SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | |||||
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2022
☐ | |||||
TRANSITION REPORT UNDER SECTION 13 OR 15 (D)OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
toCommission file number. 001-40364
STABILIS SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Florida | 59-3410234 | ||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
11750 Katy Freeway, Suite 900, Houston, TX 77079
(Address of principal executive offices, including zip code)
(832) 456-6500
(Registrant’sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
Common Stock, $.001 par value | SLNG | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Act:
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||||||||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||||||||||||||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No ☒As of November 1, 2022,7, 2023, there were 18,386,73318,573,391 outstanding shares of our common stock, par value $.001 per share.
STABILIS SOLUTIONS, INC. AND SUBSIDIARIES
For the Quarterly Period Ended September 30, 2022
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report ofon Form 10-Q ("(“this Report"Report”) includes statements that constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements represent intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks and uncertainties and other factors. These statements may relate to, but are not limited to, information or assumptions about us, our capital and other expenditures, dividends, financing plans, capital structure, cash flow, pending legal and regulatory proceedings and claims, including environmental matters, future economic performance, operating income, cost savings, and management’s plans, strategies, goals and objectives for future operations and growth. These forward-looking statements generally are accompanied by words such as “intend,” “anticipate,” “believe,” “estimate,” “expect,” “should,” “seek,” “project,” “plan” or similar expressions. Any statement that is not a historical fact is a forward-looking statement. It should be understood that these forward-looking statements are necessary estimates reflecting the best judgment of senior management, not guarantees of future performance. Many of the factors that impact forward-looking statements are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements as described in Part I. “Item 1A. Risk Factors” of the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("the SEC") on March 10, 2022,9, 2023, as well as the additional risk factors identified and described in Part II. “Item 1A. Risk Factors” of this Report.
We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. All forward-looking statements included in this document are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
In this Report, we may rely on and refer to information from market research reports, analyst reports and other publicly available information. Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of this information, and we have not independently verified it.
PART I – FINANCIAL INFORMATION Condensed Consolidated Balance Sheets (Unaudited, in thousands, except September 30, December 31, 2023 2022 Assets Current assets: Cash and cash equivalents Accounts receivable, net Inventories, net Prepaid expenses and other current assets Assets held for sale Total current assets Property, plant and equipment: Cost Less accumulated depreciation Property, plant and equipment, net Goodwill Investments in foreign joint ventures Right-of-use assets and other noncurrent assets Total assets Liabilities and Stockholders’ Equity Current liabilities: Accounts payable Accrued liabilities Current portion of long-term notes payable Current portion of long-term notes payable - related parties Current portion of finance and operating lease obligations Total current liabilities Long-term notes payable, net of current portion and debt issuance costs Long-term portion of finance and operating lease obligations Other noncurrent liabilities Total liabilities Commitments and contingencies (Note 11) Stockholders’ Equity: Preferred stock; $0.001 par value, 1,000,000 shares authorized, no shares issued and outstanding at September 30, 2023 and December 31, 2022 Common stock; $0.001 par value, 37,500,000 shares authorized, 18,573,391 and 18,420,067 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively Additional paid-in capital Accumulated other comprehensive (loss) income Accumulated deficit Total stockholders’ equity Total liabilities and stockholders’ equity The accompanying notes are an integral part of the Condensed Consolidated Financial Statements. Condensed Consolidated Statements of Operations (Unaudited, in thousands, except share and per share data) Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Revenues: Revenues Operating expenses: Cost of revenues Change in unrealized loss on natural gas derivatives Selling, general and administrative expenses Gain from disposal of fixed assets Depreciation expense Total operating expenses Income (loss) from operations before equity income Net equity income from foreign joint venture operations: Income from equity investment in foreign joint venture Foreign joint venture operating related expenses Net equity income from foreign joint venture operations Income (loss) from operations Other income (expense): Interest income (expense), net Interest (expense), net - related parties Other (expense), net Total other income (expense) Net loss from continuing operations before income tax (benefit) expense Income tax expense (benefit) Net loss from continuing operations Loss from discontinued operations, net of income tax Net loss Net income (loss) per common share (Note 13): Basic net income (loss) per common share from continuing operations Basic loss per common share from discontinued operations Basic net income (loss) per common share Diluted net income (loss) per common share from continuing operations Diluted loss per common share from discontinued operations Diluted net income (loss) per common share The accompanying notes are an integral part of the Condensed Consolidated Financial Statements. Condensed Consolidated Statements of Comprehensive (Unaudited, in thousands) Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Net loss Foreign currency translation adjustment, net of tax Total comprehensive loss The accompanying notes are an integral part of the Condensed Consolidated Financial Statements. Condensed Consolidated Statements of (Unaudited, in thousands, except Accumulated Other Common Stock Additional Comprehensive Accumulated Shares Amount Paid-in Capital Income Deficit Total Balance at December 31, 2021 Common stock issued from vesting of stock-based awards Stock-based compensation Net loss Other comprehensive income, net of tax Balance at March 31, 2022 Common stock issued from vesting of stock-based awards Stock-based compensation Net loss Other comprehensive loss, net of tax Balance at June 30, 2022 Common stock issued from vesting of stock-based awards Stock-based compensation Employee tax payments from stock-based withholding Net loss Other comprehensive income, net of tax Balance at September 30, 2022 Accumulated Other Common Stock Additional Comprehensive Accumulated Shares Amount Paid-in Capital Income Deficit Total Balance at December 31, 2022 Net income Balance at March 31, 2023 Balance at June 30, 2023 Net income Other comprehensive income, net of tax Balance at September 30, 2023 The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.sharesshare and per share data) $ 4,914 $ 11,451 6,135 16,326 128 205 3,381 2,186 — 2,049 14,558 32,217 109,669 103,368 (59,651 ) (55,699 ) 50,018 47,669 4,314 4,314 11,591 11,606 602 774 $ 81,083 $ 96,580 $ 2,208 $ 4,474 8,749 19,642 1,675 848 622 2,435 168 133 13,422 27,532 8,049 8,650 51 183 — 348 21,522 36,713 — — 19 19 101,670 100,137 (460 ) 82 (41,668 ) (40,371 ) 59,561 59,867 $ 81,083 $ 96,580 September 30,
2022December 31,
2021Assets Current assets: Cash and cash equivalents $ 11,102 $ 910 Accounts receivable, net 10,375 9,397 Inventories, net 214 258 Prepaid expenses and other current assets 3,118 1,522 Assets held for sale 2,049 — Assets of discontinued operations, current 3,667 3,446 Total current assets 30,525 15,533 Property, plant and equipment: Cost 101,752 101,192 Less accumulated depreciation (53,617) (47,027) Property, plant and equipment, net 48,135 54,165 Goodwill 4,314 4,314 Investment in foreign joint venture 10,424 12,325 Right-of-use assets and other noncurrent assets 565 167 Assets of discontinued operations, noncurrent — 832 Total assets $ 93,963 $ 87,336 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 1,781 $ 5,065 Accrued liabilities 17,189 6,317 Current portion of notes payable 1,086 855 Current portion of long-term notes payable - related parties 2,399 1,168 Current portion of finance and operating lease obligations 157 292 Liabilities of discontinued operations, current 2,817 1,931 Total current liabilities 25,429 15,628 Long-term notes payable, net of current portion 8,640 7,608 Long-term notes payable, net of current portion - related parties 622 2,435 Long-term portion of finance and operating lease obligations 219 318 Other noncurrent liabilities 612 — Liabilities of discontinued operations, noncurrent — 288 Total liabilities 35,522 26,277 Commitments and contingencies (Note 11) Stockholders’ Equity: Preferred Stock; $0.001 par value, 1,000,000 shares authorized, no shares issued and outstanding at September 30, 2022 and December 31, 2021 — — Common stock; $0.001 par value, 37,500,000 shares authorized, 18,386,733 and 17,691,268 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively 19 18 Additional paid-in capital 99,531 97,875 Accumulated other comprehensive (loss) income (1,073) 351 Accumulated deficit (40,036) (37,185) Total stockholders’ equity 58,441 61,059 Total liabilities and stockholders’ equity $ 93,963 $ 87,336 $ 15,316 $ 25,819 $ 55,065 $ 69,236 12,056 19,904 42,911 54,945 (267 ) (926 ) (322 ) (27 ) 3,002 3,658 9,424 9,643 (1,002 ) 46 (1,002 ) (34 ) 2,003 2,115 6,006 6,589 15,792 24,797 57,017 71,116 (476 ) 1,022 (1,952 ) (1,880 ) 332 205 1,466 1,126 (48 ) (91 ) (152 ) (239 ) 284 114 1,314 887 (192 ) 1,136 (638 ) (993 ) 60 (150 ) (237 ) (437 ) (15 ) (49 ) (71 ) (129 ) (3 ) (28 ) (127 ) (99 ) 42 (227 ) (435 ) (665 ) (150 ) 909 (1,073 ) (1,658 ) 57 (115 ) 224 (248 ) (207 ) 1,024 (1,297 ) (1,410 ) — (1,301 ) — (1,441 ) $ (207 ) $ (277 ) $ (1,297 ) $ (2,851 ) $ (0.01 ) $ 0.06 $ (0.07 ) $ (0.08 ) $ — $ (0.08 ) $ — $ (0.08 ) $ (0.01 ) $ (0.02 ) $ (0.07 ) $ (0.16 ) $ (0.01 ) $ 0.06 $ (0.07 ) $ (0.08 ) $ — $ (0.07 ) $ — $ (0.08 ) $ (0.01 ) $ (0.01 ) $ (0.07 ) $ (0.16 ) Three Months Ended
September 30,Nine Months Ended
September 30,2022 2021 2022 2021 Revenues: Revenues $ 25,819 $ 17,779 $ 69,236 $ 48,291 Operating expenses: Cost of revenues 19,904 14,369 54,945 37,301 Change in unrealized gain on natural gas derivatives (926) — (27) — Selling, general and administrative expenses 3,658 5,286 9,643 10,558 Loss (gain) from disposal of fixed assets 46 — (34) (24) Depreciation expense 2,115 2,284 6,589 6,653 Impairment of right-of-use lease asset — 376 — 376 Total operating expenses 24,797 22,315 71,116 54,864 Income (loss) from operations before equity income 1,022 (4,536) (1,880) (6,573) Net equity income from foreign joint venture operations: Income from equity investment in foreign joint venture 205 308 1,126 1,267 Foreign joint venture operating related expenses (91) (62) (239) (192) Net equity income from foreign joint venture operations 114 246 887 1,075 Income (loss) from operations 1,136 (4,290) (993) (5,498) Other income (expense): Interest expense, net (150) (119) (437) (189) Interest expense, net - related parties (49) (120) (129) (441) Other income (expense) (28) 37 (99) 1,031 Total other income (expense) (227) (202) (665) 401 Net income (loss) from continuing operations before income tax expense 909 (4,492) (1,658) (5,097) Income tax (benefit) expense (115) 89 (248) 229 Net income (loss) from continuing operations 1,024 (4,581) (1,410) (5,326) Loss from discontinued operations, net of tax (1,301) (44) (1,441) (128) Net loss $ (277) $ (4,625) $ (2,851) $ (5,454) Net income (loss) per common share (Note 13): Basic income (loss) per common share from continuing operations $ 0.06 $ (0.26) $ (0.08) $ (0.31) Basic loss per common share from discontinued operations (0.07) — (0.08) (0.01) Basic net loss per common share (0.02) (0.26) (0.16) (0.32) Diluted income (loss) per common share from continuing operations $ 0.06 $ (0.26) $ (0.08) $ (0.31) Diluted loss per common share from discontinued operations (0.07) — (0.08) (0.01) Diluted net loss per common share (0.01) (0.26) (0.16) (0.32) Income (Loss) $ (207 ) $ (277 ) $ (1,297 ) $ (2,851 ) (111 ) (849 ) (542 ) (1,424 ) $ (318 ) $ (1,126 ) $ (1,839 ) $ (4,275 ) Three Months Ended
September 30,Nine Months Ended
September 30,2022 2021 2022 2021 Net loss $ (277) $ (4,625) $ (2,851) $ (5,454) Foreign currency translation adjustment (849) (150) (1,424) 50 Total comprehensive loss $ (1,126) $ (4,775) $ (4,275) $ (5,404) Stockholders’Stockholders’ Equityshares)share data) 17,691,268 $ 18 $ 97,875 $ 351 $ (37,185 ) $ 61,059 501,334 — — — — — — — 531 — — 531 — — — — (406 ) (406 ) — — — 377 — 377 18,192,602 18 98,406 728 (37,591 ) 61,561 87,337 — — — — — — — 608 — — 608 — — — — (2,168 ) (2,168 ) — — — (952 ) — (952 ) 18,279,939 18 99,014 (224 ) (39,759 ) 59,049 125,000 1 — — — 1 — — 602 — — 602 (18,206 ) — (85 ) — — (85 ) — — — — (277 ) (277 ) — — — (849 ) — (849 ) 18,386,733 $ 19 $ 99,531 $ (1,073 ) $ (40,036 ) $ 58,441 Common Stock Additional
