SLNG 10-Q
Stabilis Solutions, Inc. (SLNG)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
| | TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number.
STABILIS SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
(
(Registrant’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 |
| | | The |
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.
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).
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 | ☐ | |
| | ☒ | 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
As of November 7, 2023, there were
STABILIS SOLUTIONS, INC. AND SUBSIDIARIES
For the Quarterly Period Ended September 30, 2023
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| Condensed Consolidated Statements of Comprehensive Income (Loss) |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 4. |
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| Item 1. |
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| Item 1A. |
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| Item 5. |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“this 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 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
Stabilis Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except share and per share data)
| 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; $ par value, shares authorized, shares issued and outstanding at September 30, 2023 and December 31, 2022 | ||||||||
| Common stock; $ par value, shares authorized, and 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.
Stabilis Solutions, Inc. and Subsidiaries
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 |
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| Income (loss) from operations |
( |
) | ( |
) | ( |
) | ||||||||||
| Other income (expense): |
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| 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.
Stabilis Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(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.
Stabilis Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands, except share data)
| Accumulated |
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| Other |
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| Common Stock |
Additional |
Comprehensive |
Accumulated |
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| Shares |
Amount |
Paid-in Capital |
Income |
Deficit |
Total |
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| 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 |
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| Other |
||||||||||||||||||||||||
| Common Stock |
Additional |
Comprehensive |
Accumulated |
|||||||||||||||||||||
| Shares |
Amount |
Paid-in Capital |
Income |
Deficit |
Total |
|||||||||||||||||||
| Balance at December 31, 2022 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Common stock issued from vesting of stock-based awards |
||||||||||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||||||
| Net income |
— | |||||||||||||||||||||||
| Other comprehensive income, net of tax |
— | |||||||||||||||||||||||
| Balance at March 31, 2023 |
( |
) | ||||||||||||||||||||||
| Common stock issued from vesting of stock-based awards |
||||||||||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||||||
| Other comprehensive loss, net of tax |
— | ( |
) | ( |
) | |||||||||||||||||||
| Balance at June 30, 2023 |
( |
) | ( |
) | ||||||||||||||||||||
| Common stock issued from vesting of stock-based awards |
||||||||||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||||||
| Employee tax payments from stock-based withholding |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| 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.
Stabilis Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2023 |
2022 |
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| Cash flows from operating activities: |
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| Net loss from continuing operations |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities: |
||||||||
| Depreciation |
||||||||
| Stock-based compensation expense |
||||||||
| Gain from disposal of fixed assets |
( |
) | ( |
) | ||||
| Income from equity investment in joint venture |
( |
) | ( |
) | ||||
| Cash settlements from natural gas derivatives, net |
( |
) | ||||||
| Realized and unrealized losses on natural gas derivatives |
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| Distributions from equity investment in joint venture |
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| Changes in operating assets and liabilities: |
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| Accounts receivable |
( |
) | ||||||
| Prepaid expenses and other current assets |
||||||||
| Accounts payable and accrued liabilities |
( |
) | ||||||
| Other |
( |
) | ||||||
| Net cash provided by operating activities from continuing operations |
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| Net cash provided by operating activities from discontinued operations |
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| Net cash provided by operating activities |
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| Cash flows from investing activities: |
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| Acquisition of fixed assets |
( |
) | ( |
) | ||||
| Proceeds from sale of fixed assets |
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| Proceeds from assets held for sale |
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| Net cash provided by (used in) investing activities from continuing operations |
( |
) | ||||||
| Net cash used in investing activities from discontinued operations |
( |
) | ||||||
| Net cash provided by (used in) investing activities |
( |
) | ||||||
| Cash flows from financing activities: |
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| Proceeds from borrowings on short- and long-term notes payable |
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| Payments on short- and long-term notes payable |
( |
) | ( |
) | ||||
| Payments on notes payable and finance leases from related parties |
( |
) | ( |
) | ||||
| Payment of debt issuance costs |
( |
) | ||||||
| Employee tax payments from restricted stock withholdings |
( |
) | ( |
) | ||||
| Net cash used in financing activities from continuing operations |
( |
) | ( |
) | ||||
| Net cash used in financing activities from discontinued operations |
( |
) | ||||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Effect of exchange rate changes on cash |
||||||||
| Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents, beginning of period |
||||||||
| Cash and cash equivalents, end of period |
$ | $ | ||||||
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements
STABILIS SOLUTIONS, INC. AND SUBSIDIARIES
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.
