Stabilis Solutions, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Stabilis provides LNG production, delivery, equipment rental and related services, primarily in North America. It also owns 40% of China-based BOMAY. The company classified its Brazil operations as discontinued operations; comparative periods were recast accordingly. Dollar figures below are in millions unless noted.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Continuing-operations revenue | $25.8 | $17.8 | $69.2 | $48.3 |
| Continuing-operations net income (loss) | $1.0 | $(4.6) | $(1.4) | $(5.3) |
| Net income (loss), including discontinued operations | $(0.3) | $(4.6) | $(2.9) | $(5.5) |
| Net loss per share, basic | $(0.02) | $(0.26) | $(0.16) | $(0.32) |
- Q3 margins: Cost of revenues before derivative gains was $19.9 million, implying gross profit of approximately $5.9 million, or 22.9% of revenue. Operating income was $1.1 million, including $0.1 million of net equity income from BOMAY. A $0.9 million unrealized derivative gain reduced reported operating expenses. Continuing-operations net income was $1.0 million; a $1.3 million Brazil impairment drove the consolidated net loss.
- Nine-month margins: Cost of revenues was $54.9 million, implying gross profit of approximately $14.3 million, or 20.6% of revenue. Operating loss was $1.0 million, including BOMAY equity income. These gross-profit calculations use reported cost of revenues and do not adjust for derivative gains recorded separately.
- Cash flow: Nine-month operating cash flow was $11.5 million, versus $5.4 million in 2021. Investing activities provided $0.1 million, compared with $6.7 million used in 2021; financing activities used $1.4 million, versus $2.5 million provided. Cash rose to $11.1 million from $0.9 million at year-end 2021.
- Debt and liquidity: At September 30, cash was $11.1 million and debt, net of issuance costs, was approximately $12.7 million; lease obligations brought total debt and lease obligations to $13.1 million, with $3.6 million due within 12 months. The company had $1.0 million available under its $10.0 million AmeriState facility and reported compliance with debt covenants. Current assets were $30.5 million and current liabilities $25.4 million.
Material changes versus the comparable period
- Q3 continuing revenue rose 45%; nine-month revenue rose 43%. Growth reflected higher LNG volumes, higher natural-gas prices and customer pricing increases, as well as additional rental and service work, particularly marine bunkering.
- Q3 cost of revenues increased 39%, less than revenue growth. LNG product costs as a share of LNG product revenue declined to 74% from 83% in Q3 2021; year-to-date the ratio was 78%, versus 79%. Inflation, transportation, liquefaction and electricity costs remained pressures.
- Q3 SG&A declined 31%, and nine-month SG&A declined 9%, largely because the 2021 comparison included executive-transition stock compensation, severance and legal costs. Higher current-period compensation and stock-based compensation partly offset the reduction.
- Cash flow benefited from customer deposits and improved operating performance. The prior-year investing outflow included the Port Allen facility acquisition; 2022 investing cash included $2.0 million received for assets held for sale.
- At quarter-end, Stabilis decided to exit Brazil and recorded a $1.3 million impairment. The sale closed October 31, 2022 for approximately $0.9 million: $0.2 million cash and a note receivable payable in installments over four years. Management did not expect an additional gain or loss on sale.
Outlook, risks and unusual items
- Management said it expects operating cash flow and available loan capacity to fund the business for the next 12 months, while noting there is no assurance that cash generation will be sufficient or that additional financing will be available on acceptable terms.
- Inflationary pressure on natural gas, liquefaction, transportation and electricity costs may continue. The company said it passes through a significant portion, but not all, of these costs; margin pressure remains a risk.
- Stabilis received DOE authorization to export domestically produced LNG to free-trade and non-free-trade countries for up to 51.75 billion cubic feet annually over 28 years. It made no exports under the authorization during the quarter.
- Natural-gas call options covering 2.0 million MMBtu over approximately two years were held to manage price risk tied to customer commitments. They are not designated as accounting hedges, so fair-value movements affect reported results.
- The company reported a $1.0 million cumulative foreign-currency translation loss associated with Brazil that would be removed upon sale. BOMAY equity income declined year over year amid supply-chain challenges and foreign-exchange losses.
- Management reported no material changes to previously disclosed risk factors, no material expected environmental compliance expenditures, and no legal matter expected to have a material adverse effect. Disclosure controls were deemed effective; no material change in internal control was reported.
Key facts for investors to verify
- Whether LNG volume growth and improved product-cost percentage persist as natural-gas, transportation and electricity costs change.
- Cash conversion and the sustainability of operating cash flow, particularly the contribution from customer deposits and working-capital movements.
- Debt maturities, covenant compliance and financing needs, including capital expenditures and the $1.5–$2.0 million of open capital-expenditure purchase orders disclosed for the next 12 months.
- Collection of the Brazil sale note and the final accounting for the disposal, including release of accumulated translation losses.
- Derivative fair-value and settlement effects, and whether customer pricing and contract terms adequately offset commodity-cost exposure.