Paid-in CapitalAccumulated
Other
Comprehensive
Income (Loss)Accumulated
DeficitTotal Shares Amount Balance at December 31, 2021 17,691,268 $ 18 $ 97,875 $ 351 $ (37,185) $ 61,059 18,420,067 $ 19 $ 100,137 $ 82 $ (40,371 ) $ 59,867 Common stock issued from vesting of stock-based awards Common stock issued from vesting of stock-based awards 501,334 — — — — — 13,587 — — — — — Stock-based compensation Stock-based compensation — — 531 — — 531 — — 589 — — 589 Net loss — — — — (406) (406) — — — — 1,084 1,084 Other comprehensive income, net of tax Other comprehensive income, net of tax — — — 377 — 377 — — — 187 — 187 Balance at March 31, 2022 18,192,602 18 98,406 728 (37,591) 61,561 18,433,654 19 100,726 269 (39,287 ) 61,727 Common stock issued from vesting of stock-based awards Common stock issued from vesting of stock-based awards 87,337 — — — — — 45,175 — — — — — Stock-based compensation Stock-based compensation — — 608 — — 608 — — 593 — — 593 Net loss Net loss — — — — (2,168) (2,168) — — — — (2,174 ) (2,174 ) Other comprehensive loss, net of tax Other comprehensive loss, net of tax — — — (952) — (952) — — — (618 ) — (618 ) Balance at June 30, 2022 18,279,939 18 99,014 (224) (39,759) 59,049 18,478,829 19 101,319 (349 ) (41,461 ) 59,528 Common stock issued from vesting of stock-based awards Common stock issued from vesting of stock-based awards 125,000 1 — — — 1 125,000 — — — — — Stock-based compensation Stock-based compensation — — 602 — — 602 — — 513 — — 513 Employee tax payments from stock-based withholding Employee tax payments from stock-based withholding (18,206) — (85) — — (85) (30,438 ) — (162 ) — — (162 ) Net loss — — — — (277) (277) Other comprehensive loss, net of tax — — — (849) — (849) Balance at September 30, 2022 18,386,733 $ 19 $ 99,531 $ (1,073) $ (40,036) $ 58,441 — — — — (207 ) (207 ) — — — (111 ) — (111 ) 18,573,391 $ 19 $ 101,670 $ (460 ) $ (41,668 ) $ 59,561 7Stabilis Solutions, Inc. and SubsidiariesCondensed Consolidated Statements of Stockholders’ Equity - Continued(Unaudited, in thousands, except shares)Common Stock Additional
Paid-in CapitalAccumulated
Other
Comprehensive
Income (Loss)Accumulated
DeficitTotal Shares Amount Balance at December 31, 2020 16,896,626 $ 17 $ 91,278 $ 122 $ (29,387) $ 62,030 Stock-based compensation — — 162 — — 162 Net income — — — — 175 175 Other comprehensive loss, net of tax — — — (202) — (202) Balance at March 31, 2021 16,896,626 17 91,440 (80) (29,212) 62,165 Common stock issued from vesting of stock-based awards 101,284 — — — — — Stock-based compensation — — 122 — — 122 Shares issued in asset acquisition 500,000 1 3,794 — — 3,795 Net loss — — — — (1,004) (1,004) Other comprehensive income, net of tax — — — 402 — 402 Balance at June 30, 2021 17,497,910 18 95,356 322 (30,216) 65,480 Common stock issued from vesting of stock-based awards 250,000 — — — — — Stock-based compensation — — 2,447 — — 2,447 Employee tax payments from stock-based withholdings (56,642) — (430) — — (430) Net loss — — — — (4,625) (4,625) Other comprehensive loss, net of tax — — — (150) — (150) Balance at September 30, 2021 17,691,268 $ 18 $ 97,373 $ 172 $ (34,841) $ 62,722
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Nine Months Ended | ||||||||
September 30, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net loss from continuing operations | $ | (1,297 | ) | $ | (1,410 | ) | ||
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities: | ||||||||
Depreciation | 6,006 | 6,589 | ||||||
Stock-based compensation expense | 1,695 | 1,741 | ||||||
Gain from disposal of fixed assets | (1,002 | ) | (34 | ) | ||||
Income from equity investment in joint venture | (1,466 | ) | (1,126 | ) | ||||
Cash settlements from natural gas derivatives, net | — | (1,179 | ) | |||||
Realized and unrealized losses on natural gas derivatives | 540 | 513 | ||||||
Distributions from equity investment in joint venture | 813 | 1,550 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 5,636 | (977 | ) | |||||
Prepaid expenses and other current assets | 948 | 529 | ||||||
Accounts payable and accrued liabilities | (6,633 | ) | 5,174 | |||||
Other | 140 | (570 | ) | |||||
Net cash provided by operating activities from continuing operations | 5,380 | 10,800 | ||||||
Net cash provided by operating activities from discontinued operations | — | 738 | ||||||
Net cash provided by operating activities | 5,380 | 11,538 | ||||||
Cash flows from investing activities: | ||||||||
Acquisition of fixed assets | (8,982 | ) | (1,746 | ) | ||||
Proceeds from sale of fixed assets | — | 100 | ||||||
Proceeds from assets held for sale | — | 2,049 | ||||||
Net cash provided by (used in) investing activities from continuing operations | (8,982 | ) | 403 | |||||
Net cash used in investing activities from discontinued operations | — | (334 | ) | |||||
Net cash provided by (used in) investing activities | (8,982 | ) | 69 | |||||
Cash flows from financing activities: | ||||||||
Proceeds from borrowings on short- and long-term notes payable | — | 1,000 | ||||||
Payments on short- and long-term notes payable | (860 | ) | (1,555 | ) | ||||
Payments on notes payable and finance leases from related parties | (1,813 | ) | (669 | ) | ||||
Payment of debt issuance costs | (108 | ) | — | |||||
Employee tax payments from restricted stock withholdings | (162 | ) | (85 | ) | ||||
Net cash used in financing activities from continuing operations | (2,943 | ) | (1,309 | ) | ||||
Net cash used in financing activities from discontinued operations | — | (113 | ) | |||||
Net cash used in financing activities | (2,943 | ) | (1,422 | ) | ||||
Effect of exchange rate changes on cash | 8 | 7 | ||||||
Net increase (decrease) in cash and cash equivalents | (6,537 | ) | 10,192 | |||||
Cash and cash equivalents, beginning of period | 11,451 | 910 | ||||||
Cash and cash equivalents, end of period | $ | 4,914 | $ | 11,102 |
Nine Months Ended September 30, | |||||||||||
2022 | 2021 | ||||||||||
Cash flows from operating activities: | |||||||||||
Net loss from continuing operations | $ | (1,410) | $ | (5,326) | |||||||
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities: | |||||||||||
Depreciation | 6,589 | 6,653 | |||||||||
Stock-based compensation expense | 1,741 | 2,731 | |||||||||
Gain on disposal of fixed assets | (34) | (24) | |||||||||
Gain on extinguishment of debt | — | (1,080) | |||||||||
Income from equity investment in joint venture | (1,126) | (1,267) | |||||||||
Change in unrealized gain on natural gas derivatives | (27) | — | |||||||||
Cash settlements from derivatives | 1,062 | — | |||||||||
Distributions from equity investment in joint venture | 1,550 | 1,387 | |||||||||
Impairment of right-of-use lease asset | — | 376 | |||||||||
Change in operating assets and liabilities: | |||||||||||
Accounts receivable | (977) | (1,381) | |||||||||
Inventories | 44 | (23) | |||||||||
Prepaid expenses and other current assets | (1,216) | 218 | |||||||||
Accounts payable and accrued liabilities | 5,174 | 3,611 | |||||||||
Other | (570) | (3) | |||||||||
Cash provided by operating activities from continuing operations | 10,800 | 5,872 | |||||||||
Cash provided by (used in) operating activities from discontinued operations | 738 | (443) | |||||||||
Net cash provided by operating activities | 11,538 | 5,429 | |||||||||
Cash flows from investing activities: | |||||||||||
Acquisition of fixed assets | (1,746) | (6,748) | |||||||||
Proceeds from sale of fixed assets | 100 | 258 | |||||||||
Proceeds from assets held for sale | 2,049 | — | |||||||||
Cash provided by (used in) investing activities from continuing operations | 403 | (6,490) | |||||||||
Cash used in investing activities from discontinued operations | (334) | (200) | |||||||||
Net cash provided by (used in) investing activities | 69 | (6,690) | |||||||||
Cash flows from financing activities: | |||||||||||
Proceeds from borrowings on short- and long-term notes payable | 1,000 | 6,997 | |||||||||
Payments on short- and long-term notes payable | (1,555) | (432) | |||||||||
Payments on notes payable and finance leases from related parties | (669) | (3,277) | |||||||||
Payment of debt issuance costs | — | (420) | |||||||||
Employee tax payments from restricted stock withholdings | (85) | (430) | |||||||||
Cash provided by (used in) financing activities from continuing operations | (1,309) | 2,438 | |||||||||
Cash provided by (used in) financing activities from discontinued operations | (113) | 13 | |||||||||
Net cash provided by (used in) financing activities | (1,422) | 2,451 | |||||||||
Effect of exchange rate changes on cash | 7 | (76) | |||||||||
Net increase in cash and cash equivalents | 10,192 | 1,114 | |||||||||
Cash and cash equivalents, beginning of period | 910 | 1,240 | |||||||||
Cash and cash equivalents, end of period | $ | 11,102 | $ | 2,354 | |||||||
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Stabilis Solutions, Inc. and its subsidiaries (the “Company”, “Stabilis”, “our”, “us” or “we”) is an energy transition company that provides turnkey clean energy production, storage, transportation and fueling solutions primarily using liquefied natural gas (“LNG”) to multiple end markets across North America.
The Company provides LNG solutions toserves customers in diverse end markets, including aerospace, agriculture, energy, industrial, marine bunkering, mining, pipeline, remote clean power and utility markets. LNG can be used to deliver natural gas to locations where pipeline service is not available,unavailable, has been interrupted, or needs to be supplemented. Additionally, LNG can be used as a partner fuel for renewable energy, and as an alternative to traditional fuel sources, such as distillate fuel oil (including diesel fuel and other fuel oils) and propane, among others to provide both environmental and economic benefits. Stabilis operates two LNG production facilities in George West, Texas and Port Allen, Louisiana to service customers in Texas and the greater Gulf Coast region.
The Company also builds power and control systems for the energy industry in China through its 40% owned Chinese joint venture, BOMAY Electric Industries, Inc (“BOMAY”). The BOMAY operations is accounted for as an equity investment.
Basis of Presentation and Consolidation
The accompanying unaudited, interim condensed consolidated financial statements ("(“Condensed Consolidated Financial Statements"Statements”) include our accounts and those of our subsidiaries and, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and disclosures normally included in the notes to consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("(“U.S. GAAP"GAAP”) have been condensed or omitted. We believe that the presentation and disclosures herein are adequate to prevent the information presented herein from being misleading. The Condensed Consolidated Financial Statements reflect all adjustments (consisting of normal recurring adjustments) for a fair presentation of the interim periods. The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for the full year. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 20212022 included in the Company's Annual Report on Form 10-K,10-K, as filed on March 10, 2022.
All intercompany accounts and transactions have been eliminated in consolidation. In the Notes to Condensed Consolidated Financial Statements, all dollar amounts in tabulations are in thousands, unless otherwise indicated.
The Company believes thatsale of the Brazil Operations meeton October 31, 2022, met the criteria for discontinued operations presentation at September 30, 2022. Accordingly, such assets and liabilities at September 30, 2022, results of operations for the three and nine months ended and cash flows for the nine months ended September 30, 2022 have been classified as discontinued operations on our Condensed Consolidated Balance Sheet, Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows, respectively.presentation. The classification of these assets, liabilities, results of operations and cash flows as discontinued operations requires retrospective application to financial information for all prior periods presented. Therefore, such assetspresented (preceding the sale). Accordingly, the operating results related to our Brazil Operations for the three and liabilities at December 31, 2021, and operating resultsnine months ended September 30, 2022, and cash flows for the corresponding 2021 periods have been recastnine months ended September 30, 2022, are included within loss from discontinued operations, net of tax on our Condensed Consolidated Balance Sheet, Condensed Consolidated StatementStatements of Operations and Condensed Consolidated Statements of Cash Flows, respectively.Flows. There were no assets and liabilities from discontinued operations as of September 30, 2023 or December 31, 2022, and no results of operations or cash flows for the three and nine months ended September 30, 2023. Unless otherwise noted, the amounts presented throughout the notes to our Financial Statements relate to our continuing operations. See Note 2 for further discussion of the Company's decision to exit the Brazil Operations.
