SLNG 10-Q
Stabilis Solutions, Inc. (SLNG)
10-Q
2022-11-03
For: 2022-09-30
View Original
Added on
April 12, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
____________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the Quarterly Period Ended September 30, 2022
TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission file number. 001-40364
____________________
(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)
(832 ) 456-6500
(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 | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Act:
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||||||||
| ☒ | Smaller reporting company | |||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 1, 2022, there were 18,386,733 outstanding shares of our common stock, par value $.001 per share.
STABILIS SOLUTIONS, INC. AND SUBSIDIARIES
FORM 10-Q Index
For the Quarterly Period Ended September 30, 2022
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Item 1. | ||||||||
Item 2. | ||||||||
Item 4. | ||||||||
Item 1. | ||||||||
Item 1A. | ||||||||
Item 5. | ||||||||
Item 6. | ||||||||
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report of 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 10, 2022, 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.
3
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Stabilis Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except shares and per share data)
| September 30, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Inventories, net | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Assets held for sale | |||||||||||
| Assets of discontinued operations, current | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment: | |||||||||||
| Cost | |||||||||||
| Less accumulated depreciation | ( | ( | |||||||||
| Property, plant and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Investment in foreign joint venture | |||||||||||
| Right-of-use assets and other noncurrent assets | |||||||||||
| Assets of discontinued operations, noncurrent | |||||||||||
| Total assets | $ | $ | |||||||||
Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Current portion of notes payable | |||||||||||
| Current portion of long-term notes payable - related parties | |||||||||||
| Current portion of finance and operating lease obligations | |||||||||||
| Liabilities of discontinued operations, current | |||||||||||
| Total current liabilities | |||||||||||
| Long-term notes payable, net of current portion | |||||||||||
| Long-term notes payable, net of current portion - related parties | |||||||||||
| Long-term portion of finance and operating lease obligations | |||||||||||
| Other noncurrent liabilities | |||||||||||
| Liabilities of discontinued operations, noncurrent | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 11) | |||||||||||
Stockholders’ Equity: | |||||||||||
Preferred Stock; $ | |||||||||||
Common stock; $ | |||||||||||
| 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.
4
Stabilis Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Cost of revenues | |||||||||||||||||||||||
| Change in unrealized gain on natural gas derivatives | ( | ( | |||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Loss (gain) from disposal of fixed assets | ( | ( | |||||||||||||||||||||
| Depreciation expense | |||||||||||||||||||||||
| Impairment of right-of-use lease asset | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Income (loss) from operations before equity income | ( | ( | ( | ||||||||||||||||||||
| Net equity income from foreign joint venture operations: | |||||||||||||||||||||||
| Income from equity investment in foreign joint venture | |||||||||||||||||||||||
| Foreign joint venture operating related expenses | ( | ( | ( | ( | |||||||||||||||||||
| Net equity income from foreign joint venture operations | |||||||||||||||||||||||
| Income (loss) from operations | ( | ( | ( | ||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense, net - related parties | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense) | ( | ( | |||||||||||||||||||||
| Total other income (expense) | ( | ( | ( | ||||||||||||||||||||
| Net income (loss) from continuing operations before income tax expense | ( | ( | ( | ||||||||||||||||||||
| Income tax (benefit) expense | ( | ( | |||||||||||||||||||||
| Net income (loss) from continuing operations | ( | ( | ( | ||||||||||||||||||||
| Loss from discontinued operations, net of tax | ( | ( | ( | ( | |||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net income (loss) per common share (Note 13): | |||||||||||||||||||||||
| Basic income (loss) per common share from continuing operations | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Basic loss per common share from discontinued operations | ( | ( | ( | ||||||||||||||||||||
| Basic net loss per common share | ( | ( | ( | ( | |||||||||||||||||||
| Diluted income (loss) per common share from continuing operations | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Diluted loss per common share from discontinued operations | ( | ( | ( | ||||||||||||||||||||
| Diluted net loss per common share | ( | ( | ( | ( | |||||||||||||||||||
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
5
Stabilis Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited, in thousands)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Foreign currency translation adjustment | ( | ( | ( | ||||||||||||||||||||
| Total comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
6
Stabilis Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands, except shares)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| 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 loss, net of tax | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
7
Stabilis Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity - Continued
(Unaudited, in thousands, except shares)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance at March 31, 2021 | ( | ( | |||||||||||||||||||||||||||||||||