The Company serves customers in diverse end markets, including aerospace, agriculture, energy, industrial, marine bunkering, mining, pipeline, remote power and utility markets. LNG can be used to deliver natural gas to locations where pipeline service is 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.
The Company also builds power and control systems for the energy industry in China through its
Basis of Presentation and Consolidation
The accompanying unaudited, interim condensed consolidated financial statements (“Condensed Consolidated Financial 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”) 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, 2022 included in the Company's Annual Report on Form 10-K, as filed on March 9, 2023.
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 sale of the Brazil Operations on October 31, 2022, met the criteria for discontinued operations 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 (preceding the sale). Accordingly, the operating results related to our Brazil Operations for the three and nine months ended September 30, 2022, and cash flows for the nine months ended September 30, 2022, are included within loss from discontinued operations, net of tax on our Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows. There were
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, 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 the Company's Condensed Consolidated Balance 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 as well as the type of hedge. The Company has not designated its derivatives as hedges 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 June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments,” which changes the way companies evaluate credit losses for most financial assets and certain other instruments. For receivables, and other short-term financial instruments, companies will be required to use a new forward-looking “expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for losses. The new standard also requires enhanced disclosures, including the requirement to disclose the information used to track credit quality by year of origination. ASU No. 2016-13 was effective for the Company in the first quarter 2023. Adoption of this standard had no material impact to the Company's Condensed Consolidated Financial Statements.
2. DISCONTINUED OPERATIONS
On October 31, 2022, the Company entered into a sales agreement and closed on the sale of its Brazil Operations. The sale of the Brazil Operations met the criteria for discontinued operations presentation as the sale of the Brazil Operations represented a strategic shift of future operations of the Company. Further, the Brazil Operations had separately reported financial information available as the Brazil Operations represented substantially all of the revenue and expenses of the Company's previously reported Power Delivery segment.
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 recast to separately state the revenues, expenses and cash flows between its continuing operations and the discontinued operations. The Company had
The following table summarizes the components of income from discontinued operations for the periods presented (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Costs and expenses | ||||||||||||||||
| Impairment | ||||||||||||||||
| Other (expense), net | ( | ) | ( | ) | ||||||||||||
| Income from discontinued operations before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax expense | ||||||||||||||||
| Loss from discontinued operations, net of income taxes | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Segment Reporting
As a result of the classification of the Brazil Operations as discontinued operations, the Company only has
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 the contract and exclude any sales incentives and amounts collected on behalf of third parties. Amounts are billed upon delivery of product or completion of service and are generally due within 30 days from receipt of the invoice. Revenues from contracts with customers are disaggregated into (1) LNG Product (2) rental (3) service and (4) other.
LNG Product revenues
LNG Product revenues represent the sale of LNG from both produced and purchased sources as well as the transportation performed to deliver the LNG to our customer location. LNG Product revenues are recognized upon delivery of the LNG to the customer, at which point the customer controls the product and the Company has an unconditional right to payment. The Company acts as a principal when using third party transportation companies and therefore recognizes the gross revenue for the supply of LNG. The Company does not differentiate between the revenue from the sale of LNG production and purchased LNG as the criteria for revenue recognition are identical. Some of our contracts contain minimum take-or-pay amounts where a customer has agreed to source a minimum volume of LNG under the contract. Take or pay revenues are only recognized when the customer has failed to take the minimum contracted volumes upon completion of the time period specified within the contract and the Company has the unconditional right to receive payment for the take or pay amount. Certain of our sales contracts contain provisions that may meet the criteria of a derivative in the event delivery is not made. These contracts are accounted for under the normal purchase normal sales exclusion under U.S. GAAP and are not measured at fair value each reporting period. Our LNG contracts are generally one to 24 months in duration.