Use of Estimates in the Preparation of the Consolidated Financial Statements
The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates include the fair value of natural gas derivatives, the carrying amount of contingencies, valuation allowances for receivables, inventories, and deferred income tax assets, valuations assigned to assets and liabilities in business combinations, and impairments of long-lived assets. Actual results could differ from those estimates, and these differences could be material to the Condensed Consolidated Financial Statements.
Derivative instruments
The Company had certain natural gas derivative instruments as of September 30, 2022.2023 and December 31, 2022. The Company recognizes all of its derivative instruments as either assets or liabilities which are recorded at fair value on itsthe Company's Condensed Consolidated Balance Sheet.Sheets. The accounting for changes in the fair value of a derivative instrument depends on whether it qualifies for and has been designated as a hedge andas well as the type of hedge. The Company has not designated the derivativeits derivatives as a hedgehedges under U.S. GAAP and all resulting gains and losses from changes in the fair value of its derivative instruments are included within the Condensed Consolidated Statements of Operations. The Company did not enter into any derivative transactions for speculative purposes. See Note 4 for further discussion of the Company's derivatives.
Recent Accounting Pronouncements
In March 2020, June 2016, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU No. 2020-04”), which provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted accounting principles to contract modifications, hedging relationships, and other transactions impacted by reference rate reform. The provisions of ASU No. 2020-04 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU No. 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022. We are currently evaluating the impact of ASU No. 2020-04 on our consolidated financial position and results of operations.
2. DISCONTINUED OPERATIONS
On October 31,2022, the Company determined that it would exitentered into a sales agreement and closed on the sale of its Brazil Operations as the Company desires to focus its resources and management on the core LNG business.Operations. The Company expects that the exit will be in the formsale of a sale for cash or a combination of cash and a note receivable. The Company expects the sale will close within the next year.
The classification of these assets, liabilities, results of operations and cash flows as discontinued operations requires retrospective application to financial information for all prior periods presented. Accordingly, for the 2022 periods preceding the sale, the Condensed Consolidated Financial Statements and related notes have been updatedrecast to separately state the assets and liabilities, revenues, and expenses and cash flows between its continuing operations and the discontinued operations. The Company had no assets and liabilities related to the Brazil Operations at September 30, 2023 or December 31, 2022. In addition, the Company had no results of operations as of and for all periods presented.
The following table summarizes the components of income from discontinued operations for the periods presented (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Revenue | $ | 3,202 | $ | 1,925 | $ | 8,602 | $ | 5,129 | |||||||||||||||
Costs and expenses | 3,082 | 1,987 | 8,392 | 5,247 | |||||||||||||||||||
Impairment | 1,310 | — | 1,310 | — | |||||||||||||||||||
Other income and interest expense, net | (45) | 22 | (80) | 117 | |||||||||||||||||||
Loss from discontinued operations before income taxes | $ | (1,235) | $ | (40) | $ | (1,180) | $ | (1) | |||||||||||||||
Income tax expense | 66 | 4 | 261 | 127 | |||||||||||||||||||
Loss from discontinued operations net of income taxes | $ | (1,301) | $ | (44) | $ | (1,441) | $ | (128) |
September 30, 2022 | December 31, 2021 | |||||||||||||
Assets | ||||||||||||||
Cash and cash equivalents | $ | 478 | $ | 1,149 | ||||||||||
Accounts receivable, net | 1,222 | 926 | ||||||||||||
Contract assets and other current assets | 1,967 | 1,371 | ||||||||||||
Total current assets of discontinued operations | 3,667 | 3,446 | ||||||||||||
Property, plant and equipment, net | — | 522 | ||||||||||||
Goodwill | — | 138 | ||||||||||||
Other noncurrent assets | — | 172 | ||||||||||||
Total assets of discontinued operations | $ | 3,667 | $ | 4,278 |
September 30, 2022 | December 31, 2021 | |||||||||||||
Liabilities | ||||||||||||||
Accounts payable | $ | 498 | $ | 492 | ||||||||||
Accrued liabilities | 1,956 | 1,213 | ||||||||||||
Current portion of notes payable | 158 | 108 | ||||||||||||
Current portion of finance and operating lease obligations | 205 | 118 | ||||||||||||
Total current liabilities of discontinued operations | 2,817 | 1,931 | ||||||||||||
Long-term notes payable, net of current portion and other noncurrent liabilities | — | 288 | ||||||||||||
Total liabilities of discontinued operations | $ | 2,817 | $ | 2,219 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues | $ | — | $ | 3,202 | $ | — | $ | 8,602 | ||||||||
Costs and expenses | — | 3,082 | — | 8,392 | ||||||||||||
Impairment | — | 1,310 | — | 1,310 | ||||||||||||
Other (expense), net | — | (45 | ) | — | (80 | ) | ||||||||||
Income from discontinued operations before income taxes | — | (1,235 | ) | — | (1,180 | ) | ||||||||||
Income tax expense | — | 66 | — | 261 | ||||||||||||
Loss from discontinued operations, net of income taxes | $ | — | $ | (1,301 | ) | $ | — | $ | (1,441 | ) |
Segment Reporting
As a result of the classification of the Brazil Operations as discontinued operations, the Company believes that it only has one reporting segment.
3. REVENUE RECOGNITION
We recognize revenues when the transfer of promised goods or services are delivered to our customers in accordance with the applicable customer contract and we are entitled to be paid by the customer.
Revenues are measured as consideration specified in theLNG product revenue generated includesProduct revenues
LNG Product revenues represent the revenuesale of LNG from both produced and purchased sources as well as the product and delivery oftransportation performed to deliver the LNG to our customer’scustomer location.
Rental revenues
Rental revenues are generated from the rental of cryogenic equipment and human resources provided to our customers. Rental revenues are not dependent upon the customer to supportgallons delivered but based upon day rates or monthly rates for the use of equipment as specifically established within the contract and are disaggregated from LNG and power delivery equipment and services in their application. Rental contracts are established by agreeing on aProduct revenues. Revenues related to rental price or transaction price for the related piece of equipment are recognized under Topic 606and not ASC 842: Leases, as the rental period which is generally daily or monthly. The Company maintains control of the equipment that the customer uses and can replace the rented equipment with similar equipment should the rented equipment become inoperable or the Company chooses to replace the equipment for maintenance purposes. Revenue is recognized as the rental period is completed and for periods that cross month end, revenue is recognized for the portion of the rental period that has been completed to date. Payment terms for rental contracts are generally within thirty days from the receipt of the invoice. Performance obligations for rental revenue are considered to be
Service revenues
Service revenues are generated from engineering and field support services and represent the human resources provided to the customer to support the use of LNG service revenue generated byat the Company consists ofcustomer’s job site. These include support and costs for mobilization and demobilization of equipment andat customer sites as well as onsite technical support while customers are consuming LNG in their applications.LNG. Service revenue is billedrevenues are not dependent upon the gallons delivered or rental period but based onupon the specific contractual terms thatand can be based on an event (i.e. mobilization or demobilization) or an hourly rate. Revenuerate as specifically established within the contract and are disaggregated from LNG Product revenues and Rental revenues. Service revenue is recognized as the event is completed or work is done. Performance obligations for service revenueThe stated hourly labor rates in each contract are considered to be satisfied as the event is completed or work is done per the termsrepresentative of the related contract.stand-alone hourly rates at the time the contract was negotiated.
Other
Other revenuesare items that, due to their nature, are disaggregated from the categories mentioned above such as expenses incurred by the Company on behalf of the customer that we contractually rebill to our customer on a cost-plus basis.
Disaggregated Revenues
The table below presents revenue disaggregated by source, for the three and nine months ended September 30, 2022 2023 and 20212022 (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
Revenues: | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
LNG Product | $ | 21,623 | $ | 14,420 | $ | 58,744 | $ | 37,927 | |||||||||||||||
Rental and service | 3,843 | 3,046 | 9,966 | 8,996 | |||||||||||||||||||
Other | 353 | 313 | 526 | 1,368 | |||||||||||||||||||
$ | 25,819 | $ | 17,779 | $ | 69,236 | $ | 48,291 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Revenues: | 2023 | 2022 | 2023 | 2022 | ||||||||||||
LNG Product | $ | 12,122 | $ | 21,823 | $ | 44,595 | $ | 58,944 | ||||||||
Rental | 1,330 | 1,690 | 4,640 | 5,015 | ||||||||||||
Service | 1,579 | 2,154 | 4,745 | 4,952 | ||||||||||||
Other | 285 | 152 | 1,085 | 325 | ||||||||||||
Total revenues | $ | 15,316 | $ | 25,819 | $ | 55,065 | $ | 69,236 |
The table below presents revenue disaggregated by geographic location, for the three and nine months ended September 30, 2022 2023 and 20212022 (in thousands):
Three Months Ended September 30, 2022 | Nine Months Ended September 30, | ||||||||||||||||||||||
Revenues: | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Mexico | 3,427 | 3,501 | 12,087 | 7,198 | |||||||||||||||||||
United States | 22,392 | 14,278 | 57,149 | 41,093 | |||||||||||||||||||
$ | 25,819 | $ | 17,779 | $ | 69,236 | $ | 48,291 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Revenues: | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Mexico | $ | 1,558 | $ | 3,427 | $ | 6,122 | $ | 12,087 | ||||||||
United States | 13,758 | 22,392 | 48,943 | 57,149 | ||||||||||||
Total revenues | $ | 15,316 | $ | 25,819 | $ | 55,065 | $ | 69,236 |
Variable and Other Revenue Components
Certain of our contracts may include rental or services that may vary upon the customer demands at stated rates within discontinued operations (See Note 2)the contract and are satisfied as the work is authorized by the customer and performed by the Company. LNG product sales agreements may include both fixed and variable fees per gallon of LNG, but is representative of the stand-alone selling price for LNG at the time the contract was negotiated. We have concluded that the variable LNG fees meet the exception for allocating variable consideration to specific parts of the contract. As such, the variable consideration for these contracts is allocated to each distinct gallon of LNG and recognized when that distinct gallon of LNG is delivered to the customer.
Taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between the Company and its customers, such as sales, use and value-added taxes, are excluded from Brazil.revenue.
4. DERIVATIVE INSTRUMENTS
As of September 30, 2023 and December 31, 2022, the Company held a series of call options (“the Call Options”) for the purchase of natural gas related to customer commitments. The Call Options are for a total of 2.00.5 million MMBtu (million British thermal units) of natural gas over a periodat September 30, 2023 which extend into the second quarter of approximately two years.2024. The Company purchased the Call Options to manage the risk of increasing natural gas prices above what it can charge its customers. The Company may also enter into other derivative transactions when beneficial. Except for contracts qualifying for the normal purchase normal sales exception, as further described below, the Company recognizes all of its derivative instruments as either assets or liabilities which are recorded at fair value on itsthe Company's Condensed Consolidated Balance Sheet.Sheets. The fair value of the Call Options are predominantly determined from broker quotes and are considered a level 2 fair value measurement. The following table presents the location and fair value of the Call Options at September 30, 20222023 and December 31, 20212022 on the Company's Condensed Consolidated Balance Sheets (in thousands):
September 30, | December 31, | |||||||
Location on Condensed Consolidated Balance Sheet | 2023 (1) | 2022 (1) | ||||||
Prepaid expenses and other current assets (2) | $ | 32 | $ | 347 | ||||
Right-of-use assets and other noncurrent assets (2) | — | 225 | ||||||
$ | 32 | $ | 572 |
(1)Amounts are presented on a gross basis.
(2)The classification between current and noncurrent assets is based upon when the Call Options mature.