| Common stock issued from vesting of stock-based awards | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Shares issued in asset acquisition | — | — | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | ( | ||||||||||||||||||||||||||||||||||
| Common stock issued from vesting of stock-based awards | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Employee tax payments from stock-based withholdings | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
8
Stabilis Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| 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 on disposal of fixed assets | ( | ( | |||||||||
| Gain on extinguishment of debt | ( | ||||||||||
Income from equity investment in joint venture | ( | ( | |||||||||
| Change in unrealized gain on natural gas derivatives | ( | ||||||||||
| Cash settlements from derivatives | |||||||||||
| Distributions from equity investment in joint venture | |||||||||||
| Impairment of right-of-use lease asset | |||||||||||
| Change in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Accounts payable and accrued liabilities | |||||||||||
| Other | ( | ( | |||||||||
| Cash provided by operating activities from continuing operations | |||||||||||
| Cash provided by (used in) operating activities from discontinued operations | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisition of fixed assets | ( | ( | |||||||||
| Proceeds from sale of fixed assets | |||||||||||
| Proceeds from assets held for sale | |||||||||||
| Cash provided by (used in) investing activities from continuing operations | ( | ||||||||||
| Cash used in investing activities from discontinued operations | ( | ( | |||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings on short- and long-term notes payable | |||||||||||
| 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 | ( | ( | |||||||||
| Cash provided by (used in) financing activities from continuing operations | ( | ||||||||||
| Cash provided by (used in) financing activities from discontinued operations | ( | ||||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash | ( | ||||||||||
| Net increase 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
9
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 using liquefied natural gas (“LNG”) to multiple end markets across North America.
The Company provides LNG solutions to customers in diverse end markets, including aerospace, agriculture, energy, industrial, marine bunkering, mining, pipeline, remote clean power and utility markets. LNG can be used to deliver natural gas to locations where pipeline service is not available, has been interrupted, or needs to be supplemented. Additionally, LNG can be used as a partner fuel for renewable energy, and as an alternative to traditional fuel sources, such as distillate fuel oil (including diesel fuel and other fuel oils) and propane, among others to provide both environmental and economic benefits. Stabilis operates two LNG production facilities in George West, Texas and Port Allen, Louisiana to service customers in Texas and the greater Gulf Coast region.
The Company also builds power and control systems for the energy industry in China through its 40 % owned Chinese joint venture, BOMAY Electric Industries, Inc (“BOMAY”). The BOMAY operations is accounted as an equity investment.
The Company has historically provided electrical switch-gear, generator and instrumentation construction, installation and service to the marine, power generation, oil and gas, and broad industrial market segments in Brazil. At September 30, 2022, the Company agreed to exit its operations in Brazil (the "Brazil Operations") and has presented the Brazil Operations as discontinued operations in accordance with U.S. GAAP. See also "Basis of Presentation and Consolidation" below and Note 2 for a further discussion of our discontinued operations.
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, 2021 included in the Company's Annual Report on Form 10-K, as filed on March 10, 2022.
All intercompany accounts and transactions have been eliminated in consolidation. In the Notes to Condensed Consolidated Financial Statements, all dollar amounts in tabulations are in thousands, unless otherwise indicated.
The Company believes that the Brazil Operations meet the criteria for discontinued operations presentation at September 30, 2022. Accordingly, such assets and liabilities at September 30, 2022, results of operations for the three and nine months ended and cash flows for the nine months ended September 30, 2022 have been classified as discontinued operations on our Condensed Consolidated Balance Sheet, Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows, respectively. The classification of these assets, liabilities, results of operations and cash flows as discontinued operations requires retrospective application to financial information for all prior periods presented. Therefore, such assets and liabilities at December 31, 2021, and operating results and cash flows for the corresponding 2021 periods have been recast on our Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Operations and Condensed Consolidated Statements of Cash Flows, respectively. Unless otherwise noted, the amounts presented throughout the notes to our Financial Statements relate to our continuing operations. See Note 2 for further discussion of the Company's decision to exit the Brazil Operations.
10
Reclassifications
The Company reclassified $0.5 million and $1.5 million from selling, general and administrative expenses to costs of rental, service and other within the Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2021, respectively, to conform to current period presentation. The Company also reclassified $0.3 million from costs of LNG product to costs of rental service and other within the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2021 to conform to current period presentation. Such reclassifications had no impact on the consolidated financial position, income from operations, net income or cash flows.