Rental revenues
Rental revenues are generated from the rental of cryogenic equipment to our customers. Rental revenues are not dependent upon the gallons 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 Product revenues. Revenues related to rental of equipment are recognized under Topic 606 and not ASC 842: Leases, as 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. Performance obligations for rental revenue are considered to be satisfied as the rental period is completed based upon the terms of the related contract. The stated rental rates within each contract are representative of the stand-alone rental rates at the time the contract was negotiated.
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 at the customer’s job site. These include support and costs for mobilization and demobilization of equipment at customer sites as well as onsite technical support while customers are consuming LNG. Service revenues are not dependent upon the gallons delivered or rental period but based upon the specific contractual terms and can be based on an event (i.e. mobilization or demobilization) or an hourly rate 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. The stated hourly labor rates in each contract are representative of the stand-alone hourly rates at the time the contract was negotiated.
Other
Other revenues are 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, 2023 and 2022 (in thousands):
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| Revenues: |
2023 |
2022 |
2023 |
2022 |
||||||||||||
| LNG Product |
$ | $ | $ | $ | ||||||||||||
| Rental |
||||||||||||||||
| Service |
||||||||||||||||
| Other |
||||||||||||||||
| Total revenues |
$ | $ | $ | $ | ||||||||||||
The table below presents revenue disaggregated by geographic location, for the three and nine months ended September 30, 2023 and 2022 (in thousands):
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| Revenues: |
2023 |
2022 |
2023 |
2022 |
||||||||||||
| Mexico |
$ | $ | $ | $ | ||||||||||||
| United States |
||||||||||||||||
| Total revenues |
$ | $ | $ | $ | ||||||||||||
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 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 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
| September 30, | December 31, | |||||||
| Location on Condensed Consolidated Balance Sheet | 2023 (1) | 2022 (1) | ||||||
| Prepaid expenses and other current assets (2) | $ | $ | ||||||
| Right-of-use assets and other noncurrent assets (2) | ||||||||
| $ | $ | |||||||
(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 within the Company's Condensed Consolidated Statements of Operations. The table below presents the changes in the fair value of the Call Options for the three and nine months ended September 30, 2023 and 2022 as well as their net realized gains and losses (in thousands).
| 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 | $ | $ | $ | $ | ||||||||||||
| Purchases of natural gas derivatives | ||||||||||||||||
| Unrealized losses transferred to realized losses, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in unrealized gain (loss) on natural gas derivatives (1) | ||||||||||||||||
| Fair value of natural gas derivatives, end of period | $ | $ | $ | $ | ||||||||||||
| 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 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Derivative settlement payments received (2) | ||||||||||||||||
| Realized gain (loss) from natural gas derivatives, net (2) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
(1) Amounts are presented as their own separate line item within the Company's Condensed Consolidated Statements of Operations.
(2) Amounts are included within cost of revenues on the Company's Condensed Consolidated Statements of Operations.
