarding approximately $434,000. Management said ordinary-course legal matters were not expected to materially affect the company. The filing reports no cash dividends; the loan agreement restricts dividends.

Important facts for investors to verify

  1. Confirm the issuer: this filing is for American Electric Technologies, Inc. (AETI), not Stabilis Solutions, Inc.
  2. Review the deferred-tax valuation allowance, Section 382 limits on net operating losses, and the resulting $5.4 million non-cash tax charge.
  3. Check the amended Chase covenants, borrowing availability, collateral, and the facility’s July 2013 maturity.
  4. Assess whether the $21.2 million backlog converts to revenue and cash; the filing cautions that contracts may be modified or cancelled and backlog excludes joint ventures.
  5. Evaluate AAT’s declining gross margin, continued corporate and administrative costs, and reliance on joint-venture earnings and distributions.