Use of Estimates in the Preparation of the Consolidated Financial Statements
The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates include the fair value of natural gas derivatives, the carrying amount of contingencies, valuation allowances for receivables, inventories, and deferred income tax assets, valuations assigned to assets and liabilities in business combinations, and impairments of long-lived assets. Actual results could differ from those estimates, and these differences could be material to the Condensed Consolidated Financial Statements.
Derivative instruments
The Company had certain natural gas derivative instruments as of September 30, 2022. The Company recognizes all of its derivative instruments as either assets or liabilities which are recorded at fair value on its Condensed Consolidated Balance Sheet. 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 and the type of hedge. The Company has not designated the derivative 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 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
Recently Issued Accounting Standards Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU No. 2020-04”), which provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted accounting principles to contract modifications, hedging relationships, and other transactions impacted by reference rate reform. The provisions of ASU No. 2020-04 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU No. 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022. We are currently evaluating the impact of ASU No. 2020-04 on our consolidated financial position and results of operations.
11
2. DISCONTINUED OPERATIONS
At September 30, 2022, the Company determined that it would exit its Brazil Operations as the Company desires to focus its resources and management on the core LNG business. The Company expects that the exit will be in the form of a sale for cash or a combination of cash and a note receivable. The Company expects the sale will close within the next year.
Impairment of Brazil Operations
The Company reviews its long-lived assets whenever events or changes in circumstances indicate that a particular asset or group of asset's carrying value may not be recoverable. The Company determined that the decision to exit the Brazil Operations is such an event and recorded an impairment charge of $1.3 0.9 million (calculated as the estimated net proceeds that would be received in an orderly and timely sale of the operations) less the carrying value of the Brazil net assets at September 30, 2022. The impairment charge is included within income (loss) from discontinued operations, net of tax as reported in the Consolidated Condensed Statements of Operations for the three and nine months ended September 30, 2022.
Classification as Discontinued Operations
The Company believes that the decision to exit the Brazil Operations at September 30, 2022 meets the criteria for discontinued operations presentation within the Condensed Consolidated Financial Statements as the decision to exit these operations represents a strategic shift of the future operations of the Company with separately reported financial information available as the Brazil Operations represent substantially all of the revenue and expenses of the Company's previously reported Power Delivery segment.
Accordingly, such assets and liabilities at September 30, 2022, results of operations for the three and nine months ended and cash flows for the nine months ended September 30, 2022 have been classified as discontinued operations on our Condensed Consolidated Balance Sheet, Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows, respectively. 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, the Condensed Consolidated Financial Statements and related notes have been updated to separately state the assets and liabilities, revenues and expenses and cash flows between its continuing operations and the discontinued operations as of and for all periods presented.
Corporate allocations of $0.1 million and $0.6 million previously reported within the Company's Power Delivery Segment have been reclassified to continuing operations for the three and nine months ended September 30, 2022. Included within the Company's accumulated other comprehensive income (loss) at September 30, 2022 is $1.0 million of cumulative translation losses which will be removed upon sale.
The following table summarizes the components of income from discontinued operations (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Costs and expenses | |||||||||||||||||||||||
| Impairment | |||||||||||||||||||||||
| Other income and interest expense, net | ( | ( | |||||||||||||||||||||
| Loss from discontinued operations before income taxes | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Loss from discontinued operations net of income taxes | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
12
The following table summarizes the assets and liabilities of discontinued operations (in thousands):
| September 30, 2022 | December 31, 2021 | |||||||||||||
| Assets | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Accounts receivable, net | ||||||||||||||
| Contract assets and other current assets | ||||||||||||||
| Total current assets of discontinued operations | ||||||||||||||
| Property, plant and equipment, net | ||||||||||||||
| Goodwill | ||||||||||||||
| Other noncurrent assets | ||||||||||||||
| Total assets of discontinued operations | $ | $ | ||||||||||||
| September 30, 2022 | December 31, 2021 | |||||||||||||
| Liabilities | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Accrued liabilities | ||||||||||||||
| Current portion of notes payable | ||||||||||||||
| Current portion of finance and operating lease obligations | ||||||||||||||
| Total current liabilities of discontinued operations | ||||||||||||||
| Long-term notes payable, net of current portion and other noncurrent liabilities | ||||||||||||||
| Total liabilities of discontinued operations | $ | $ | ||||||||||||
Segment Reporting
As a result of the classification of the Brazil Operations as discontinued operations, the Company believes that it only has one reporting segment.