The Company also 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, 2023 and December 31, 2022 consisted of the following (in thousands):
| September 30, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| Prepaid insurance |
$ | $ | ||||||
| Prepaid supplier expenses |
||||||||
| Other receivables |
||||||||
| Natural gas derivatives at fair value, current |
||||||||
| Deposits |
||||||||
| Other |
||||||||
| Total prepaid expenses and other current assets |
$ | $ | ||||||
6. PROPERTY, PLANT AND EQUIPMENT
The Company’s property, plant and equipment at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Liquefaction plants and systems | $ | $ | ||||||
| Real property and buildings | ||||||||
| Vehicles and tanker trailers and equipment | ||||||||
| Computer and office equipment | ||||||||
| Construction in progress | ||||||||
| Leasehold improvements | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation expense totaled $
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 $
7. INVESTMENT IN FOREIGN JOINT VENTURE
The Company holds a
The tables below present a summary of BOMAY's assets, liabilities and equity at September 30, 2023 and December 31, 2022, and its operational results for the three and nine months ended September 30, 2023 and 2022 in U.S. dollars (in thousands):
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets: | ||||||||
| Total current assets | $ | $ | ||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and equity: | ||||||||
| Total liabilities | $ | $ | ||||||
| Total joint ventures’ equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Gross Profit | ||||||||||||||||
| Net income | ||||||||||||||||
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, 2023 in U.S. dollars (in thousands):
| Initial Investment at Merger (1), (2) | Undistributed Earnings | Cumulative Foreign Exchange Translation Adj | Investment in BOMAY | |||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||
| Equity in earnings | — | — | ||||||||||||||
| Less: dividend distributions | — | ( | ) | — | ( | ) | ||||||||||
| Foreign currency translation gain (loss) | — | — | ( | ) | ( | ) | ||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||
| (1) | Accumulated statutory reserves in equity method investments of $ |
| (2) | The Company’s initial investment in BOMAY differed from the Company’s |
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Original basis difference | $ | $ | ||||||
| Less accumulated accretion | ( | ) | ( | ) | ||||
| Net remaining basis difference at end of period | $ | $ | ||||||
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, 2023.
8. ACCRUED LIABILITIES
The Company’s accrued liabilities at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):
| September 30, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| Compensation and benefits |
$ | $ | ||||||
| Professional fees |
||||||||
| LNG fuel and transportation |
||||||||
| Accrued interest |
||||||||
| Customer deposits and prepayments |
||||||||
| Other taxes payable |
||||||||
| Other accrued liabilities |
||||||||
| Total accrued liabilities |
$ | $ | ||||||
9. DEBT
The Company’s carrying value of debt, net of debt issuance costs at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Secured term note, net of debt issuance costs | $ | $ | ||||||
| Secured promissory note - related party | ||||||||
| Insurance and other notes payable | ||||||||
| Less: amounts due within one year | ( | ) | ( | ) | ||||
| Total long-term debt | $ | $ | ||||||
Total interest expense was $
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 $
The Revolving Credit Facility contains various restrictions and covenants. Among other requirements, the Borrowers must maintain a consolidated net worth of at least $
Secured Term Note
On April 8, 2021, the Company entered into a loan agreement (the “Loan Agreement”) with AmeriState Bank (“Lender”), to provide for an advancing loan facility in the aggregate principal amount of up to $
The Loan Agreement requires the Company to meet certain financial covenants which include a debt-to-net-worth ratio of not more than
Secured Promissory Note - Related Party
On August 16, 2019, the Company issued a Secured Promissory Note to MG Finance Co., Ltd., a related party, in the principal amount of $
Insurance Notes Payable
The Company finances its annual commercial insurance premiums for its business and operations. For the 2023-2024 policies, the amount financed was $
10. RELATED PARTY TRANSACTIONS
Secured Promissory Note - Related Party
Casey Crenshaw (our Chairman of the Board) is the beneficial owner of
Other Purchases and Sales
The Company purchases supplies and services from subsidiaries of The Modern Group. The Company made purchases of supplies and services totaling $
Chart E&C beneficially owns
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.
12. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
Stock-based Compensation
The Company includes stock compensation expense within general and administrative expenses in the Condensed Consolidated Statements of Operations. During the nine months ended September 30, 2023 and 2022, the Company recognized $
Issuance of Stock-based Awards
The Company has a long-term incentive plan (the “Amended and Restated Plan”) which provides for a maximum number of shares of common stock available for issuance of
On June 26, 2023, the Company granted
Issuances of Common Stock
During the nine months ended September 30, 2023, and 2022, shares of common stock were issued upon vesting of restricted stock units totaling
13. NET INCOME (LOSS) PER SHARE
The calculation of net income (loss) per common share for the three 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 restricted stock units of
| 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 | ||||||||||||||||
| Dilutive securities | ||||||||||||||||
| Total shares including dilutive securities | ||||||||||||||||
| Net income (loss): | ||||||||||||||||
| Net income (loss) from continuing operations | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Loss from discontinued operations, net of income tax | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) per common share: | ||||||||||||||||
| 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 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
14. SUPPLEMENTAL CASH FLOW INFORMATION
The Company's supplemental disclosure of cash flow information for the nine months ended September 30, 2023 and 2022 is as follows (in thousands):
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| Supplemental Disclosure of Cash Flow Information: |
2023 |
2022 |
||||||
| Interest paid |
$ | $ | ||||||
| Income taxes paid |
||||||||
| Significant non-cash investing and financing activities: |
||||||||
| Equipment acquired from issuance of note payable |
||||||||
| Acquisition of fixed assets included within accounts payable and accrued expenses |
||||||||
| Fixed assets transferred to assets held for sale |
||||||||
| Receivable of insurance proceeds from disposition of assets |
||||||||
| Insurance Premium Financing |
||||||||
ITEM 2. MANAGEMENT’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”) and the consolidated financial statements included in the 2022 Annual Report on Form 10-K filed on March 9, 2023 with the U.S. Securities and Exchange Commission (the “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. We provide LNG solutions to customers in diverse end markets, including aerospace, agriculture, energy, industrial, marine bunkering, mining, pipeline, remote power and utility markets. LNG can be used to deliver natural gas to locations where pipeline service is unavailable, has been interrupted, or needs to be supplemented. LNG can also be used to replace a variety of alternative fuels, including distillate fuel oil and propane, among others, to provide 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 fuel markets are large and provide significant opportunities for LNG usage.
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. Pricing 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.
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, Louisiana. We also purchase LNG from third-party production sources which allows us to support customers in markets where we do not own liquefiers. We make the determination of LNG and transportation supply sources based on the cost of LNG, the transportation cost to deliver to regional customer locations, and the reliability of the supply source. Revenues earned from the production and sales of LNG are included within LNG Product revenue.
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. Revenues earned from the transportation and logistical services of LNG to our customers are included within LNG Product revenue.
Cryogenic Equipment Rental—Stabilis operates a fleet of mobile LNG storage and vaporization assets, including: transportation trailers, electric and gas-fired vaporizers, ambient vaporizers, storage tanks, and mobile vehicle fuelers. We also own several stationary storage and regasification assets. We believe this is one of the largest fleets of small-scale LNG equipment in North America. Our fleet consists primarily of trailer-mounted mobile assets, making delivery to and between customer locations more efficient. We deploy these assets on job sites to provide our customers with the equipment required to transport, store, and consume LNG in their operations. Revenues earned from cryogenic equipment rental are included within Rental revenue.
Engineering 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 LNG into their operations and our field service technicians help our customers mobilize, commission and reliably operate on the job site. Revenues earned from engineering and field support services are included within Service revenue.
Gas Pretreatment Upgrades at our George West, Tx Liquefaction Facility
During the second and third quarters of 2023, 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 resume LNG production at full rates.
Results of Operations
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 sale of the Brazil Operations represents all of the revenues 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 decision to exit the Brazil Operations met the criteria to be reported as discontinued operations. As a result, the Company 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, 2023 Compared to Three Months Ended September 30, 2022
The comparative tables below reflect our consolidated operating results for the three months ended September 30, 2023 (the “Current Quarter”) as compared to the three months ended September 30, 2022 (the “Prior Year Quarter”) (unaudited, amounts in thousands, except for percentages).
| 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 decreased $10.5 million, or 41%, compared to the Prior Year Quarter. The change in revenue 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 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 a gain of $0.9 million in the Prior Year Quarter. The gain in the Current Quarter was due to offsetting amortization of realized losses as call option volumes expired unexercised during the Current Quarter. See also Note 4 in the Notes to the Condensed Consolidated Financial Statements for a further discussion of our derivatives.
Selling, general and administrative expenses. Selling, general and administrative expense decreased $0.7 million primarily due to lower compensation in the Current Quarter compared to the Prior Year Quarter.
