Stabilis Solutions, Inc. — Q1 2023 10-Q
Reporting period: Three months ended March 31, 2023. Unless noted otherwise, financial figures below are in millions of dollars. Stabilis provides LNG production, delivery, equipment rental, and related services, primarily in North America. Results are for continuing operations; Brazil operations were sold in October 2022 and are presented as discontinued operations. The 40%-owned BOMAY joint venture remains an equity-method investment.
Financial performance
- Revenue: $26.8, up 32.4% from $20.3. LNG product revenue was $21.9; rental, service, and other revenue totaled $4.9. U.S. revenue rose to $24.0 from $16.5, while Mexico revenue declined to $2.8 from $3.8.
- Profitability: Cost of revenues was $20.3, or 76% of revenue in both periods; gross profit was approximately $6.6 (24.5% margin). Operating income before joint-venture equity income was $1.0, versus an operating loss of $0.4. Including $0.3 of net equity income from BOMAY, operating income was $1.4. Net income was $1.1, versus a $0.4 net loss; diluted EPS was $0.06 versus a loss of $0.02.
- Cash flow: Operating cash flow was $0.1 versus $3.2, with management attributing the decline primarily to higher working-capital needs. Capital spending was $3.7, compared with $0.8; financing cash outflow was $1.0. Cash fell $4.6 during the quarter to $6.9.
- Liquidity: Current assets were $18.0 and current liabilities $16.3 (working capital $1.7; current ratio about 1.1). Management said cash, operating cash flow, and available borrowing capacity were expected to fund the business for the next 12 months.
- Debt: Debt carrying value, net of issuance costs, was approximately $11.0, plus lease obligations; management reported total debt and lease obligations of $11.3, of which $2.5 was due within 12 months. The $10.0 AmeriState facility had $1.0 available to draw. The company reported compliance with its debt covenants.
- Investment and assets: BOMAY contributed $0.3 of net equity income; its reported earnings were $0.9, up from $0.3. Net property, plant, and equipment increased to $51.9 from $47.7, including construction in progress of $6.5 versus $0.5 at year-end.
Changes, outlook, and risks
- Revenue growth reflected higher natural-gas prices and customer pricing, increased take-or-pay revenue, and greater rental, service, and other activity. These gains were partly offset by fewer LNG gallons delivered.
- Cost of revenue rose 31%, driven by higher gas prices, inflation in transportation, liquefaction and personnel costs, take-or-pay fees, and support for marine-bunkering projects. SG&A increased 15%, mainly due to compensation, headcount, and professional services.
- Q1 included a $0.2 unrealized loss on natural-gas derivatives and a $0.3 realized loss. The company holds call options covering 1.1 million MMBtu through Q2 2024 to manage gas-price exposure; the options are not designated as accounting hedges.
- Capital expenditures were $3.7, primarily for liquefaction assets and rolling stock. Open capital-expenditure purchase orders were approximately $4.0 at quarter-end. A separate $0.6 commitment was disclosed for equipment delivery from Chart E&C during 2023.
- No quantified revenue or earnings guidance was provided. Management noted that additional financing may be considered, but availability and terms are not assured. A shelf registration permits eligible capital raises, subject to applicable limits; there were no issuances under it in the quarter.
- The filing cited LNG-industry and financing uncertainties, natural-gas price exposure, and the possibility that future cash flows may not be sufficient to sustain or grow the business. Management did not expect environmental matters or ordinary-course legal claims to have a material adverse effect; no material risk-factor changes were reported.
Important facts for investors to verify
- Whether operating cash generation improves as working-capital requirements and capital spending remain elevated.
- Cash availability and debt maturities, including the $2.5 of debt and lease obligations due within 12 months and the related-party note scheduled to be repaid through December 2023.
- Execution and returns on planned equipment and liquefaction investments, including the $4.0 of open capital orders.
- Revenue volume and margin trends: Q1 revenue increased despite fewer LNG gallons delivered, while cost of revenue remained 76% of revenue.
- Natural-gas derivative valuation and exposure, as well as the effect of BOMAY results and any restrictions on joint-venture distributions.