3. REVENUE RECOGNITION
We recognize revenues when the transfer of promised goods or services are delivered to our customers in accordance with the applicable customer contract and we are entitled to be paid by the customer. Revenues are measured as consideration specified in the contract. Amounts are billed upon completion of service or transfer of a product and are generally due within 30 days. Revenues from contracts with customers are disaggregated into (1) LNG product (2) rental, service, and (3) other.
LNG product revenue generated includes the revenue from the product and delivery of LNG to our customer’s location. Product revenue is recognized upon delivery of the related item to the customer, at which point the customer controls the product and the Company has an unconditional right to payment. Product contracts are established by agreeing on a sales price or transaction price for the related item. Revenue is recognized when the customer has taken control of the product. Payment terms for product contracts are generally within thirty days from the receipt of the invoice. The Company acts as a principal when using third party transportation companies and therefore recognizes the gross revenue for the delivery of LNG.
Rental, service and other revenue generated by the Company includes equipment and human resources provided to the customer to support the use of LNG and power delivery equipment and services in their application. Rental contracts are established by agreeing on a rental price or transaction price for the related piece of equipment and the rental period which is generally daily or monthly. The Company maintains control of the equipment that the customer uses and can replace the rented equipment with similar equipment should the rented equipment become inoperable or the Company chooses to replace the equipment for maintenance purposes. Revenue is recognized as the rental period is completed and for periods that cross month end, revenue is recognized for the portion of the rental period that has been completed to date. Payment terms for rental contracts are generally within thirty days from the receipt of the invoice. Performance obligations for rental revenue are considered to be
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satisfied as the rental period is completed based upon the terms of the related contract. LNG service revenue generated by the Company consists of mobilization and demobilization of equipment and onsite technical support while customers are consuming LNG in their applications. Service revenue is billed based on contractual terms that can be based on an event (i.e. mobilization or demobilization) or an hourly rate. Revenue is recognized as the event is completed or work is done. Performance obligations for service revenue are considered to be satisfied as the event is completed or work is done per the terms of the related contract.
Disaggregated Revenues
The table below presents revenue disaggregated by source, for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| Revenues: | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| LNG Product | $ | $ | $ | $ | |||||||||||||||||||
| Rental and service | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
The table below presents revenue disaggregated by geographic location, for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended September 30, 2022 | Nine Months Ended September 30, | ||||||||||||||||||||||
| Revenues: | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Mexico | |||||||||||||||||||||||
| United States | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
4. DERIVATIVE INSTRUMENTS
As of September 30, 2022, the Company held a series of call options (“the Call Options”) for the purchase of natural gas related to customer commitments. The Call Options are for a total of 2.0 million MMBtu (million British thermal units) of natural gas over a period of approximately two years . The Company purchased the Call Options to manage the risk of increasing natural gas prices above what it can charge its customers. The Company recognizes all of its derivative instruments as either assets or liabilities which are recorded at fair value on its Condensed Consolidated Balance Sheet. The fair value of the Call Options are predominantly determined from broker quotes and are considered a level 2 fair value measurement. The following table presents the location and fair value of the Call Options at September 30, 2022 and December 31, 2021 (in thousands):
| Location on Condensed Consolidated Balance Sheet | September 30, 2022(1) | December 31, 2021(2) | ||||||||||||
Prepaid expenses and other current assets (3) | $ | $ | ||||||||||||
Right-of-use assets and other noncurrent assets (3) | ||||||||||||||
| $ | $ | |||||||||||||
_______________
(1) Amounts are presented on a gross basis.
(2) The Company did not have any derivative instruments at December 31, 2021.
(3) 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
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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, 2022 as well as their net realized gains and losses.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| Changes in fair value of derivatives | 2022 | 2021(1) | 2022 | 2021(1) | ||||||||||||||||||||||
| Fair value of natural gas derivatives, beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
| Purchases of natural gas derivatives | ||||||||||||||||||||||||||
| Unrealized gains (losses) transferred to realized gains (losses), net | ( | ( | ||||||||||||||||||||||||
Change in unrealized gain on natural gas derivatives (2) | ||||||||||||||||||||||||||
| Fair value of natural gas derivatives, end of period | $ | $ | $ | $ | ||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| Realized gain (loss) from derivative instruments | 2022 | 2021(1) | 2022 | 2021(1) | ||||||||||||||||||||||
| Unrealized gains (losses) transferred to realized gains (losses), net | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
Derivative settlement payments received (2) | ||||||||||||||||||||||||||
Realized gain (loss) from natural gas derivatives, net (3) | $ | $ | $ | $ | ||||||||||||||||||||||
(1) The Company did not have any derivative instruments at December 31, 2021.