Depreciation. Depreciation expense decreased 5% during the Current Quarter as compared to the Prior Year Quarter due to assets reaching the end of their depreciable lives.
Gain 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 from the Company's foreign joint venture improved by $0.2 million in Current Quarter compared to the Prior Year Quarter due to increased sales by the Company's joint venture in BOMAY.
Interest 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 income in the Current Quarter is related to increased interest rates and income earned on the Company's overnight deposits. The decrease in interest expense compared to the Prior Year Quarter is due to capitalized interest on capital projects.
Interest expense, net - related parties. Related party interest expense decreased $34 thousand in the Current Quarter as compared to the Prior Year Quarter primarily related to lower debt balances and capitalized interest on capital projects.
Other income (expense). Other expense was $2 thousand during the Current Quarter compared to $28 thousand in the Prior Year Quarter related to transactional foreign exchange losses.
Income tax expense. The Company incurred a state and foreign income tax expense of $0.1 million during the Current Quarter compared to a state and foreign income tax benefit of $0.1 million during the Prior Year Quarter. No U.S. federal income tax benefit was recorded for the Current Quarter or Prior Year Quarter as any net U.S. deferred tax assets generated from operating losses were offset by a change in the Company's valuation allowance on net deferred tax assets.
Discontinued Operations. Loss from discontinued operations, net of tax was $1.3 million for the Prior Year Quarter. The Company sold its Brazil Operations on October 31, 2022. There was no activity from discontinued operations during the Current Quarter. See Note 2 in the Notes to Condensed Consolidated Financial Statements for further discussion of the Company's discontinued operations.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
The comparative tables below reflect our consolidated operating results for the nine months ended September 30, 2023 (the “Current Year”) as compared to the nine months ended September 30, 2022 (the “Prior Year”) (unaudited, amounts in thousands, except for percentages).
| 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 decreased $14.2 million, or 20%, compared to the Prior Year. The change in revenue primarily related 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 decreased $12.0 million, or 22%, in the Current Year compared to the Prior Year. As a percentage of revenue, these costs were 78% in the Current Year compared to 79% in the Prior Year. The change in cost of revenues was attributable 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 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 Year compared to $27 thousand in the Prior Year. The gain in the Current Year was due to offsetting amortization of realized losses as call option volumes expired unexercised during the Current Year. See also Note 4 in the Notes to the Condensed Consolidated Financial Statements for a further discussion of our derivatives.
Selling, general and administrative expenses. Selling, general and administrative expense decreased $0.2 million primarily due to lower compensation in the Current Year compared to the Prior Year.
Gain from disposal of fixed assets. The Company recorded a gain on the disposal of assets of $1.0 million in the Current Year 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.
Depreciation. Depreciation expense decreased 9% during the Current Year as compared to the Prior Year due to assets reaching the end of their depreciable lives.
Net equity income from foreign joint venture operations. Equity Income from the Company's joint venture increased $0.4 million during the Current Year due to increased sales by the Company's joint venture in BOMAY.
Interest income (expense). Interest expense, net decreased $0.2 million for the Current Year compared to the Prior Year. The decrease in the Current Year is related to income earned on the Company's overnight deposits and capitalized interest on capital projects.
Interest expense, net - related parties. Related party interest expense decreased $0.1 million in the Current Year as compared to the Prior Year primarily related to lower debt balances and capitalized interest on capital projects.
Other income (expense). Other expense was $0.1 million for both the Current 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 $0.2 million during the Current Year compared to a benefit of $0.2 million during the Prior Year. No U.S. federal income tax benefit was recorded for the Current Year or Prior Year as any net U.S. deferred tax assets generated from operating losses were offset by a change in the Company's valuation allowance on net deferred tax assets.