The Company has not designated the Call Options as a hedge under U.S. GAAP and all resulting gains and losses from changes in the fair value of its derivative instruments are included within change in unrealized loss on natural gas derivatives
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
Changes in fair value of derivatives | 2022 | 2021(1) | 2022 | 2021(1) | ||||||||||||||||||||||
Fair value of natural gas derivatives, beginning of period | $ | 1,126 | $ | — | $ | — | $ | — | ||||||||||||||||||
Purchases of natural gas derivatives | — | — | 2,241 | — | ||||||||||||||||||||||
Unrealized gains (losses) transferred to realized gains (losses), net | (324) | — | (540) | — | ||||||||||||||||||||||
Change in unrealized gain on natural gas derivatives (2) | 926 | — | 27 | — | ||||||||||||||||||||||
Fair value of natural gas derivatives, end of period | $ | 1,728 | $ | — | $ | 1,728 | $ | — | ||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
Realized gain (loss) from derivative instruments | 2022 | 2021(1) | 2022 | 2021(1) | ||||||||||||||||||||||
Unrealized gains (losses) transferred to realized gains (losses), net | $ | (324) | $ | — | $ | (540) | $ | — | ||||||||||||||||||
Derivative settlement payments received (2) | 682 | — | 1,062 | — | ||||||||||||||||||||||
Realized gain (loss) from natural gas derivatives, net (3) | $ | 358 | $ | — | $ | 522 | $ | — |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Changes in fair value of derivatives | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Fair value of natural gas derivatives, beginning of period | $ | 81 | $ | 1,126 | $ | 572 | $ | — | ||||||||
Purchases of natural gas derivatives | — | — | — | 2,241 | ||||||||||||
Unrealized losses transferred to realized losses, net | (316 | ) | (324 | ) | (862 | ) | (540 | ) | ||||||||
Change in unrealized gain (loss) on natural gas derivatives (1) | 267 | 926 | 322 | 27 | ||||||||||||
Fair value of natural gas derivatives, end of period | $ | 32 | $ | 1,728 | $ | 32 | $ | 1,728 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Realized gain (loss) from derivative instruments | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Unrealized gains (losses) transferred to realized gains (losses), net | $ | (316 | ) | $ | (324 | ) | $ | (862 | ) | $ | (540 | ) | ||||
Derivative settlement payments received (2) | — | 682 | — | 1,062 | ||||||||||||
Realized gain (loss) from natural gas derivatives, net (2) | $ | (316 | ) | $ | 358 | $ | (862 | ) | $ | 522 |
_______________(1)
(2)Amounts are included within cost of LNG productrevenues on the Company's Condensed Consolidated StatementStatements of Operations.
The Company may enteralso enters into forward contracts for purchases of natural gas and/or electricity to meet liquefaction requirements and forward sales contracts for the delivery of LNG to its customers. These contracts are not accounted for as derivatives, but accounted for under the normal purchase normal sales exclusion under U.S. GAAP and are not measured at fair value each reporting period.
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
The Company’s prepaid expenses and other current assets at September 30, 20222023 and December 31, 20212022 consisted of the following (in thousands):
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Prepaid insurance | $ | 1,354 | $ | 990 | ||||
Prepaid supplier expenses | 162 | 286 | ||||||
Other receivables | 1,526 | 254 | ||||||
Natural gas derivatives at fair value, current | 32 | 347 | ||||||
Deposits | 203 | 236 | ||||||
Other | 104 | 73 | ||||||
Total prepaid expenses and other current assets | $ | 3,381 | $ | 2,186 |
September 30, 2022 | December 31, 2021 | ||||||||||
Prepaid LNG | $ | — | $ | 92 | |||||||
Prepaid insurance | 1,342 | 892 | |||||||||
Prepaid supplier expenses | 248 | 201 | |||||||||
Fair value of derivatives, current | 1,190 | — | |||||||||
Deposits | 287 | 243 | |||||||||
Other | 51 | 94 | |||||||||
Total prepaid expenses and other current assets | $ | 3,118 | $ | 1,522 |
6. ASSETS HELD FOR SALE AND PROPERTY, PLANT AND EQUIPMENT
The Company’s property, plant and equipment at September 30, 20222023 and December 31, 20212022 consisted of the following (in thousands):
September 30, 2022 | December 31, 2021 | ||||||||||||||||
Liquefaction plants and systems | $ | 47,606 | $ | 47,235 | |||||||||||||
Real property and buildings | 2,057 | 2,047 | |||||||||||||||
Vehicles and tanker trailers and equipment | 51,168 | 49,905 | |||||||||||||||
Computer and office equipment | 483 | 478 | |||||||||||||||
Construction in progress | 408 | 1,495 | |||||||||||||||
Leasehold improvements | 30 | 32 | |||||||||||||||
101,752 | 101,192 | ||||||||||||||||
Less: accumulated depreciation | (53,617) | (47,027) | |||||||||||||||
$ | 48,135 | $ | 54,165 |
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Liquefaction plants and systems | $ | 48,005 | $ | 47,636 | ||||
Real property and buildings | 2,066 | 2,057 | ||||||
Vehicles and tanker trailers and equipment | 49,489 | 52,647 | ||||||
Computer and office equipment | 457 | 470 | ||||||
Construction in progress | 9,620 | 527 | ||||||
Leasehold improvements | 32 | 31 | ||||||
109,669 | 103,368 | |||||||
Less: accumulated depreciation | (59,651 | ) | (55,699 | ) | ||||
$ | 50,018 | $ | 47,669 |
Depreciation expense totaled $2.1$2.0 million and $2.3$2.1 million for the three months ended September 30, 2022 2023 and 2021, respectively, and $6.6 million and $6.7 million for the nine months ended September 30, 2022 and 2021,, respectively, all of which is included in the Condensed Consolidated Statements of Operations as a separate line item. Depreciation expense totaled $6.0 million and $6.6 million for the nine months ended September 30, 2023 and 2022, respectively, all of which is included in the Condensed Consolidated Statements of Operations as a separate line item.
In October 2023, the Company’s insurance carriers settled with the Company with respect to certain assets that were damaged in a fire in June of 2023. The damages did not adversely impact the Company’s operations and were covered under the Company’s insurance policies less the policy deductible. The insurance proceeds to be received totaled $1.4 million including the reimbursement of site remediation and clean up expenses incurred by the Company. At September 30, 2023, the damaged assets were written off and the corresponding gain of $1.0 million is included in gain from disposal of fixed assets within the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023, and proceeds to be received under the above referenced settlement are included in prepaid expenses and other current assets at September 30, 2023.
7. INVESTMENT IN FOREIGN JOINT VENTURE
The Company holds a 40% interest in BOMAY, Electric Industries Company, Ltd. (“BOMAY”), which builds electrical systems for sale in China.systems. The majority partner in this foreign joint venture is Baoji Oilfield Machinery Co., Ltd. (a subsidiary of China National Petroleum Corporation), which owns 51%. The remaining 9% is owned by AA Energies, Inc. The Company made no sales to its joint venture during the three and nine months ended September 30, 2022 2023 and 2021.
The tables below present a summary of BOMAY's assets, and liabilities and equity at September 30, 20222023 and December 31, 2021,2022, and its operational results for the three and nine months ended September 30, 2022 2023 and 20212022 in U.S. dollars (in thousands, unaudited)thousands):
September 30, 2022 | December 31, 2021 | ||||||||||
Assets: | |||||||||||
Total current assets | $ | 75,220 | $ | 75,249 | |||||||
Total non-current assets | 2,968 | 3,544 | |||||||||
Total assets | $ | 78,188 | $ | 78,793 | |||||||
Liabilities and equity: | |||||||||||
Total liabilities | $ | 49,469 | $ | 45,253 | |||||||
Total joint ventures’ equity | 28,719 | 33,540 | |||||||||
Total liabilities and equity | $ | 78,188 | $ | 78,793 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Revenue | $ | 12,364 | $ | 10,040 | $ | 55,090 | $ | 43,261 | |||||||||||||||
Gross Profit | 2,332 | 3,420 | 7,637 | 8,111 | |||||||||||||||||||
Earnings | 430 | 688 | 2,573 | 2,923 |
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Assets: | ||||||||
Total current assets | $ | 136,833 | $ | 88,536 | ||||
Total non-current assets | 2,677 | 3,016 | ||||||
Total assets | $ | 139,510 | $ | 91,552 | ||||
Liabilities and equity: | ||||||||
Total liabilities | $ | 106,982 | $ | 58,482 | ||||
Total joint ventures’ equity | 32,528 | 33,070 | ||||||
Total liabilities and equity | $ | 139,510 | $ | 91,552 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenue | $ | 18,565 | $ | 12,364 | $ | 70,148 | $ | 55,090 | ||||||||
Gross Profit | 2,754 | 2,332 | 8,640 | 7,637 | ||||||||||||
Net income | 749 | 430 | 3,422 | 2,573 |
The table below presents the components of our investment in BOMAY and a summary of the activity within those components for the nine months ended September 30, 20222023 in U.S. dollars (in thousands, unaudited):
Initial Investment at Merger (1), (2) | Undistributed Earnings | Cumulative Foreign Exchange Translation Adj | Investment in BOMAY | ||||||||||||||||||||
Balance at December 31, 2021 | $ | 9,333 | $ | 1,965 | $ | 1,027 | $ | 12,325 | |||||||||||||||
Equity in earnings | — | 1,126 | — | 1,126 | |||||||||||||||||||
Less: dividend distributions | — | (1,550) | — | (1,550) | |||||||||||||||||||
Foreign currency translation gain (loss) | — | — | (1,477) | (1,477) | |||||||||||||||||||
Balance at September 30, 2022 | $ | 9,333 | $ | 1,541 | $ | (450) | $ | 10,424 |
Initial Investment at Merger (1), (2) | Undistributed Earnings | Cumulative Foreign Exchange Translation Adj | Investment in BOMAY | |||||||||||||
Balance at December 31, 2022 | $ | 9,333 | $ | 2,295 | $ | (22 | ) | $ | 11,606 | |||||||
Equity in earnings | — | 1,466 | — | 1,466 | ||||||||||||
Less: dividend distributions | — | (813 | ) | — | (813 | ) | ||||||||||
Foreign currency translation gain (loss) | — | — | (668 | ) | (668 | ) | ||||||||||
Balance at September 30, 2023 | $ | 9,333 | $ | 2,948 | $ | (690 | ) | $ | 11,591 |
September 30, 2022 | December 31, 2021 | ||||||||||
Original basis difference | $ | 1,165 | $ | 1,165 | |||||||
Less accumulated accretion | (410) | (314) | |||||||||
Net remaining basis difference, net at end of period | $ | 755 | $ | 851 |
(1) | Accumulated statutory reserves in equity method investments of $2.7million at September 30, 2023 and December 31, 2022 is included in our investment in BOMAY. In accordance with the People’s Republic of China, (“PRC”) regulations on enterprises with foreign ownership, an enterprise established in the PRC with foreign ownership is required to provide for certain statutory reserves, namely (i)General Reserve Fund, (ii)Enterprise Expansion Fund and (iii)Staff Welfare and Bonus Fund, which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A non-wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. |
(2) | The Company’s initial investment in BOMAY differed from the Company’s 40% share of BOMAY’s equity as a result of applying fair value accounting pursuant to ASC 805. The basis difference is being accreted over an original period of nine years (the expected life of the joint venture). The Company's accretion during the nine months ended September 30, 2023 and 2022 both totaled approximately $97 thousand each, respectively, and is included in income from equity investment in foreign joint venture in the accompanying Condensed Consolidated Statements of Operations. The remaining basis difference, net of accumulated accretion at September 30, 2023 and December 31, 2022 is summarized in the following table (in thousands): |
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Original basis difference | $ | 1,165 | $ | 1,165 | ||||
Less accumulated accretion | (539 | ) | (443 | ) | ||||
Net remaining basis difference at end of period | $ | 626 | $ | 722 |
In accordance with our long-lived asset policy, when events or circumstances indicate the carrying amount of an asset may not be recoverable, management tests long-lived assets for impairment. If the estimated future cash flows are projected to be less than the carrying amount, an impairment write-down (representing the carrying amount of the long-lived asset which exceeds the present value of estimated expected future cash flows) would be recorded as a period expense. In making this evaluation, a variety of quantitative and qualitative factors are considered including national and local economic, political and market conditions, industry trends and prospects, liquidity and capital resources and other pertinent factors. Based on this evaluation for this reporting period, the Company does not believe an impairment of our investment in BOMAY is necessary for the period ending September 30, 2022.2023.