(2) Amounts are presented as their own separate line item within the Company's Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows.
(3) Amounts are included within cost of LNG product on the Company's Condensed Consolidated Statement of Operations.
The Company may enter into 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, 2022 and December 31, 2021 consisted of the following (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
| Prepaid LNG | $ | $ | |||||||||
| Prepaid insurance | |||||||||||
| Prepaid supplier expenses | |||||||||||
| Fair value of derivatives, current | |||||||||||
| Deposits | |||||||||||
| Other | |||||||||||
| Total prepaid expenses and other current assets | $ | $ | |||||||||
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6. ASSETS HELD FOR SALE AND PROPERTY, PLANT AND EQUIPMENT
Assets Held for Sale
During the quarter, the Company entered into an agreement to sell certain assets for $2.0 million. At September 30, 2022, the Company had received the funds; however, the purchaser had not taken delivery of the assets and they remain within the Company's custody as of the date of this Report, but are expected to be delivered to the purchaser during the fourth quarter 2022. The Company classified the assets as assets held for sale which are included as their own line item on the Company's Condensed Consolidated Balance Sheet at September 30, 2022. Proceeds received from the purchaser have been reported as investing activities within the Company's Condensed Consolidated Statement of Cash flows for the nine months ended September 30, 2022 and included within accrued liabilities on the Company's Condensed Consolidated Balance Sheet at September 30, 2022. The proceeds received from the sale equaled the carrying value of the assets. Accordingly, no impairment was recorded at September 30, 2022. At December 31, 2021, these assets were classified as construction in progress within property, plant and equipment. These assets did not meet the criteria for discontinued operations presentation.
Property, Plant and Equipment
The Company’s property, plant and equipment at September 30, 2022 and December 31, 2021 consisted of the following (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
| 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 $2.1 million and $2.3 million for the three months ended September 30, 2022 and 2021, respectively, and $6.6 million and $6.7 million for the nine months ended September 30, 2022 and 2021, respectively, all of which is included in the Condensed Consolidated Statements of Operations as a separate line item.
7. INVESTMENT IN FOREIGN JOINT VENTURE
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The tables below present a summary of BOMAY's assets and liabilities and equity at September 30, 2022 and December 31, 2021, and its operational results for the three and nine months ended September 30, 2022 and 2021 in U.S. dollars (in thousands, unaudited):
| September 30, 2022 | December 31, 2021 | ||||||||||
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Revenue | $ | $ | $ | $ | |||||||||||||||||||
Gross Profit | |||||||||||||||||||||||
Earnings | |||||||||||||||||||||||
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, 2022 in U.S. dollars (in thousands, unaudited):
Initial Investment at Merger (1), (2) | Undistributed Earnings | Cumulative Foreign Exchange Translation Adj | Investment in BOMAY | ||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | |||||||||||||||||||
| Equity in earnings | — | — | |||||||||||||||||||||
| Less: dividend distributions | — | ( | — | ( | |||||||||||||||||||
| Foreign currency translation gain (loss) | — | — | ( | ( | |||||||||||||||||||
Balance at September 30, 2022 | $ | $ | $ | ( | $ | ||||||||||||||||||
_______________
(1)Accumulated statutory reserves in equity method investments of $2.7
(2)The Company’s initial investment in BOMAY differed from the Company’s 40 % share of BOMAY’s equity as a result of applying fair value accounting pursuant to ASC 805. The basis difference is being accreted over eight years (the expected life of the joint venture). The Company's accretion during the nine months ended September 30, 2022 and 2021 both totaled approximately $96
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| September 30, 2022 | December 31, 2021 | ||||||||||
Original basis difference | $ | $ | |||||||||
Less accumulated accretion | ( | ( | |||||||||
Net remaining basis difference, net 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, 2022.
