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Stabilis Solutions(SLNG) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This part provides the unaudited financial statements and management's discussion and analysis for Q1 2023 ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents Stabilis Solutions, Inc.'s unaudited condensed consolidated financial statements and detailed notes for Q1 2023 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position at March 31, 2023, and December 31, 2022 Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $6,861 | $11,451 | | Total current assets | $18,029 | $32,217 | | Property, plant and equipment, net| $51,929 | $47,669 | | Total assets | $86,927 | $96,580 | | Total current liabilities | $16,338 | $27,532 | | Total liabilities | $25,200 | $36,713 | | Total stockholders' equity | $61,727 | $59,867 | - Total assets decreased by approximately $9.65 million from December 31, 2022, to March 31, 2023, primarily driven by a decrease in current assets, including cash and accounts receivable12 - Total liabilities decreased by approximately $11.51 million, mainly due to a reduction in current liabilities such as accounts payable and accrued liabilities12 Condensed Consolidated Statements of Operations This section details the company's financial performance, including revenues, expenses, and net income (loss) for Q1 2023 and 2022 Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenues | $26,842 | $20,267 | | Total operating expenses | $25,829 | $20,632 | | Income (loss) from operations | $1,358 | $(278) | | Net income (loss) from continuing operations| $1,084 | $(359) | | Net income (loss) | $1,084 | $(406) | | Basic net income (loss) per common share | $0.06 | $(0.02) | | Diluted net income (loss) per common share | $0.06 | $(0.02) | - Revenues increased by $6.575 million (32.4%) year-over-year15 - The company reported a net income of $1.084 million for the current quarter, a significant improvement from a net loss of $0.406 million in the prior year quarter15 Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents total comprehensive income (loss), including net income and other comprehensive income items, for Q1 2023 and 2022 Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $1,084 | $(406) | | Foreign currency translation adjustment, net of tax | $187 | $377 | | Total comprehensive income (loss) | $1,271 | $(29) | - Total comprehensive income for the three months ended March 31, 2023, was $1.271 million, a substantial increase from a comprehensive loss of $0.029 million in the prior year quarter17 Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit, for the period ended March 31, 2023 Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands, except share data) | Metric | Balance at Dec 31, 2022 | Balance at Mar 31, 2023 | | :-------------------------------- | :---------------------- | :---------------------- | | Common Stock (Shares) | 18,420,067 | 18,433,654 | | Common Stock (Amount) | $19 | $19 | | Additional Paid-in Capital | $100,137 | $100,726 | | Accumulated Other Comprehensive Income | $82 | $269 | | Accumulated Deficit | $(40,371) | $(39,287) | | Total Stockholders' Equity | $59,867 | $61,727 | - Total stockholders' equity increased by $1.86 million from December 31, 2022, to March 31, 2023, primarily due to net income and other comprehensive income20 - 13,587 shares of common stock were issued from the vesting of stock-based awards during the three months ended March 31, 202320 Condensed Consolidated Statements of Cash Flows This section details cash inflows and outflows from operating, investing, and financing activities for Q1 2023 and 2022 Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $93 | $3,155 | | Net cash used in investing activities | $(3,727) | $(818) | | Net cash used in financing activities | $(961) | $(1,132) | | Net increase (decrease) in cash and cash equivalents | $(4,590) | $1,202 | | Cash and cash equivalents, end of period | $6,861 | $2,112 | - Net cash provided by operating activities significantly decreased to $0.093 million in Q1 2023 from $3.155 million in Q1 2022, primarily due to higher net working capital requirements23100 - Net cash used in investing activities increased to $3.727 million in Q1 2023 from $0.818 million in Q1 2022, mainly due to increased acquisition of fixed assets23101 Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering business operations, accounting policies, and specific financial line items Note 1. Description of Business and Basis of Presentation This note describes Stabilis Solutions, Inc.'s core business as an energy transition company and the basis for presenting its financial statements - Stabilis