8. ACCRUED LIABILITIES
The Company’s accrued liabilities at September 30, 20222023 and December 31, 20212022 consisted of the following (in thousands):
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Compensation and benefits | $ | 2,202 | $ | 3,111 | ||||
Professional fees | 404 | 454 | ||||||
LNG fuel and transportation | 3,989 | 6,549 | ||||||
Accrued interest | 44 | 33 | ||||||
Customer deposits and prepayments | 1,505 | 8,456 | ||||||
Other taxes payable | 457 | 701 | ||||||
Other accrued liabilities | 148 | 338 | ||||||
Total accrued liabilities | $ | 8,749 | $ | 19,642 |
September 30, 2022 | December 31, 2021 | ||||||||||
Compensation and benefits | $ | 2,526 | $ | 2,465 | |||||||
Professional fees | 275 | 275 | |||||||||
LNG fuel and transportation | 6,969 | 2,788 | |||||||||
Accrued interest | 32 | 53 | |||||||||
Customer deposits | 6,821 | — | |||||||||
Other taxes payable | 394 | 476 | |||||||||
Other accrued liabilities | 172 | 260 | |||||||||
Total accrued liabilities | $ | 17,189 | $ | 6,317 |
9. DEBT
The Company’s carrying value of debt, net of debt issuance costs at September 30, 20222023 and December 31, 20212022 consisted of the following (in thousands):
September 30, 2022 | December 31, 2021 | ||||||||||
Secured term note, net of debt issuance costs | $ | 8,640 | $ | 7,608 | |||||||
Secured promissory note - related party | 3,022 | 3,603 | |||||||||
Insurance and other notes payable | 1,085 | 855 | |||||||||
Less: amounts due within one year | (3,485) | (2,023) | |||||||||
Total long-term debt | $ | 9,262 | $ | 10,043 |
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Secured term note, net of debt issuance costs | $ | 8,585 | $ | 8,650 | ||||
Secured promissory note - related party | 622 | 2,435 | ||||||
Insurance and other notes payable | 1,139 | 848 | ||||||
Less: amounts due within one year | (2,297 | ) | (3,283 | ) | ||||
Total long-term debt | $ | 8,049 | $ | 8,650 |
Total interest expense was $0.1 million and $0.5 million during three and nine months ended September 30, 2023 and $0.2 million and $0.6 million during the three and nine months ended September 30, 2022, respectively. During the three and nine months ended September 30, 2023, the Company capitalized $0.1 million of interest expense.
Revolving Credit Facility
On June 9, 2023, the Company, along with its subsidiaries, Stabilis LNG Eagle Ford LLC, Stabilis GDS, Inc. and Stabilis LNG Port Allen, LLC (collectively, the “Borrowers”) entered into a three-year loan agreement (the “Revolving Credit Facility”) with Cadence Bank. The Revolving Credit Facility provides for a maximum aggregate amount of $10.0 million, subject to a borrowing base of 80% of eligible accounts receivable. The Company may request an increase in the maximum aggregate amount under the Revolving Credit Facility by up to $5.0 million, subject to the approval of Cadence Bank. All borrowings under the Revolving Credit Facility are secured by the Company’s accounts receivable and deposit accounts. Borrowings under the Revolving Credit Facility incur interest at the Prime Rate published by the Wall Street Journal. Any unused portion is subject to a quarterly unused commitment fee of 0.5% per annum. As of September 30, 2023, no amounts have been drawn under the Revolving Credit Facility. The Revolving Credit Facility matures on June 9, 2026. Debt issuance cost of $0.1 million was incurred and is reflected at September 30, 2023 in long-term notes payable, net, on the Condensed Consolidated Balance Sheets and as debt issuance costs paid on the Condensed Consolidated Statements of Cashflows. Amortization of debt issuance costs is in interest expense on the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023.
The Revolving Credit Facility contains various restrictions and covenants. Among other requirements, the Borrowers must maintain a consolidated net worth of at least $50 million as of September 30, 2023, increasing by 50% of the Borrowers’ net income as of the end of each year ended December 31, and must maintain a minimum Fixed Charge Coverage Ratio of 1.2 to 1.0 on a consolidated basis, as defined in the Revolving Credit Facility, as of the last day of each fiscal quarter, on a trailing twelve (12) months basis. The Revolving Credit Facility also contains customary events of default. If an event of default under the Revolving Credit Facility occurs and is continuing, then Cadence Bank may declare any outstanding obligations under the Loan Agreement to be immediately due and payable. In addition, if any of the Borrowers become the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency or similar law, then any outstanding obligations under the Loan Agreement will automatically become immediately due and payable. As of September 30, 2023, the Company was in compliance with all its covenants related to the Revolving Credit Facility.
Secured Term Note
On April 8, 2021, the Company entered into a loan agreement (the “Loan Agreement”) with AmeriState Bank (“Lender”), as lender, pursuant to the United States Department of Agriculture, Business & Industry Loan Program, to provide for an advancing loan facility in the aggregate principal amount of up to $10.0 million (the “AmeriState Loan”). The Loan Agreement is secured by specific equipment owned by the Company. On September 19, 2023, the Loan Agreement was amended (the "First Amendment"), for the purpose of which $9.0 million was drawn and outstandingsubstituting certain items of Collateral under the Loan Agreement; the First Amendment is attached as of September 30, 2022.an exhibit to this filing. The AmeriState Loan which is in the form of a term loan facility, matures on April 8, 2031 and bears interest at 5.75% per annum through April 8, 2026, and the U.S. prime lending rate plus 2.5% per annum thereafter. The AmeriState Loan provides that proceeds from borrowings may be used for working capital purposes at the Company’s liquefaction plant in George West, Texas and related fees and costs associated with the AmeriState Loan.
The Loan Agreement requires the Company to meet certain financial covenants which include a debt-to-net-worth ratio of not more than 9.1 to 1.0 and a debt service coverage ratio of not less than 1.2 to 1.0 on an annual basis beginning December 31, 2022. The Company was in compliance with all of its debt covenants as of September 30, 2023. Upon an Event of Default (as defined in the Loan Agreement), the Lender may (i)(i) terminate its commitment, (ii) declare the outstanding principal amount of the Advancing Notes (as defined in the Loan Agreement) due and payable, or (iii) exercise all rights and remedies available to Lender under the Loan Agreement.
Secured Promissory Note - Related Party
On August 16, 2019, the Company issued a secured promissory noteSecured Promissory Note to M/GMG Finance Co., Ltd., a related party, in the principal amount of $5.0 million, at an interest rate per annum of 6.0% until December 10, 2020, and 12.0% thereafter, maturing in December 2022. The secured promissory notewhich was subsequently amended on September 20, 2021, and on March 9, 2022 to defer scheduled debt and interest payments reduceand lower the interest rate and extend the maturity date. Paymentsfrom 12.0% to 6.0%. Repayments under the secured promissory note, as amended, resume in October 2022 and will beamendment are in equal monthly installments through December 2023. The secured promissory note, as amended, bears interest at 6.0%.As of September 30, 2023, the outstanding balance is $0.6 million. The debt is secured by certain equipment of the Company.
Insurance and Other Notes Payable
The Company finances its annual commercial insurance premiums for its business and operations with a finance company. Duringoperations. For the three and nine months ended 2023-2024 policies, the amount financed was $1.1 million, which is the amount of the outstanding principal balance at September 30, 2022, the2023. The Company financed $1.4 million of insurance premiums with a short term note payable. The short term note payable requiresmakes equal monthly payments of principal and interest over ten months withthe term of the note. The interest at 5.75%. The Company's priorrate for the insurance note payable was paid in full August, 2022 and incurred interest of 3.95%financing is 7.95%. At September 30, 2022 and December 31, 2021,2022, the policies' outstanding principal under the Company's insurance notes payablebalance was $1.1$0.8 million, and $0.9 million, respectively.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Secured term note | $ | 143 | $ | 117 | $ | 408 | $ | 176 | |||||||||||||||
Secured promissory note - related party | 49 | 120 | 129 | 441 | |||||||||||||||||||
Insurance and other notes payable | 5 | — | 23 | 7 | |||||||||||||||||||
Interest expense on debt | 197 | 237 | 560 | 624 | |||||||||||||||||||
Other interest | 2 | 2 | 6 | 6 | |||||||||||||||||||
Total interest expense | $ | 199 | $ | 239 | $ | 566 | $ | 630 |
10. RELATED PARTY TRANSACTIONS
Secured Promissory Note - Related Party
Casey Crenshaw Family Holdings, LP (“Crenshaw Family Holdings”). Crenshaw Family Holdings sold its interest in ACT on November 22, 2021. During(our Chairman of the three and nine months ended September 30, 2021, the Company purchased from ACT $32 thousand and $0.5 million for equipment, repairs and services, respectively. The Company had $29 thousand of sales to ACT during the three
Other Purchases and Sales
The Company purchases supplies and services from subsidiaries of The Modern Group. The Company made purchases of supplies and services from a subsidiary of The Modern Group totaling $38 thousand$0.2 million and $0.1 million for the three months ended September 30, 2022 2023 and 2021, respectively,2022, respectively. For the nine months ended September 30, 2023 and 2022, purchases totaled $0.4 million and $0.2 million, and $0.8 million forrespectively. During the nine months ended September 30, 2022 and 2021, respectively. Thethird quarter, the Company had no sales to The Modern Group during either the three or nine months ended September 30, 2022, and had sales of $13 thousand during the three and nine months ended September 30, 2021. The Company had no receivable duealso purchased equipment it was renting from The Modern Group at for $0.1 million. As of September 30, 2022 or 2023 and December 31, 2021. As of September 30, 2022 and December 31, 2021,, the Company had $0.1 million$33 thousand and $0.8$0.1 million, respectively, due to a subsidiary of The Modern Group included in accounts payable on the Condensed Consolidated Balance Sheets.
Chart E&C beneficially owns 8.0%7.9% of our outstanding common stock at September 30, 2022, and was party to a Secured Term Note Payable with the Company prior to its repayment by the Company during 2021. The Company purchases services from Chart E&C.2023. The Company made purchases from Chart E&C for the three months ended September 30, 2023 and 2022of $0.0 million$11 thousand and $2 thousand, respectively. For the nine months ended September 30, 2023 and 2022, the Company made purchases from Chart E&C totaling $22 thousand and $0.1 million, for the three months ended September 30, 2022 and 2021, respectively, and purchases also totaled $0.1 million and $0.1 million during the nine months ended September 30, 2022 and 2021, respectively. The Company had no receivable due from Chart at September 30, 2022 or December 31, 2021. As of September 30, 2022 the Company had no amounts due to Chart E&C. At December 31, 2021, the Company had $0.2$0.5 million due to Chart E&C included in accounts payable on the Condensed Consolidated Balance Sheets.
11. COMMITMENTS AND CONTINGENCIES
Environmental Matters
The Company is subject to federal, state and local environmental laws and regulations. The Company does not anticipate any expenditures to comply with such laws and regulations that would have a material impact on the Company’s condensed consolidated financial position, results of operations or liquidity. The Company believes that its operations comply, in all material respects, with applicable federal, state and local environmental laws and regulations.
Litigation, Claims and Contingencies
The Company may become party to various legal actions that arise in the ordinary course of its business. The Company is also subject to audit by tax and other authorities for varying periods in various federal, state and local jurisdictions, and disputes may arise during the course of these audits. It is impossible to determine the ultimate liabilities that the Company may incur resulting from any of these lawsuits, claims, proceedings, audits, commitments, contingencies and related matters or the timing of these liabilities, if any. If these matters were to ultimately be resolved unfavorably, it is possible that such an outcome could have a material adverse effect upon the Company’s condensed consolidated financial position, results of operations, or liquidity. The Company does not, however, anticipate such an outcome and it believes the ultimate resolution of these matters will not have a material adverse effect on the Company’s condensed consolidated financial position, results of operations, or liquidity. Additionally, the Company currently expenses all legal costs as they are incurred.
12. STOCKHOLDERS’ STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
Stock-based Compensation
The Company is authorized to issue up to 37,500,000 sharesincludes stock compensation expense within general and administrative expenses in the Condensed Consolidated Statements of common stock, $0.001 par value per share.
Issuance of his separation and release agreement. The restricted stock units (RSU's) were expensed during the third quarter 2021. In addition, during the nine months ended September 30, 2022, 212,337 shares of common stock were issued to other employees upon vesting of RSU's issued under the Company's long term incentive plan.
The Company has a long termlong-term incentive plan (the “Amended and Restated Plan”) which provides for a maximum number of shares of common stock available for issuance of 5,500,000 shares. The plan was amended in 2023 to increase the maximum number of shares from 4,000,000 shares. to 5,500,000, as approved by shareholders at the annual stockholders meeting held August 16, 2023. Awards under the Amended and Restated Plan may be granted to employees, officers and directors of the Company and affiliates, and any other person who provides services to the Company and its affiliates (including independent contractors and consultants of the Company and its subsidiaries). Awards may be granted in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalents, substitute awards, other stock-based awards, cash awards and/or any combination of the foregoing. No participant may receive a grant covering more than 2,000,000 shares of our common stock in any year and a non-employee member of the Board may not be granted more than 100,000 shares in any year.
On June 26, 2023, the Company issued a total of 40,764 RSU’s and 774,505granted 685,437 stock options pursuant toappreciation rights (“SARs”) under the Amended and Restated Plan.Plan, with a $10.00 strike price. The RSU’s were valued at $0.2 million based upon the closing price of $4.11 on the date of grant and willSARs 100% vest over three years. The Company has estimated the value of the options issued using a valuation model. The full aggregate fair value determined was $1.5 million using observable inputs from trading values of the Company's shares of stock. Assumptions used in determining the valuation of the options included the following:
Issuances of 3 years with an expiration date of 10 years.