8. ACCRUED LIABILITIES
| September 30, 2022 | December 31, 2021 | ||||||||||
| Compensation and benefits | $ | $ | |||||||||
| Professional fees | |||||||||||
| LNG fuel and transportation | |||||||||||
| Accrued interest | |||||||||||
| Customer deposits | |||||||||||
| 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, 2022 and December 31, 2021 consisted of the following (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
| 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 | $ | $ | |||||||||
Secured Term Note
On April 8, 2021, the Company entered into a loan agreement (the “Loan Agreement”) with AmeriState Bank (“Lender”), as lender, pursuant to the United States Department of Agriculture, Business & Industry Loan Program, to provide for an advancing loan facility in the aggregate principal amount of up to $10.0 million (the “AmeriState Loan”), of which $9.0 million was drawn and outstanding as of September 30, 2022. The AmeriState Loan, which is in the form of a term loan facility, matures on April 8, 2031 and bears interest at 5.75 % per annum through April 8, 2026, and the U.S. prime lending rate plus 2.5 % per annum thereafter. The AmeriState Loan provides that proceeds from borrowings may be used for working capital purposes at the Company’s liquefaction plant in George West, Texas and related fees and costs associated with the AmeriState Loan.
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Upon an Event of Default (as defined in the Loan Agreement), the Lender may (i) terminate its commitment, (ii) declare the outstanding principal amount of the Advancing Notes (as defined in the Loan Agreement) due and payable, or (iii) exercise all rights and remedies available to Lender under the Loan Agreement.
On April 8, 2021, Mile High LNG LLC, Stabilis GDS, Inc., Stabilis LNG Eagle Ford LLC and Stabilis Energy Services, LLC, each a wholly owned subsidiary of the Company (collectively, “Debtor”), entered into a Security Agreement and Assignment (the “Security Agreement”) in favor of the Lender. The Security Agreement grants to Lender a first priority security interest in the collateral identified therein, which includes specific equipment collateral owned by the Company.
Secured Promissory Note - Related Party
On August 16, 2019, the Company issued a secured promissory note to M/G Finance Co., Ltd., a related party, in the principal amount of $5.0 million, at an interest rate per annum of 6.0 % until December 10, 2020, and 12.0 % thereafter, maturing in December 2022. The secured promissory note was subsequently amended on September 20, 2021, and on March 9, 2022 to defer scheduled debt and interest payments, reduce the interest rate and extend the maturity date. Payments under the secured promissory note, as amended, resume in October 2022 and will be in equal monthly installments through December 2023. The secured promissory note, as amended, bears interest at 6.0 %. The debt is secured by certain equipment of the Company.
Insurance and Other Notes Payable
The Company finances its annual commercial insurance premiums for its business and operations with a finance company. During the three and nine months ended September 30, 2022, the Company financed $1.4 ten months with interest at 5.75 %. The Company's prior insurance note payable was paid in full August, 2022 and incurred interest of 3.95 %. At September 30, 2022 and December 31, 2021, outstanding principal under the Company's insurance notes payable was $1.1 million and $0.9 million, respectively.
Interest Expense
During the three and nine months ended September 30, 2022 and 2021, the Company recorded interest expense on debt and capital lease as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Secured term note | $ | $ | $ | $ | |||||||||||||||||||
Secured promissory note - related party | |||||||||||||||||||||||
Insurance and other notes payable | |||||||||||||||||||||||
| Interest expense on debt | |||||||||||||||||||||||
| Other interest | |||||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | |||||||||||||||||||
Certain of the agreements governing our outstanding debt have certain covenants with which we must comply. As of September 30, 2022, we were in compliance with all of these covenants.
Loan Forgiveness under the Paycheck Protection Program
In June 2021, the Company's loan pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) of $1.1 million (the “PPP Loan”) was forgiven by the Small Business Administration. The Company recognized a gain on forgiveness of debt in the amount of $1.1 million which is included in other income (expense) within our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021.
19
10. RELATED PARTY TRANSACTIONS
Other Purchases and Sales
Applied Cryo Technologies, Inc. (“ACT”), is a company that was owned 51 % by Crenshaw Family Holdings, LP (“Crenshaw Family Holdings”). Crenshaw Family Holdings sold its interest in ACT on November 22, 2021. During the three and nine months ended September 30, 2021, the Company purchased from ACT $32 thousand and $0.5 million for equipment, repairs and services, respectively. The Company had $29 18 thousand due from ACT included in accounts receivable on the Condensed Consolidated Balance Sheets and $23 thousand due to ACT included in accounts payable on the Condensed Consolidated Balance Sheets.