Solutions, Inc. is an energy transition company providing turnkey clean energy production, storage, transportation, and fueling solutions primarily using liquefied natural gas (LNG) to diverse end markets2425 - The company also holds a 40% equity investment in BOMAY Electric Industries, Inc., a Chinese joint venture building power and control systems for the energy industry26 - The Brazil Operations were sold on October 31, 2022, and are classified as discontinued operations, with retrospective application to prior periods29 Note 2. Discontinued Operations This note details the financial impact and classification of the Brazil Operations as discontinued following their sale in October 2022 - The sale of Brazil Operations on October 31, 2022, met the criteria for discontinued operations, representing a strategic shift33 Loss from Discontinued Operations (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue | $— | $2,766 | | Loss from discontinued operations, net of income taxes | $— | $(47) | - There were no assets, liabilities, results of operations, or cash flows from discontinued operations for the three months ended March 31, 202334 Note 3. Revenue Recognition This note explains the company's policies for recognizing revenue from various sources, including LNG product, rental, and service activities - Revenues are recognized when promised goods or services are delivered, measured as consideration specified in the contract37 - Revenue sources include LNG product, rental, service, and other, with specific recognition criteria for each373839 Disaggregated Revenues by Source (in thousands) | Revenue Source | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------------- | :-------------------------------- | :-------------------------------- | | LNG Product | $21,905 | $16,785 | | Rental | $2,247 | $1,986 | | Service | $2,066 | $1,395 | | Other | $624 | $101 | | Total revenues | $26,842 | $20,267 | Disaggregated Revenues by Geographic Location (in thousands) | Geographic Location | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------ | :-------------------------------- | :-------------------------------- | | Mexico | $2,819 | $3,766 | | United States | $24,023 | $16,501 | | Total revenues | $26,842 | $20,267 | Note 4. Derivative Instruments This note describes the company's use of natural gas call options to manage price risk and their fair value on the balance sheet - The Company held natural gas call options totaling 1.1 million MMBtu as of March 31, 2023, to manage the risk of increasing natural gas prices44 Fair Value of Natural Gas Derivatives (in thousands) | Location on Balance Sheet | March 31, 2023 | December 31, 2022 | | :------------------------ | :------------- | :---------------- | | Prepaid expenses and other current assets | $138 | $347 | | Right-of-use assets and other noncurrent assets | $13 | $225 | | Total | $151 | $572 | - An unrealized loss of $0.169 million on natural gas derivatives was incurred in Q1 2023 due to lower future natural gas prices, compared to no derivatives in Q1 20224647 Note 5. Prepaid Expenses and Other Current Assets This note details the composition and changes in prepaid expenses and other current assets, including natural gas derivatives Prepaid Expenses and Other Current Assets (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Prepaid insurance | $712 | $990 | | Prepaid supplier expenses | $232 | $286 | | Other receivables | $103 | $254 | | Natural gas derivatives at fair value, current | $138 | $347 | | Deposits | $203 | $236 | | Other | $14 | $73 | | Total prepaid expenses and other current assets | $1,402 | $2,186 | - Total prepaid expenses and other current assets decreased from $2.186 million at December 31, 2022, to $1.402 million at March 31, 202349 Note 6. Property, Plant and Equipment This note provides a breakdown of property, plant, and equipment, including liquefaction plants, vehicles, and construction in progress Property, Plant and Equipment, Net (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Liquefaction plants and systems | $47,645 | $47,636 | | Vehicles and tanker trailers and equipment | $52,936 | $52,647 | | Construction in progress | $6,516 | $527 | | Total cost | $109,651 | $103,368 | | Less: accumulated depreciation | $(57,722) | $(55,699) | | Net property, plant and equipment | $51,929 | $47,669 | - Net property, plant and equipment increased by $4.26 million from December 31, 2022, to March 31, 2023, primarily due to an increase in construction in progress50 - Depreciation expense was $2.0 million for Q1 2023, down from $2.3 million in Q1 202250 Note 7. Investment in Foreign Joint Venture This note details the company's 40% equity investment in BOMAY