During the nine months ended September 30, 20222023, and 2021,2022, shares of common stock were issued upon vesting of restricted stock units totaling 153,324 and 695,465, respectively. There were no stock options or stock appreciation rights exercised during the Company recognized $1.7 million and $2.7 million of stock compensation expense, respectively. As of nine months ended September 30, 2023 or 2022 the Company had $1.1 million of unrecognized compensation costs related to 247,607 outstanding RSUs which are expected to be recognized over a weighted average period of less than one year and $3.3 million of unrecognized compensation costs related to 2,074,505 outstanding options which are expected to be recognized over a weighted average period of less than three years. All RSU's and options are expected to vest..
13. NET INCOME (LOSS) PER SHARE
The calculation of net income (loss) per common share includingfor the numberthree and nine months ended September 30, 2023 and 2022 are presented below. For the September 30, 2023 securities that were excluded that would have had an anti-diluted effect consist of shares for both basic and diluted net income (loss) per share is as follows (in thousands, except share and per share data):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Basic weighted average number of common shares outstanding | 18,324,534 | 17,578,653 | 18,256,587 | 17,202,631 | |||||||||||||||||||
Dilutive securities (1),(2) | 272,074 | — | — | — | |||||||||||||||||||
Total shares including dilutive securities | 18,596,608 | 17,578,653 | 18,256,587 | 17,202,631 | |||||||||||||||||||
Net income (loss) from continuing operations | $ | 1,024 | $ | (4,581) | $ | (1,410) | $ | (5,326) | |||||||||||||||
Loss from discontinued operations, net of tax | (1,301) | (44) | (1,441) | (128) | |||||||||||||||||||
Net loss | $ | (277) | $ | (4,625) | $ | (2,851) | $ | (5,454) | |||||||||||||||
Basic income (loss) per common share: | |||||||||||||||||||||||
Basic income (loss) per common share from continuing operations | $ | 0.06 | $ | (0.26) | $ | (0.08) | $ | (0.31) | |||||||||||||||
Basic loss per common share from discontinued operations | (0.07) | — | (0.08) | (0.01) | |||||||||||||||||||
Basic net loss per common share | (0.02) | (0.26) | (0.16) | (0.32) | |||||||||||||||||||
. | |||||||||||||||||||||||
Diluted income (loss) per common share: | |||||||||||||||||||||||
Diluted income (loss) per common share from continuing operations | $ | 0.06 | $ | (0.26) | $ | (0.08) | $ | (0.31) | |||||||||||||||
Diluted loss per common share from discontinued operations | (0.07) | — | (0.08) | (0.01) | |||||||||||||||||||
Diluted net loss per common share | (0.01) | (0.26) | (0.16) | (0.32) |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Weighted average shares: | ||||||||||||||||
Basic weighted average number of common shares outstanding | 18,518,915 | 18,324,534 | 18,470,423 | 18,256,587 | ||||||||||||
Dilutive securities | — | 272,074 | — | — | ||||||||||||
Total shares including dilutive securities | 18,518,915 | 18,596,608 | 18,470,423 | 18,256,587 | ||||||||||||
Net income (loss): | ||||||||||||||||
Net income (loss) from continuing operations | $ | (207 | ) | $ | 1,024 | $ | (1,297 | ) | $ | (1,410 | ) | |||||
Loss from discontinued operations, net of income tax | — | (1,301 | ) | — | (1,441 | ) | ||||||||||
Net income (loss) | $ | (207 | ) | $ | (277 | ) | $ | (1,297 | ) | $ | (2,851 | ) | ||||
Net income (loss) per common share: | ||||||||||||||||
Basic net income (loss) per common share from continuing operations | $ | (0.01 | ) | $ | 0.06 | $ | (0.07 | ) | $ | (0.08 | ) | |||||
Basic loss per common share from discontinued operations | — | (0.08 | ) | — | (0.08 | ) | ||||||||||
Basic net income (loss) per common share | (0.01 | ) | (0.02 | ) | (0.07 | ) | (0.16 | ) | ||||||||
Diluted net income (loss) per common share from continuing operations | $ | (0.01 | ) | $ | 0.06 | $ | (0.07 | ) | $ | (0.08 | ) | |||||
Diluted loss per common share from discontinued operations | — | (0.07 | ) | — | (0.08 | ) | ||||||||||
Diluted net income (loss) per common share | (0.01 | ) | (0.01 | ) | (0.07 | ) | (0.16 | ) |
14. SUPPLEMENTAL CASH FLOW INFORMATION
The Company's supplemental disclosure of cash flow information for the nine months ended September 30, 2022 2023 and 20212022 is as follows (in thousands):
Nine Months Ended September 30, | |||||||||||
Supplemental Disclosure of Cash Flow Information: | 2022 | 2021 | |||||||||
Interest paid | $ | 635 | $ | 380 | |||||||
Income taxes paid | 29 | 169 | |||||||||
Significant non-cash investing and financing activities: | |||||||||||
Common stock issued to acquire fixed assets | $ | — | $ | 3,795 | |||||||
Equipment acquired from issuance of note payable | 359 | — | |||||||||
Acquisition of fixed assets included within accounts payable | 565 | — | |||||||||
Fixed assets transferred to assets held for sale | 1,841 | — | |||||||||
Equipment acquired under capital leases | — | 104 | |||||||||
Insurance premium financing | 1,203 | 1,278 | |||||||||
Nine Months Ended | ||||||||
September 30, | ||||||||
Supplemental Disclosure of Cash Flow Information: | 2023 | 2022 | ||||||
Interest paid | $ | 489 | $ | 635 | ||||
Income taxes paid | 207 | 29 | ||||||
Significant non-cash investing and financing activities: | ||||||||
Equipment acquired from issuance of note payable | — | 359 | ||||||
Acquisition of fixed assets included within accounts payable and accrued expenses | 150 | 565 | ||||||
Fixed assets transferred to assets held for sale | — | 1,841 | ||||||
Receivable of insurance proceeds from disposition of assets | 1,441 | — | ||||||
Insurance Premium Financing | 1,139 | 1,203 |
ITEM2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-Q ("(“this Report"Report”) and the consolidated financial statements included in the 20212022 Annual Report on Form 10-K filed on March 10, 20229, 2023 with the U.S. Securities and Exchange Commission (the "SEC"“SEC”). Historical results and percentage relationships set forth in the Condensed Consolidated Statements of Operations and Cash Flows, including trends that might appear, are not necessarily indicative of future operations or cash flows.
Overview
Stabilis Solutions, Inc. and its subsidiaries is an energy transition company that provides turnkey clean energy production, storage, transportation and fueling solutions primarily using liquefied natural gas (“LNG”) to multiple end markets across North America.markets. We provide LNG solutions to customers in diverse end markets, including aerospace, agriculture, energy, industrial, marine bunkering, mining, pipeline, remote clean power and utility markets. LNG can be used to deliver natural gas to locations where pipeline service is not available,unavailable, has been interrupted, or needs to be supplemented. Our customers use LNG ascan also be used to replace a partner fuel for renewable energy, and as a cleanervariety of alternative to traditional fuel sources, such asfuels, including distillate fuel oil (including diesel fuel and other fuel oils) and propane, among others, to provide both environmental and economic benefits. Increasingly, LNG is being utilized as a transportation fuel in the marine industry and as a propellant in the private rocket launch sector. We believe that these alternative fuel markets are large and provide significant opportunities for LNG substitution.
We believe that LNG as well as other clean energy solutions will provide an important balance between environmental sustainability, security and accessibility, and economic viability when compared to both renewables and other traditional hydrocarbon-based fuels and will play a key role in the energy transition.
The Company generates revenue by selling and delivering LNG to our customers, renting cryogenic equipment and providing engineering and field support services. We sell our products and services separately or as a bundle depending on the customer’s needs. LNG pricingPricing depends on market pricing for natural gas and competing fuel sources (such as diesel, fuel oil, and propane among others), as well as the customer’s purchased volume, contract duration and credit profile. Stabilis’ customers use LNG for fuel in their operations for multiple reasons, including lower and more stable fuel costs, reduced environmental emissions, and improved operating performance.
LNG Production and Sales
—Stabilis builds and operates cryogenic natural gas processing facilities, called “liquefiers,” which convert natural gas into LNG through a purification and multiple stage cooling process. We currently own and operate a liquefier that can produce up to 100,000 LNG gallons per day in George West, Texas and a liquefier that can produce up to 30,000 LNG gallons per day in Port Allen,Transportation and Logistics Services
—Stabilis offers our customers a “virtual natural gas pipeline” by providing turnkey LNG transportation and logistics services in North America. We deliver LNG to our customers’ work sites from both our own production facilities and our network of third-party production sources located throughout North America. We own a fleet of cryogenic trailers to transport and deliver LNG. We also outsource similar equipment and transportation services from qualified third-party providers as required to support our customer base.Cryogenic Equipment Rental
—StabilisEngineering and Field Support Services
—Stabilis has experience in the safe, cost effective, and reliable use of LNG in multiple customer applications. We have also developed many processes and procedures that we believe improve our customers’ use of LNG in their operations. Our engineers help our customers design and integrate LNGGas Pretreatment Upgrades at our George West, Tx Liquefaction Facility
During the salesecond and third quarters of its Brazil Operations2023, the Company was adversely impacted by natural gas feedstock composition changes which reduced production from our George West, Tx liquefaction facility (our "George West facility") as well as overall profitability. In August 2023, the Company completed installation of additional gas pretreatment equipment that allowed our George West facility to its Brazil management team for approximately $.9 million See also Notes 2 and 15 in the Notes to Condensed Consolidated Financial Statements for further discussion of the Company's discontinued operations and sale of the Brazil Operations.resume LNG production at full rates.
Stabilis supplies LNG to multiple end markets in North America and provides turnkey fuel solutions to help users of propane, diesel and other crude-based fuel products convert to LNG. The anticipated sale of the Brazil Operations representrepresents all of the revenuerevenues and expenses previously reported within the Company's Power Delivery segment with the exception of the Company's equity method investment in BOMAY. Further, the Company also believes that the decision to exit the Brazil Operations at September 30, 2022 meetsmet the criteria to be reported as discontinued operations. As a result, the Company believes that it has one reporting segment and the operating results presented in the tables below have been recast to separately present the revenues and expenses related to the Brazil Operations as discontinued operations for all periods presented.
Three Months Ended September 30, 20222023 Compared to Three Months Ended September 30, 2021
The comparative tables below reflect our consolidated operating results for the three months ended September 30, 20222023 (the “Current Quarter”) as compared to the three months ended September 30, 20212022 (the “Prior Year Quarter”) (unaudited, amounts in thousands, except for percentages). Corporate allocations of $0.1 million previously reported within the Company's Power Delivery Segment have been reclassified to continuing operations for the Prior year Quarter and $0.5 million for the Prior Year Quarter was reclassified from selling, general and administrative expense to costs of rental, service and other in the table below to conform to current period presentation.