The Company purchases supplies and services from a subsidiary of The Modern Group. Casey Crenshaw is the beneficial owner of 25 % of The Modern Group and is deemed to jointly control The Modern Group with family members. The Company made purchases of supplies and services from a subsidiary of The Modern Group totaling $38 thousand and $0.1 million for the three months ended September 30, 2022 and 2021, respectively, and $0.2 million and $0.8 million for the nine months ended September 30, 2022 and 2021, respectively. The Company had no 13 no 0.1 million and $0.8 million, respectively, due to a subsidiary of The Modern Group included in accounts payable on the Condensed Consolidated Balance Sheets.
Chart E&C beneficially owns 8.0 % of our outstanding common stock at September 30, 2022, and was party to a Secured Term Note Payable with the Company prior to its repayment by the Company during 2021. The Company purchases services from Chart E&C. The Company made purchases from Chart E&C of $0.0 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively, and purchases also totaled $0.1 million and $0.1 million during the nine months ended September 30, 2022 and 2021, respectively. The Company had no no amounts due to Chart E&C. At December 31, 2021, the Company had $0.2 million due to Chart E&C included in accounts payable on the Condensed Consolidated Balance Sheets.
Secured Promissory Note - Related Party
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
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12. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
Issuances of Common Stock
The Company is authorized to issue up to 37,500,000 shares of common stock, $0.001 par value per share.
During the nine months ended September 30, 2022, the Company issued 500,000 shares of common stock, to its former chief executive officer pursuant to the terms of his separation and release agreement. The restricted stock units (RSU's) were expensed during the third quarter 2021. In addition, during the nine months ended September 30, 2022, 212,337 shares of common stock were issued to other employees upon vesting of RSU's issued under the Company's long term incentive plan.
Amended and Restated 2019 Long Term Incentive Plan
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 4,000,000 shares. Awards under the Amended and Restated Plan may be granted to employees, officers and directors of the Company and affiliates, and any other person who provides services to the Company and its affiliates (including independent contractors and consultants of the Company and its subsidiaries). Awards may be granted in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalents, substitute awards, other stock-based awards, cash awards and/or any combination of the foregoing. No participant may receive a grant covering more than 2,000,000 shares of our common stock in any year and a non-employee member of the Board may not be granted more than 100,000 shares in any year.
Stock-Based Compensation and Awards
During the nine months ended September 30, 2022, the Company issued a total of 40,764 RSU’s and 774,505 stock options pursuant to the Amended and Restated Plan. The RSU’s were valued at $0.2 million based upon the closing price of $4.11 on the date of grant and will vest over three years . The Company has estimated the value of the options issued using a valuation model. The full aggregate fair value determined was $1.5 million using observable inputs from trading values of the Company's shares of stock. Assumptions used in determining the valuation of the options included the following:
•A strike price of $6.00 per share with 3 -year vesting terms and the closing price of the common stock of $4.11 at date of grant.
•The risk free rate assumed the return of a U.S. Treasury bill of 3 years (the vesting period), which was approximately 1.7 % at the date of grant.
•$0 dividends as we have not historically paid dividends.
•A term of 6.5 years, which was determined as the midpoint between the vesting period of 3 years with an expiration date of 10 years.
•Volatility of approximately 58 %.
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, 2022 and 2021, the Company recognized $1.7 million and $2.7 million of stock compensation expense, respectively. As of September 30, 2022, the Company had $1.1 million of unrecognized compensation costs related to 247,607 outstanding RSUs which are expected to be recognized over a weighted average period of less than one year and $3.3 million of unrecognized compensation costs related to 2,074,505 outstanding options which are expected to be recognized over a weighted average period of less than three years . All RSU's and options are expected to vest.