Electric Industries, Inc., a Chinese joint venture, and its operational results - The Company holds a 40% interest in BOMAY Electric Industries, Inc., a Chinese joint venture that builds electrical systems51 BOMAY's Operational Results (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------- | :-------------------------------- | :-------------------------------- | | Revenue | $21,214 | $10,079 | | Earnings | $901 | $323 | - The Company's equity in earnings from the foreign joint venture was $0.393 million in Q1 2023, up from $0.161 million in Q1 20221554 Note 8. Accrued Liabilities This note provides a breakdown of accrued liabilities, including compensation, LNG fuel, and customer deposits, and their changes Accrued Liabilities (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Compensation and benefits | $1,709 | $3,111 | | LNG fuel and transportation | $3,387 | $6,549 | | Customer deposits and prepayments | $1,406 | $8,456 | | Other accrued liabilities | $3,173 | $338 | | Total accrued liabilities | $10,681 | $19,642 | - Total accrued liabilities decreased by $8.961 million from December 31, 2022, to March 31, 2023, primarily due to reductions in customer deposits and prepayments, and LNG fuel and transportation accruals56 Note 9. Debt This note details the company's debt obligations, including secured term notes and promissory notes, and their carrying values Carrying Value of Debt (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Secured term note, net of debt issuance costs | $8,661 | $8,650 | | Secured promissory note - related party | $1,839 | $2,435 | | Insurance and other notes payable | $489 | $848 | | Less: amounts due within one year | $(2,328) | $(3,283) | | Total long-term debt | $8,661 | $8,650 | - The Company has a secured term note (AmeriState Loan) with $9.0 million outstanding as of March 31, 2023, maturing in April 2031 and bearing interest at 5.75% per annum through April 202658 - A secured promissory note to a related party (MG Finance Co., Ltd.) had an outstanding balance of $1.8 million as of March 31, 2023, with repayments in equal monthly installments through December 202361 Note 10. Related Party Transactions This note discloses transactions and agreements with related parties, including debt obligations and purchases of supplies and services - The Company has a secured promissory note payable with MG Finance Co., Ltd., a subsidiary of The Modern Group, which is a related party63 - Purchases of supplies and services from subsidiaries of The Modern Group totaled $0.1 million in Q1 2023, up from $48 thousand in Q1 202264 - The Company has a commitment for future equipment delivery during 2023 totaling $0.6 million with Chart E&C, which beneficially owns 8.0% of the Company's common stock65 Note 11. Commitments and Contingencies This note addresses potential future obligations and legal matters, including environmental compliance and ongoing legal actions - The Company does not anticipate any expenditures to comply with environmental laws and regulations that would materially impact its financial position, results of operations, or liquidity66 - Management believes the ultimate resolution of various legal actions, claims, and audits will not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity68 Note 12. Stockholders' Equity and Stock-Based Compensation This note details changes in stockholders' equity and the expense related to stock-based compensation plans Stock Compensation Expense (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Stock compensation expense| $600 | $500 | - The Company's long-term incentive plan provides for a maximum of 4,000,000 shares of common stock available for issuance70 - 13,587 shares of common stock were issued upon vesting of restricted stock units during Q1 2023, compared to 501,334 shares in Q1 202271 Note 13. Net Income (Loss) Per Share This note presents the calculation of basic and diluted net income (loss) per common share, considering potential dilutive securities Net Income (Loss) Per Common Share (in thousands, except share and per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Basic weighted average number of common shares outstanding | 18,426,408 | 18,191,446 | | Diluted net income (loss) per common share | $0.06 | $(0.02) | - Dilutive securities, including RSUs and stock options, were 91,509 for Q1 2023, but none for Q1 2022 due to net losses making them anti-dilutive7374 Note 14. Supplemental Cash Flow Information This note provides additional details on cash flow items not directly presented in the main cash flow statement, such as interest and taxes paid Supplemental Cash Flow Information (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Interest