Discontinued Operations. Loss from discontinued operations, net of tax was $1.4 million for the Prior Year. The Company sold its Brazil Operations on October 31, 2022. There was no activity from discontinued operations during the Current Year. See Note 2 in the Notes to Condensed Consolidated Financial Statements for further discussion of the Company's 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 the AmeriState Loan and distributions received from our BOMAY joint venture. In prior years, the Company also obtained financing from MG Finance, a related party. During the Current Quarter, our principal source of liquidity was our existing cash balances and cash provided by operations. The Company has used cash flows to invest in fixed assets to support growth as well as to pay interest and principal amounts outstanding under its debt agreements. The Company's sale 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, 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 $4.9 million in cash and cash equivalents on hand and $10.6 million in outstanding debt (net of debt issuance costs), and in lease obligations (of which $2.5 million is due in the next twelve months). Total availability under the Revolving Credit Facility and the secured term loan facility is $3.7 million at September 30, 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 and 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. Management believes the Company will generate cash flows from its operations along with availability under the 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
Cash flows provided by (used in) our operating, investing and financing activities are summarized below (unaudited, in thousands):
| 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 $5.4 million for the nine months ended September 30, 2023 compared to $11.5 million for the same period in 2022. The decrease in net cash provided by operating activities of $6.2 million as compared to the Prior Year was primarily attributable to lower net income exclusive of non cash items for depreciation, stock-based compensation, equity income from our joint venture, BOMAY, change in unrealized loss on derivatives and (gain) loss on disposals of fixed 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 net cash provided by investing activities of $0.1 million for the nine months ended September 30, 2022. The increase in net cash used in the Current Year of $9.1 million was primarily due to cash paid to purchase additional assets.
Financing Activities
Net cash used in financing activities totaled $2.9 million for the nine months ended September 30, 2023, compared to $1.4 million for the nine months ended September 30, 2022. The increase in cash used in financing activities in the Current Year compared to the Prior Year is due to $1.0 million of proceeds received from borrowings in the Prior Year with no proceeds from borrowings in the Current Year. For both periods, the cash used in financing activities was primarily for repayment of debt.
Future Cash Requirements
We require cash to fund our operating expenses and working capital requirements, including costs associated with fuel sales, debt repayments, purchases of equipment and other capital expenditures, maintenance of LNG production facilities, mergers and acquisitions (if any), pursuing market expansion, supporting sales and marketing activities 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, 2023 were $9.0 million and primarily related to the purchase of additional liquefaction assets and rolling stock. The Company had purchase orders open of approximately $1.0 million for capital expenditures at September 30, 2023. Future capital expenditures over the next twelve months will be dependent upon investment opportunities as well as the availability of additional capital at favorable terms.
Shelf Registration Statement
On April 11, 2022, the Company filed a registration statement on Form S-3 (the “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 float in any twelve month period as measured in accordance with such instruction. There is no assurance that we will be able to raise capital pursuant to the Shelf Registration on acceptable terms or at all. We made no issuances under the Shelf Registration during the nine months ended September 30, 2023.
Off-Balance Sheet Arrangements
As of September 30, 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”) 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. There have been no significant changes in the Company's “Critical Accounting Policies and Estimates” during the three and nine months ended September 30, 2023 from those disclosed within the Company's Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 9, 2023.
New Accounting Standards
See Note 1 to the Notes to Condensed Consolidated Financial Statements included elsewhere in this Report for information on new accounting standards.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a “smaller reporting company,” the Company is not required to provide this information.
ITEM 4. CONTROLS AND PROCEDURES.
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. 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, 2023.
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, 2022 filed with the SEC on March 9, 2023 (“Form 10-K”), which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. During the nine months ended September 30, 2023, there have been no material changes in our risk factors disclosed in our 2022 Form 10-K.
None.
(a) Index to Exhibits
| Exhibit No. |
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 |
*Rule 13a-14(a) / 15d-14(a) Certification of Principal Financial Officer. |
|
| 32.1 |
*Section 1350 Certifications of Principal Executive Officer and Principal Financial Officer. |
|
| 101.INS |
*Interactive XBRL Instance Document (XBRL tags are embedded within the Inline XBRL document) |
|
| 101.SCH | *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) |
||