Three Months Ended September 30, | $ Change | % Change | |||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Revenues | 25,819 | 17,779 | 8,040 | 45.2 | % | ||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Cost of revenues | 19,904 | 14,369 | 5,535 | 38.5 | |||||||||||||||||||
Change in unrealized gain on natural gas derivatives | (926) | — | (926) | n/a | |||||||||||||||||||
Selling, general and administrative expenses | 3,658 | 5,286 | (1,628) | (30.8) | |||||||||||||||||||
Gain from disposal of fixed assets | 46 | — | 46 | n/a | |||||||||||||||||||
Depreciation expense | 2,115 | 2,284 | (169) | (7.4) | |||||||||||||||||||
Impairment of right-of-use lease asset | — | 376 | (376) | (100.0) | |||||||||||||||||||
Total operating expenses | 24,797 | 22,315 | 2,482 | 11.1 | |||||||||||||||||||
Income (loss) from operations before equity income | 1,022 | (4,536) | 5,558 | 122.5 | |||||||||||||||||||
Net equity income from foreign joint venture operations | 114 | 246 | (132) | (53.7) | |||||||||||||||||||
Income (loss) from operations | 1,136 | (4,290) | 5,426 | 126.5 | |||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||
Interest expense, net | (150) | (119) | (31) | (26.1) | |||||||||||||||||||
Interest expense, net - related parties | (49) | (120) | 71 | 59.2 | |||||||||||||||||||
Other income (expense) | (28) | 37 | (65) | n/a | |||||||||||||||||||
Total other income (expense) | (227) | (202) | (25) | n/a | |||||||||||||||||||
Net income (loss) from continuing operations before income tax expense | 909 | (4,492) | 5,401 | 120.2 | |||||||||||||||||||
Income tax (benefit) expense | (115) | 89 | (204) | (229.2) | |||||||||||||||||||
Net income (loss) from continuing operations | 1,024 | (4,581) | 5,605 | 122.4 | |||||||||||||||||||
Loss from discontinued operations, net of tax | (1,301) | (44) | (1,257) | n/a | |||||||||||||||||||
Net loss | $ | (277) | $ | (4,625) | $ | 4,348 | 94.0 |
Three Months Ended | ||||||||||||||||
September 30, | ||||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Revenues: | ||||||||||||||||
LNG Product | $ | 12,122 | $ | 21,823 | (9,701 | ) | (44.5 | )% | ||||||||
Increase / (decrease) in gallons delivered | (3,032 | ) | ||||||||||||||
Rental | 1,330 | 1,690 | (360 | ) | (21.3 | ) | ||||||||||
Service | 1,579 | 2,154 | (575 | ) | (26.7 | ) | ||||||||||
Other | 285 | 152 | 133 | 87.5 | ||||||||||||
Total revenues | 15,316 | 25,819 | (10,503 | ) | (40.7 | ) | ||||||||||
Operating expenses: | ||||||||||||||||
Cost of revenues | 12,056 | 19,904 | (7,848 | ) | (39.4 | ) | ||||||||||
Change in unrealized loss on natural gas derivatives | (267 | ) | (926 | ) | 659 | (71.2 | ) | |||||||||
Selling, general and administrative expenses | 3,002 | 3,658 | (656 | ) | (17.9 | ) | ||||||||||
Gain from disposal of fixed assets | (1,002 | ) | 46 | (1,048 | ) | n/a | ||||||||||
Depreciation expense | 2,003 | 2,115 | (112 | ) | (5.3 | ) | ||||||||||
Total operating expenses | 15,792 | 24,797 | (9,005 | ) | (36.3 | ) | ||||||||||
Income (loss) from operations before equity income | (476 | ) | 1,022 | (1,498 | ) | n/a | ||||||||||
Net equity income from foreign joint venture operations | 284 | 114 | 170 | 149.1 | ||||||||||||
Income (loss) from operations | (192 | ) | 1,136 | (1,328 | ) | n/a | ||||||||||
Other income (expense): | ||||||||||||||||
Interest expense, net | 60 | (150 | ) | 210 | n/a | |||||||||||
Interest expense, net - related parties | (15 | ) | (49 | ) | 34 | (69.4 | ) | |||||||||
Other income (expense) | (3 | ) | (28 | ) | 25 | (89.3 | ) | |||||||||
Total other income (expense) | 42 | (227 | ) | 269 | (118.5 | ) | ||||||||||
Net income (loss) from continuing operations before income tax (benefit) expense | (150 | ) | 909 | (1,059 | ) | (116.5 | ) | |||||||||
Income tax (benefit) expense | 57 | (115 | ) | 172 | n/a | |||||||||||
Net income (loss) from continuing operations | (207 | ) | 1,024 | (1,231 | ) | n/a | ||||||||||
Loss from discontinued operations, net of income tax | — | (1,301 | ) | 1,301 | (100.0 | ) | ||||||||||
Net income (loss) | $ | (207 | ) | $ | (277 | ) | $ | 70 | (25.3 | ) |
Revenues
During the Current Quarter, revenues increased $8.0decreased $10.5 million, or 45%41%, compared to the Prior Year Quarter related to an increase in LNG product revenue of $7.2 million and an increase in rental, service and other revenue of $0.8 million. The increase in LNG product revenue was primarily related to:
● | Decreased natural gas prices in the Current Quarter compared to the Prior Year Quarter resulting in decreased revenue of $5.2 million; |
● | Decreased LNG delivered to customers of 3.0 million gallons during the Current Quarter compared to the Prior Year Quarter resulting in decreased revenues of $4.4 million; |
● | Decreased pricing related to customer mix in the Current Quarter compared to the Prior Year Quarter of $0.2 million; |
● | Increased revenues from minimum purchase take-or-pay contracts in the Current Quarter compared to the Prior Year Quarter of $0.3 million; and |
● | Decreased rental, service and other revenues related to a short term marine bunkering project in the Prior Year Quarter compared to the Current Quarter resulting in decreased revenues of $1.0 million. |
Operating Expenses
Costs of revenues. Cost of revenues decreased $7.8 million, or 39%, compared to the Prior Year Quarter. As a percentage of revenue, these costs related to LNG product were 79% and 77% in the Current Quarter and the Prior Year Quarter, respectively. The change in cost of revenues was primarily attributable to:
● | Decreased natural gas prices in the Current Quarter compared to the Prior Year Quarter resulting in decreased costs of revenues of $4.8 million; |
● | Decreased LNG delivered to customers of 3.0 million gallons during the Current Quarter compared to the Prior Year Quarter resulting in decreased costs of revenues of $3.3 million; and |
● | Decreased costs from minimum purchase take-or-pay contracts of $0.1 million during the Current Quarter compared to the Prior Year Quarter; and |
● | Increased rental, service and other costs incurred during the Current Quarter compared to the Prior Year Quarter of $0.4 million. |
Change in unrealized loss on natural gas derivatives. The Company incurred a gain of $0.3 million on the change in unrealized losses associated with the Company's natural gas derivatives in the Current Quarter compared to the Prior Year Quarter;
Selling, general and administrative expenses.
Selling, general and administrative expense decreasedDepreciation.
Depreciation expense decreasedGain on disposal of assets. The Company recorded a gain on the disposal of assets of $1.0 million in the Current Quarter related to insurance proceeds to be received for assets damaged in a fire. See also Note 6 in the Notes to the Condensed Consolidated Financial Statements for a further discussion of this gain.
Net equity income from foreign joint venture operations.
Equity Income fromInterest income (expense). Interest income, net was $44 thousand for the Current Quarter compared to expense of $0.2 million in the Prior Year Quarter.
Interest expense, net.
Other income (expense).
Other expense wasIncome tax expense
. The Company incurred a state and foreign income taxDiscontinued Operations
.Nine Months Ended September 30, 20222023 Compared to Nine Months Ended September 30, 2021
The following table reflects line items from the accompanying Condensed Consolidated Statements of Operationscomparative tables below reflect our consolidated operating results for the nine months ended September 30, 20222023 (the “Current Year”) as compared to the nine months ended September 30, 20212022 (the “Prior Year”) (unaudited, amounts in thousands, except for percentages). Corporate allocations of $0.6 million previously reported within the Company's Power Delivery Segment have been reclassified to continuing operations for the Prior Year and $1.5 million for the Prior Year was reclassified from selling, general and administrative expense to costs of rental, service and other, and $0.3 million was reclassified from costs of LNG product to costs of rental, service and other to conform to current period presentation.
Nine Months Ended September 30, | $ Change | % Change | |||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Revenues | 69,236 | 48,291 | 20,945 | 43.4 | % | ||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Cost of revenues | 54,945 | 37,301 | 17,644 | 47.3 | |||||||||||||||||||
Change in unrealized gain on natural gas derivatives | (27) | — | (27) | n/a | |||||||||||||||||||
Selling, general and administrative expenses | 9,643 | 10,558 | (915) | (8.7) | |||||||||||||||||||
Gain from disposal of fixed assets | (34) | (24) | (10) | (41.7) | |||||||||||||||||||
Depreciation expense | 6,589 | 6,653 | (64) | (1.0) | |||||||||||||||||||
Impairment of right-of-use lease asset | — | 376 | (376) | (100.0) | |||||||||||||||||||
Total operating expenses | 71,116 | 54,864 | 16,252 | 29.6 | |||||||||||||||||||
Loss from operations before equity income | (1,880) | (6,573) | 4,693 | 71.4 | |||||||||||||||||||
Net equity income from foreign joint venture operations | 887 | 1,075 | (188) | (17.5) | |||||||||||||||||||
Loss from operations | (993) | (5,498) | 4,505 | 81.9 | |||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||
Interest expense, net | (437) | (189) | (248) | (131.2) | |||||||||||||||||||
Interest expense, net - related parties | (129) | (441) | 312 | 70.7 | |||||||||||||||||||
Other income (expense) | (99) | 1,031 | (1,130) | n/a | |||||||||||||||||||
Total other income (expense) | (665) | 401 | (1,066) | n/a | |||||||||||||||||||
Net loss from continuing operations before income tax expense | (1,658) | (5,097) | 3,439 | (67.5) | |||||||||||||||||||
Income tax (benefit) expense | (248) | 229 | (477) | (208.3) | |||||||||||||||||||
Loss from continuing operations | (1,410) | (5,326) | 3,916 | 73.5 | |||||||||||||||||||
Loss from discontinued operations, net of tax | (1,441) | (128) | (1,313) | n/a | |||||||||||||||||||
Net loss | $ | (2,851) | $ | (5,454) | $ | 2,603 | 47.7 | ||||||||||||||||
Nine Months Ended | ||||||||||||||||
September 30, | ||||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Revenues: | ||||||||||||||||
LNG Product | $ | 44,595 | $ | 58,944 | (14,349 | ) | (24.3 | )% | ||||||||
Increase / (decrease) in gallons delivered | (8,894 | ) | ||||||||||||||
Rental | 4,640 | 5,015 | (375 | ) | (7.5 | ) | ||||||||||
Service | 4,745 | 4,952 | (207 | ) | (4.2 | ) | ||||||||||
Other | 1,085 | 325 | 760 | 233.8 | ||||||||||||
Total revenues | 55,065 | 69,236 | (14,171 | ) | (20.5 | ) | ||||||||||
Operating expenses: | ||||||||||||||||
Cost of revenues | 42,911 | 54,945 | (12,034 | ) | (21.9 | ) | ||||||||||
Change in unrealized loss on natural gas derivatives | (322 | ) | (27 | ) | (295 | ) | n/a | |||||||||
Selling, general and administrative expenses | 9,424 | 9,643 | (219 | ) | (2.3 | ) | ||||||||||
Gain from disposal of fixed assets | (1,002 | ) | (34 | ) | (968 | ) | n/a | |||||||||
Depreciation expense | 6,006 | 6,589 | (583 | ) | (8.8 | ) | ||||||||||
Total operating expenses | 57,017 | 71,116 | (14,099 | ) | (19.8 | ) | ||||||||||
Income (loss) from operations before equity income | (1,952 | ) | (1,880 | ) | (72 | ) | 3.8 | |||||||||
Net equity income from foreign joint venture operations | 1,314 | 887 | 427 | 48.1 | ||||||||||||
Income (loss) from operations | (638 | ) | (993 | ) | 355 | (35.8 | ) | |||||||||
Other income (expense): | ||||||||||||||||
Interest expense, net | (237 | ) | (437 | ) | 200 | (45.8 | ) | |||||||||
Interest expense, net - related parties | (71 | ) | (129 | ) | 58 | (45.0 | ) | |||||||||
Other income (expense) | (127 | ) | (99 | ) | (28 | ) | 28.3 | |||||||||
Total other income (expense) | (435 | ) | (665 | ) | 230 | (34.6 | ) | |||||||||
Net income (loss) from continuing operations before income tax (benefit) expense | (1,073 | ) | (1,658 | ) | 585 | (35.3 | ) | |||||||||
Income tax (benefit) expense | 224 | (248 | ) | 472 | n/a | |||||||||||
Net income (loss) from continuing operations | (1,297 | ) | (1,410 | ) | 113 | (8.0 | ) | |||||||||
Loss from discontinued operations, net of income tax | — | (1,441 | ) | 1,441 | (100.0 | ) | ||||||||||
Net income (loss) | $ | (1,297 | ) | $ | (2,851 | ) | $ | 1,554 | (54.5 | ) |
Revenues
During the Current Year, revenues increased $20.9decreased $14.2 million, or 43%20%, due to increased LNG product revenue of $20.8 million and increased rental, service and other revenue of $0.1 million compared to the Prior Year. The increasechange in LNG product revenue was primarily duerelated to:
● | Decreased LNG delivered to customers of 8.9 million gallons during the Current Year compared to the Prior Year resulting in decreased revenues of $11.5 million; |
● | Decreased natural gas prices in the Current Year compared to the Prior Year resulting in decreased revenue of $7.8 million; |
● | Increased revenues from minimum purchase take-or-pay contracts in the Current Year compared to the Prior Year of $4.9 million; |
● | Increased pricing to customers in the Current Year compared to the Prior Year of $0.1 million; and |
● | Increased rental, service and other revenues of $0.2 million related to a short term marine bunkering project in the first quarter of the Current Year compared to the Prior Year. |
Operating Expenses
Costs of revenues. Cost of revenues. Cost of revenues increased $17.6 decreased $12.0 million, or 47%22%, in the Current Year compared to the Prior Year due to and increaseYear. As a percentage of revenue, these costs were 78% in the cost of LNG product of $16.5 million and an increase in the cost of rental, service and other revenue of $1.1 million. The increase in the cost of LNG product was due to:
● | Decreased LNG delivered to customers of 8.9 million gallons during the Current Year compared to the Prior Year resulting in decreased costs of revenues of $8.9 million; |
● | Decreased natural gas prices in the Current Year compared to the Prior Year resulting in decreased costs of revenues of $7.6 million. |
● | Increased costs from minimum purchase take-or-pay contracts of $1.2 million during the Current Year compared to the Prior Year; |
● | Increased liquefaction and transportation costs of $0.4 million during the Current Year compared to the Prior Year; and |
● | Increased rental, service and other costs incurred during the Current Year compared to the Prior Year of $2.9 million. |
Change in unrealized loss on natural gas prices duringderivatives. The Company incurred a gain of $0.3 million on the change in unrealized losses associated with the Company's natural gas derivatives in the Current Year compared to the Prior Year;
Selling, general and administrative expenses. Selling, general and administrative expensesexpense decreased $0.9$0.2 million or 9%primarily due to lower compensation in the Current Year compared to the Prior Year. During the Prior Year, we recorded $2.2 million for the immediate vesting of restricted common stock related to our executive transition occurring in the Prior Year in addition to $0.8 million in severance and legal costs. Savings from the non-recurrence of these Prior Year expenses were partially offset during the Current Year by higher stock-based compensation expenses and increased compensation related to additional headcount to support our operations.