paid | $182 | $181 | | Income taxes paid | $— | $(14) | | Acquisition of fixed assets included within accounts payable and accrued expenses | $3,000 | $170 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses Stabilis Solutions, Inc.'s financial condition, operational results, liquidity, and capital resources for Q1 2023 versus Q1 2022 Overview This section provides a general description of Stabilis Solutions, Inc.'s business model, revenue generation, and operational assets - Stabilis Solutions, Inc. is an energy transition company providing turnkey clean energy solutions, primarily using LNG, to diverse end markets in North America77 - The company generates revenue through LNG production and delivery, cryogenic equipment rental, and engineering and field support services79 - Stabilis operates two liquefiers in Texas and Louisiana, with capacities of 100,000 and 30,000 LNG gallons per day, respectively, and also sources LNG from third parties80 Results of Operations This section analyzes the company's financial performance, including revenues, operating expenses, and net income, for Q1 2023 and 2022 Consolidated Operating Results (in thousands, except percentages) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | $ Change | % Change | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :------- | :------- | | Revenues | $26,842 | $20,267 | $6,575 | 32.4% | | Total operating expenses | $25,829 | $20,632 | $5,197 | 25.2% | | Income (loss) from operations | $1,358 | $(278) | $1,636 | 588.5% | | Net income (loss) from continuing operations| $1,084 | $(359) | $1,443 | 401.9% | | Net income (loss) | $1,084 | $(406) | $1,490 | 367.0% | - The company achieved a significant turnaround, moving from a net loss of $0.406 million in Q1 2022 to a net income of $1.084 million in Q1 202386 Revenues This section discusses the factors contributing to the 32% increase in revenues for Q1 2023 compared to Q1 2022 - Revenues increased by $6.6 million (32%) in Q1 2023 compared to Q1 202287 - The increase was primarily driven by higher natural gas prices, increased pricing charged to customers, increased revenues from minimum purchase contracts, and growth in rental, service, and other revenue from additional projects93 - The revenue increase was partially offset by fewer gallons of LNG delivered in Q1 202387 Operating Expenses This section analyzes changes in cost of revenues, selling, general and administrative expenses, and depreciation for Q1 2023 - Cost of revenues increased by $4.8 million (31%) in Q1 2023, maintaining 76% of revenue, driven by higher natural gas prices, inflationary pressures, increased take-or-pay fees, and higher labor/equipment costs for marine bunkering projects8894 - Selling, general and administrative expenses increased by $0.4 million, mainly due to increased compensation, headcount, and professional services89 - Depreciation expense decreased by 12% due to assets reaching the end of their depreciable lives90 - Net equity income from foreign joint venture operations increased by $0.3 million due to increased operating activity in China90 Discontinued Operations This section reports on the operating loss from discontinued Brazil Operations in Q1 2022, with no activity in Q1 2023 - The operating loss from discontinued operations (Brazil Operations) was $47 thousand for Q1 2022, with no activity in Q1 2023 following the sale on October 31, 202295 Liquidity and Capital Resources This section assesses the company's ability to meet its financial obligations, including cash balances, debt, and future capital requirements - As of March 31, 2023, the Company had $6.9 million in cash and cash equivalents and $11.3 million in outstanding debt and lease obligations97 - The Company has a $10.0 million loan facility with $1.0 million available for future draws97 - Management believes existing cash balances and the loan facility are sufficient to fund operations for the next twelve months, while also evaluating additional financing alternatives98 Cash Flows This section summarizes cash flows from operating, investing, and financing activities for Q1 2023 and 2022 Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Operating activities | $93 | $3,155 | | Investing activities | $(3,727) | $(818) | | Financing activities | $(961) | $(1,132) | | Net increase (decrease) in cash and cash equivalents | $(4,590) | $1,202 | - Net cash provided by operating activities decreased by $3.1 million year-over-year, primarily due to higher net working capital requirements100 - Net cash used in investing activities increased to $3.7 million, mainly due to cash paid for additional asset purchases101 Future Cash Requirements This section outlines