Stabilis Solutions, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020. The company produces, markets, and sells LNG and provides related distribution, equipment rental, and services; its Power Delivery segment operates in Brazil and through a 40% interest in a China joint venture. The company changed its name from Stabilis Energy, Inc. to Stabilis Solutions, Inc. in October 2020. Figures below are in U.S. dollars; financial statement amounts are in thousands unless noted.
Financial performance and position
- Third-quarter revenue: $9.0 million, down 14.2% from $10.5 million. LNG product revenue fell 16.7% to $6.6 million; rental, service and other revenue declined 12.3% to $1.1 million; Power Delivery revenue was $1.4 million, broadly flat.
- Third-quarter earnings: Operating loss was $1.9 million, versus $3.1 million a year earlier. Net loss was $2.1 million, or $0.13 per share, compared with $3.4 million, or $0.22 per share. Improved results included $0.6 million of equity income from foreign joint ventures and lower SG&A.
- Nine-month results: Revenue was $27.9 million, down 19.4%. Operating loss was $5.7 million versus $4.0 million; net loss attributable to Stabilis was $6.6 million versus $5.2 million, or $0.39 versus $0.37 per share.
- Margins: The filing does not present a consolidated gross-margin measure. Calculated as revenue less reported product, rental/service, and power-delivery costs, the margin was approximately 24.1% in Q3 2020 versus 27.0% in Q3 2019, and 27.5% for the first nine months of 2020 versus 31.4% in 2019. LNG product costs increased as a share of LNG product revenue, which management attributed to lower utilization of the George West plant and a higher proportion of third-party LNG supply.
- Cash flow: Operating activities generated $2.5 million in the first nine months, down from $3.7 million. Investing used $0.3 million; financing used $2.6 million. Cash declined by $0.6 million to $3.4 million.
- Liquidity and debt: Current assets were $9.3 million and current liabilities $13.0 million, implying negative working capital of approximately $3.7 million. Management reported $9.2 million of debt and finance lease obligations, with $5.2 million due within 12 months. Separately, stated debt principal was $7.9 million, including a $1.1 million Paycheck Protection Program loan. The company was in compliance with debt covenants at quarter-end.
- Balance sheet: Total assets were $79.1 million, down from $90.3 million at year-end 2019; stockholders’ equity was $61.4 million. Property, plant and equipment was $53.9 million. The company reported no goodwill impairment in its annual test.
Material changes versus comparable periods
- Lower LNG demand, particularly from oilfield and sand-mine customers, drove the third-quarter and nine-month revenue declines. Management also attributed $1.2 million of the nine-month LNG product revenue reduction to lower natural gas prices.
- Nine-month LNG segment revenue fell 27.1%, and its operating loss before equity income increased to $5.9 million from $3.9 million. Power Delivery revenue increased year over year, but the comparison is affected by the 2019 Share Exchange: prior-year results include that business only from July 26, 2019. On a full-period comparable basis, management said Power Delivery revenue would have declined 15% for the nine months, before foreign-exchange effects.
- Third-quarter SG&A fell 38.2% to $2.3 million, reflecting lower travel, business-development and compensation costs and the absence of prior-year Share Exchange costs. Nine-month SG&A was broadly flat at $7.9 million.
- Equity income from foreign joint ventures was $1.3 million for the first nine months, compared with $0.1 million in the prior-year reported period. The company received $2.1 million in BOMAY distributions during 2020.
Outlook, risks, and unusual items
- Management said it expected cash flows from operations to fund the business for the next 12 months, citing cost controls and resumed activity and revenue opportunities, particularly in Mexico. The filing does not provide quantified revenue or earnings guidance.
- The company disclosed recurring operating losses, negative working capital, and uncertainty about future LNG demand, including the effects of COVID-19 and reduced oil-and-gas activity. Cost actions included headcount reductions, temporary salary reductions, less travel, and elimination of certain consultants. Management concluded its plans supported continued operation as a going concern, while noting there could be no assurance the actions would be sufficient.
- Additional financing was under evaluation, but availability and terms were uncertain. The $1.1 million PPP loan bears 1% interest and matures May 8, 2022; forgiveness was not assured, though the company intended to apply.
- A potential $4.3 million working-capital purchase-price adjustment related to American Electric’s asset sale to Myers remained unresolved at September 30, 2020. The company said it believed resolution would not materially affect its financial position, results, or liquidity.
- A subsidiary was named in a class action concerning alleged chemical exposure following a 2017 fire at an Arkema site. The company stated that insurers had engaged counsel and management did not expect a material adverse effect. Environmental compliance expenditures were not expected to be material.
- Management reported no material changes to previously disclosed risk factors and said disclosure controls were effective at quarter-end. No off-balance-sheet arrangements with a potentially material effect were reported.
Key facts investors should verify
- Whether operating activity and Mexico opportunities translated into sustained revenue and cash generation after quarter-end.
- Cash needs and debt maturities, especially the reported $5.2 million of debt and finance lease obligations due within 12 months, and the availability of additional financing.
- Whether the PPP loan was forgiven and the outcome of the unresolved Myers working-capital claim.
- Trends in LNG plant utilization, third-party supply mix, direct costs, and customer demand amid COVID-19 and oil-and-gas market conditions.
- The status and potential exposure from the Arkema-related litigation and any changes in management’s going-concern assessment.