Stabilis Solutions, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Financial amounts below are in millions of dollars unless otherwise stated.
Business context
Stabilis supplies LNG and hydrogen production, delivery, rental and field services across North America, and power-delivery equipment and services in Brazil and through its 40% interest in China-based BOMAY. On June 1, 2021, it acquired a Louisiana LNG plant with capacity of 30,000 gallons per day, increasing its production capacity by 30%.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $19.7 | $9.0 | $53.4 | $27.9 |
| Operating loss | $(4.4) | $(1.9) | $(5.6) | $(5.7) |
| Net loss | $(4.6) | $(2.1) | $(5.5) | $(6.6) |
| Basic and diluted loss per share | $(0.26) | $(0.13) | $(0.32) | $(0.39) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $5.5 | $2.5 |
- Q3 revenue rose 118.5%, led by LNG product sales, which more than doubled, and higher rental, service and other revenue. Management attributed growth to greater LNG volumes, higher natural-gas prices, economic recovery, projects in Mexico and power-generation customers, and new power-delivery contracts.
- Revenue growth did not translate into improved quarterly profitability. LNG product costs rose faster than LNG product revenue: costs increased from 76% to 83% of LNG product revenue year over year, indicating product margin pressure. For the first nine months, the ratio increased from 74% to 80%.
- Q3 SG&A increased to $6.2 million from $2.3 million. The company cited $2.2 million of expense related to immediately vested executive-transition RSUs and $0.8 million of severance and legal costs, as well as higher compensation, hiring, commissions and travel.
- Nine-month net loss improved by $1.2 million year over year, including $1.2 million of other income, primarily from forgiveness of the $1.1 million PPP loan and release of Myers-transaction escrow funds. Operating loss improved only modestly.
- At September 30, cash was $2.9 million, current assets were $15.0 million and current liabilities were $16.8 million, implying negative working capital of approximately $1.8 million. Total assets were $87.7 million and stockholders’ equity was $62.7 million.
- Nine-month investing cash outflow was $6.7 million, mainly for the Port Allen acquisition and LNG equipment. Financing provided $2.5 million, including AmeriState borrowings. Cash increased by $1.1 million from year-end 2020.
- Debt maturity disclosure reported $12.05 million of principal at September 30, or $11.65 million after debt issuance costs; management separately reported $11.7 million of debt and finance lease obligations, of which $4.0 million was due within 12 months. The $10.0 million AmeriState facility had $7.0 million drawn and $3.0 million available. The loan matures in 2031 and bears 5.75% interest through April 2026, then prime plus 2.5%. The company reported covenant compliance.
Changes, outlook and risks
- Former CEO James Reddinger resigned in August; Westervelt “Westy” Ballard became president and CEO. The company agreed to pay Reddinger’s base salary through December 31, 2022 and fully vest his 500,000 RSUs, subject to agreement terms. Ballard received 500,000 RSUs and was slated to receive 1.3 million options, subject to Board approval.
- The company recorded a $0.4 million impairment charge after terminating its Houston office lease; the remaining settlement obligation was also approximately $0.4 million. The PPP loan was forgiven in full, generating a $1.1 million gain.
- Management said working capital, available AmeriState borrowings and revenue growth should fund operations for the next 12 months, while noting there is no assurance of future revenue, cash generation or additional financing. No quantitative revenue or earnings guidance was provided.
- Management reported higher natural-gas, transportation and liquefaction costs, labor constraints and driver shortages. It passes through a significant, but not complete, share of natural-gas and transportation costs, creating margin pressure. It expected high natural-gas prices to persist in the near term but cautioned that price trends were uncertain.
- Customer concentration is material: two customers represented 39% of Q3 revenue and 42% of receivables at quarter-end. The company also identified LNG-market demand and pricing, liquidity, customer credit, operational and regulatory matters, weather events, COVID-19 effects and acquisition integration among its risks. It reported no anticipated material environmental compliance costs and said the Myers working-capital dispute was resolved and dismissed.
- Management stated it had experienced recurring operating losses but concluded its liquidity plans supported going-concern status for the coming year. Disclosure controls were assessed as effective, with no material change in internal control reported.
Important facts for investors to verify
- Whether revenue growth and LNG volume gains can offset elevated input, transport and labor costs and reverse the deterioration in LNG product margins.
- Cash generation, working-capital needs and the timing and availability of the remaining $3.0 million AmeriState facility, alongside upcoming debt payments.
- The persistence of customer concentration and the company’s ability to collect receivables and retain major customers.
- The recurring cost and dilution implications of executive transition compensation, including Reddinger’s separation terms and Ballard’s proposed options.
- How the Port Allen facility contributes to utilization, operating cash flow and profitability, and whether management’s 12-month liquidity assessment remains supportable.