anticipated capital expenditures and their funding, dependent on investment opportunities and capital availability - Capital expenditures for Q1 2023 were $3.7 million, primarily for liquefaction assets and rolling stock104 - The Company had open purchase orders of approximately $4.0 million for capital expenditures at March 31, 2023104 - Future capital expenditures depend on investment opportunities and the availability of additional capital at favorable terms104 Shelf Registration Statement This section describes the $100.0 million shelf registration statement for issuing various securities to fund operations or transactions - A shelf registration statement (Form S-3) allows the Company to issue up to $100.0 million in common stock, preferred stock, or warrants to fund working capital, repay debt, or finance future transactions105 - As a smaller reporting company, sales under the Shelf Registration are limited to one-third of public float in any twelve-month period105 - No issuances were made under the Shelf Registration during the three months ended March 31, 2023105 Off-Balance Sheet Arrangements This section confirms the absence of material off-balance sheet arrangements that could impact the company's financial position - As of March 31, 2023, the Company had no transactions meeting the definition of off-balance sheet arrangements that could materially affect its financial position or operating results106 Critical Accounting Policies and Estimates This section states that there were no significant changes to the company's critical accounting policies and estimates in Q1 2023 - There have been no significant changes in the Company's critical accounting policies and estimates during Q1 2023 from those disclosed in the 2022 Annual Report on Form 10-K108 New Accounting Standards This section reports that the adoption of ASU 2016-13 had no material impact on the company's financial statements in Q1 2023 - The adoption of ASU 2016-13, 'Financial Instruments - Credit Losses,' in Q1 2023 had no material impact on the Company's Condensed Consolidated Financial Statements32109 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, Stabilis Solutions, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The Company is exempt from providing quantitative and qualitative disclosures about market risk as it qualifies as a 'smaller reporting company'110 ITEM 4. CONTROLS AND PROCEDURES This section details the evaluation of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of March 31, 2023 - The Company's management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective as of March 31, 2023111 Changes in Internal Control over Financial Reporting This section reports no material changes in internal control over financial reporting during the last fiscal quarter - There were no changes in internal control over financial reporting during the last fiscal quarter that materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting112 PART II. OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, other information, exhibits, and required signatures ITEM 1. LEGAL PROCEEDINGS This section addresses the Company's involvement in legal proceedings and management's assessment of their potential financial impact - Management believes the ultimate resolution of various legal proceedings and claims arising in the ordinary course of business will not have a material effect on the Company's financial position or results of operations114 ITEM 1A. RISK FACTORS This section refers to the risk factors previously disclosed in the Company's Annual Report on Form 10-K and confirms no material changes for the current period - There have been no material changes in the Company's risk factors disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022, during the three months ended March 31, 2023115 ITEM 5. OTHER INFORMATION This section indicates that there is no other information to report for the period - No other information is reported under this item116 ITEM 6. EXHIBITS This section provides an index of exhibits filed as part of the Form 10-Q, including organizational documents, registration rights agreements, certifications, and XBRL data - The report includes various exhibits such as Amended and Restated Articles of Incorporation, Bylaws, Registration Rights Agreements, and certifications (Rule 13a-14(a) / 15d-14(a) and Section 1350)121 SIGNATURES This section contains the required signatures of the Company's principal executive officer and principal financial officer, certifying the filing of the report - The report is signed by Westervelt T. Ballard, Jr., President and Chief Executive Officer, and Andrew L. Puhala, Chief Financial Officer, on May 10, 2023123