Gain from disposal of fixed assets.
Depreciation. Depreciation expense decreased 9% during the Current Year as compared to the Prior Year primarily due to assets reaching the end of their depreciable lives.
Net equity income from foreign joint venture operations.
Equity Income fromInterest income (expense). Interest expense, net decreased $0.2 million duringfor the Current Year compared to the Prior Year. The decrease in the Current Year primarily dueis related to supply chain challenges as well as foreign exchange losses resulting from a strong U.S. dollar compared toincome earned on the Prior Year.
Interest expense, net.
Other income (expense). Other expense was $0.1 million for both the additional fundingCurrent Year and the Prior Year related to transactional foreign exchange losses.
Income tax expense. The Company incurred a state and foreign income tax expense of the Company's loan with AmeriState Bank.
Discontinued Operations
.Liquidity and Capital Resources
Historically, our principal sources of liquidity have consisted of cash on hand, cash provided by our operations, proceeds received from borrowings under ourthe AmeriState Loan and distributions received from our BOMAY joint venture. In prior years, the Company also obtained equipment financing from M/GMG Finance, a related party. During the Current Year,Quarter, our principal sourcessource of liquidity werewas our existing cash balances and cash provided by our operations, cash generated from sales of assets and deposits received from customers. We haveoperations. The Company has used cash flows generated from operations to invest in fixed assets and increased working capital to support growth as well as to pay interest and principal amounts outstanding under ourits debt borrowings.agreements. The Company's decision to exit itssale of the Brazil Operations on October 31, 2022 is not anticipated to adversely impact the Company's future cash flows.
On June 9, 2023, the Company, along with its subsidiaries, Stabilis LNG Eagle Ford LLC, Stabilis GDS, Inc. and Stabilis LNG Port Allen, LLC (collectively, the “Borrowers”) entered into a three-year loan agreement (the “Revolving Credit Facility”) with Cadence Bank. The Revolving Credit Facility provides for a maximum aggregate amount of $10.0 million, subject to a borrowing base of 80% of eligible accounts receivable. The Company may request an increase in the maximum aggregate amount under the Revolving Credit Facility by up to $5.0 million, subject to the approval of Cadence Bank. All borrowings under the Revolving Credit Facility are secured by the Borrowers’ accounts receivable and deposit accounts. Borrowings under the Revolving Credit Facility incur interest at the Prime Rate published by the Wall Street Journal. Any unused portion is subject to a quarterly unused commitment fee of 0.5% per annum. As of September 30, 2022,2023, no amounts have been drawn under the Revolving Credit Facility. The Revolving Credit Facility matures on June 9, 2026. The Revolving Credit Facility contains various restrictions and covenants. As of September 30, 2023, the Company was in compliance with all its covenants related to the Revolving Credit Facility. The Company also has a $10.0 million secured term loan facility with AmeriState Bank, of which, $1.0 million is available for future draws at September 30, 2023.
As of September 30, 2023, we had $11.1$4.9 million in cash and cash equivalents on hand and 13.1$10.6 million in outstanding debt (net of debt issuance costs), and in lease obligations (of which $3.6$2.5 million is due in the next twelve months). The Company has a $10.0 millionTotal availability under the Revolving Credit Facility and the secured term loan facility with $1.0is $3.7 million available for future draws under the loan facility at September 30, 2022.2023. The Company has also filed a shelf registration statement (described below) which provides the Company the flexibility to raise capital to fund working capital requirements, repay debt and/or fund future transactions.
The Company is subject to substantial business risks and uncertainties inherent in the LNG industry. The Company has implemented a number of cost control measuresindustry and increased pricing to customers in response to inflationary costs; however, there is no assurance that the Company will be able to generate sufficient cash flows in the future to sustain itself or to support future growth. We have experienced a significant increase in sales since mid-2021. Accordingly, managementManagement believes the businessCompany will generate sufficient cash flows from its operations along with availability under our loan facility that is sufficientthe Company's debt agreements to fund the business for the next twelve months. As we continue to grow, management continues to evaluate additional financing alternatives, however, there is no guarantee that additional financing will be available or available at terms that would be beneficial to shareholders.
Cash flows provided by (used in) our operating, investing and financing activities are summarized below (unaudited, in thousands):
Nine Months Ended September 30, | |||||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||
Net cash provided by (used in): | |||||||||||||||||||||||
Operating activities | $ | 11,538 | $ | 5,429 | |||||||||||||||||||
Investing activities | 69 | (6,690) | |||||||||||||||||||||
Financing activities | (1,422) | 2,451 | |||||||||||||||||||||
Effect of exchange rate changes on cash | 7 | (76) | |||||||||||||||||||||
Net increase in cash and cash equivalents | $ | 10,192 | $ | 1,114 | |||||||||||||||||||
Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Net cash provided by (used in): | ||||||||
Operating activities | $ | 5,380 | $ | 11,538 | ||||
Investing activities | (8,982 | ) | 69 | |||||
Financing activities | (2,943 | ) | (1,422 | ) | ||||
Effect of exchange rate changes on cash | 8 | 7 | ||||||
Net increase (decrease) in cash and cash equivalents | (6,537 | ) | 10,192 | |||||
Cash and cash equivalents, beginning of period | 11,451 | 910 | ||||||
Cash and cash equivalents, end of period | $ | 4,914 | $ | 11,102 |
Operating Activities
Net cash provided by operating activities totaled $11.5$5.4 million for the nine months ended September 30, 20222023 compared to $5.4$11.5 million for the same period in 2021.2022. The increasedecrease in net cash provided by operating activities of $6.1$6.2 million as compared to the Prior Year was primarily attributable to deposits received from customers and improved profitability in the Current Year when excluding the impactslower net income exclusive of non-cash expenses and gains included in net loss such asnon cash items for depreciation, stock-based compensation, equity income from our joint venture, BOMAY, change in unrealized loss on natural gas derivatives and gain(gain) loss on extinguishmentdisposals of debtfixed assets; changes in working capital and lower dividends from our joint venture, BOMAY.
Investing Activities
Net cash used in investing activities totaled $9.0 million for the nine months ended September 30, 2023 compared to the Prior Year.
Financing Activities
Net cash used of $6.7in financing activities totaled $2.9 million for the nine months ended September 30, 2021. The decrease in net cash used in the Current Year was primarily due2023, compared to the acquisition of our Port Allen liquefaction facility on June 1, 2021, which included $5.0 million in cash paid. Additionally, proceeds of $2.0 million were received for assets held for sale during 2022.
Future Cash Requirements
We require cash to fund our operating expenses and working capital requirements, including costs associated with fuel sales, capital expenditures, debt repayments, purchases of equipment and repurchases, equipment purchases,other capital expenditures, maintenance of LNG production facilities, mergers and acquisitions (if any), pursuing market expansion, supporting sales and marketing activities support of legislative and regulatory initiatives, and other general corporate purposes. While we believe we have sufficient liquidity and capital resources to fund our operations and repay our debt, we may elect to pursue additional financing activities such as refinancing existing debt, obtaining new debt, or debt or equity offerings to provide flexibility with our cash management. Certain of these alternatives may require the consent of current lenders or stockholders, and there is no assurance that we will be able to execute any of these alternatives on acceptable terms or at all.
Capital expenditures for the nine months ended September 30, 20222023 were $1.7$9.0 million and primarily related to capital expenditures for our operations in Mexicothe purchase of additional liquefaction assets and the addition of rolling stock and replacement assets.stock. The Company had open purchase orders open of approximately $1.5 - $2.0$1.0 million for capital expenditures at September 30, 2022 for2023. Future capital expenditures over the next twelve months.
Shelf Registration Statement
On April 11, 2022, the Company filed a registration statement on Form S-3 (the "Shelf Registration"“Shelf Registration”) which was declared effective on April 26, 2022 and will permit the Company to issue up to $100.0 million in either common stock, preferred stock, warrants or a combination of the above, and gives the Company the flexibility to raise capital to fund working capital requirements, repay debt and/or fund future transactions. On December 16, 2022, the Company filed a prospectus supplement to the Shelf Registration that allows the Company to sell and issue shares of common stock directly to the public “at the market” as permitted in Rule 415 under the Securities Act. As a smaller reporting company, we are subject to General Instruction I.B.6 of Form S-3, which limits the amounts that we may sell under the Shelf Registration to no more than one-third of our public
Off-Balance Sheet Arrangements
As of September 30, 2022,2023, we had no transactions that met the definition of off-balance sheet arrangements that may have a current or future material effect on our consolidated financial position or operating results.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("(“U.S. GAAP"GAAP”) which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates.
New Accounting Standards
See Note 1 to the Notes to Condensed Consolidated Financial Statements included elsewhere in this reportReport for information on new accounting standards.
As a “smaller reporting company,” the Company is not required to provide this information.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.Report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at September 30, 2022.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
The Company becomes involved in various legal proceedings and claims in the normal course of business. In management’s opinion, the ultimate resolution of these matters will not have a material effect on our financial position or results of operations.
Our operations and financial results are subject to various risks and uncertainties, including those described in the Part I. “Item 1A. Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 20212022 filed with the SEC on March 10, 20229, 2023 (“Form 10-K”) and Part II, "Item 1A. Risk Factors" of the Company's Quarterly Report on Form 10-Q filed with the SEC on May 5, 2022 (the "First Quarter Form 10-Q"), which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. During the threenine months ended September 30, 2022,2023, there have been no material changes in our risk factors disclosed in our 20212022 Form 10-K and our First Quarter Form 10-Q.
None.
(a) Index to Exhibits
ExhibitNo. | Exhibit Description | |||||||
3.1 | ||||||||
3.2 | ||||||||
4.1 | ||||||||
4.2 | ||||||||
4.3 | ||||||||
4.5 | ||||||||
10.1 | † | Amended and Restated Stabilis Solutions Inc. 2019 Long Term Incentive Plan (Incorporated by Reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed August 18, 2023). | ||||||
10.2 | *First Amendment to Loan Agreement, made effective as of September 19, 2023, between Stabilis Solutions, Inc. and Ameristate Bank. | |||||||
31.1 | *Rule 13a-14(a) / 15d-14(a) Certification of Principal Executive Officer. | |||||||
31.2 | ||||||||
32.1 | ||||||||
101.INS | *Interactive XBRL Instance Document (XBRL tags are embedded within the Inline XBRL document) | |||||||
*Inline XBRL Taxonomy Extension Schema Document | ||||||||
101.CAL | *Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
101.LAB | *Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
101.PRE | *Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
101.DEF | *Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
104 | * Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed herewith.
† Indicates management contract or compensatory plan, contract or arrangement
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 8, 2023 | |||||||||
STABILIS SOLUTIONS, INC. | |||||||||
By: | /s/ Westervelt T. Ballard, Jr. | ||||||||
Westervelt T. Ballard, Jr. | |||||||||
President and Chief Executive Officer (Principal Executive Officer) | |||||||||
By: | /s/ Andrew L. Puhala | ||||||||
Andrew L. Puhala | |||||||||
Chief Financial Officer (Principal Financial Officer) |