21
13. NET INCOME (LOSS) PER SHARE
The calculation of net income (loss) per common share including the number of shares for both basic and diluted net income (loss) per share is as follows (in thousands, except share and per share data):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Basic weighted average number of common shares outstanding | |||||||||||||||||||||||
Dilutive securities (1),(2) | |||||||||||||||||||||||
| Total shares including dilutive securities | |||||||||||||||||||||||
| Net income (loss) from continuing operations | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Loss from discontinued operations, net of tax | ( | ( | ( | ( | |||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Basic income (loss) per common share: | |||||||||||||||||||||||
| Basic income (loss) per common share from continuing operations | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Basic loss per common share from discontinued operations | ( | ( | ( | ||||||||||||||||||||
| Basic net loss per common share | ( | ( | ( | ( | |||||||||||||||||||
| . | |||||||||||||||||||||||
| Diluted income (loss) per common share: | |||||||||||||||||||||||
| Diluted income (loss) per common share from continuing operations | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Diluted loss per common share from discontinued operations | ( | ( | ( | ||||||||||||||||||||
| Diluted net loss per common share | ( | ( | ( | ( | |||||||||||||||||||
_______________
(1)Dilutive securities include shares of unvested RSUs and stock options with exercise prices below the share price (in-the-money options) at September 30, 2022. The number of dilutive stock options is calculated under the treasury stock method which assumes proceeds received from the exercise of the options would be used to buy back shares of the Company's common stock at the market price. Excluded from the number of dilutive shares are 600,391 in-the-money options that could be repurchased under the treasury method and 1,300,000 options, with exercise prices in excess of the market price (out-of -the-money options) at September 30, 2022.
(2)The Company had no
22
14. SUPPLEMENTAL CASH FLOW INFORMATION
The Company's supplemental disclosure of cash flow information for the nine months ended September 30, 2022 and 2021 is as follows (in thousands):
| Nine Months Ended September 30, | |||||||||||
| Supplemental Disclosure of Cash Flow Information: | 2022 | 2021 | |||||||||
| Interest paid | $ | $ | |||||||||
| Income taxes paid | |||||||||||
| Significant non-cash investing and financing activities: | |||||||||||
| Common stock issued to acquire fixed assets | $ | $ | |||||||||
| Equipment acquired from issuance of note payable | |||||||||||
| Acquisition of fixed assets included within accounts payable | |||||||||||
| Fixed assets transferred to assets held for sale | |||||||||||
| Equipment acquired under capital leases | |||||||||||
| Insurance premium financing | |||||||||||
15. SUBSEQUENT EVENTS
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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 2021 Annual Report on Form 10-K filed on March 10, 2022 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 across North America. We provide LNG solutions to customers in diverse end markets, including aerospace, agriculture, energy, industrial, marine bunkering, mining, pipeline, remote clean power and utility markets. LNG can be used to deliver natural gas to locations where pipeline service is not available, has been interrupted, or needs to be supplemented. Our customers use LNG as a partner fuel for renewable energy, and as a cleaner 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. We believe that these alternative fuel markets are large and provide significant opportunities for LNG substitution.
We believe that LNG as well as other clean energy solutions will provide an important balance between environmental sustainability, security and accessibility, and economic viability when compared to both renewables and other traditional hydrocarbon-based fuels and will play a key role in the energy transition.
Our LNG operations generate revenue by selling and delivering LNG to our customers, renting cryogenic equipment and providing engineering and field support services. We sell our products and services separately or as a bundle depending on the customer’s needs. LNG 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. Stabilis’ customers use LNG for fuel in their operations for multiple reasons, including lower and more stable fuel costs, reduced environmental emissions, and improved operating performance.
LNG Production and Sales—Stabilis builds and operates cryogenic natural gas processing facilities, called “liquefiers,” which convert natural gas into LNG through a purification and multiple stage cooling process. We currently own and operate a liquefier that can produce up to 100,000 LNG gallons per day in George West, Texas and a liquefier that can produce up to 30,000 LNG gallons per day in Port Allen, Louisiana, which was purchased on June 1, 2021. 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.
Transportation and Logistics Services—Stabilis offers our customers a “virtual natural gas pipeline” by providing turnkey LNG transportation and logistics services in North America. We deliver LNG to our customers’ work sites from both our own production facilities and our network of third-party production sources located throughout North America. We own a fleet of cryogenic trailers to transport and deliver LNG. We also outsource similar equipment and transportation services from qualified third-party providers as required to support our customer base.
Cryogenic Equipment Rental—Stabilis owns and operates a rental 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.
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 and hydrogen into their fueling operations and our field service technicians help our customers mobilize, commission and reliably operate on the job site.
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Biofuels and Hydrogen—We believe that our technical expertise, production, transportation and storage asset capabilities are favorable for other alternative fuels, such as renewable natural gas, synthetic natural gas and hydrogen.
Additionally, we build power and control systems for the energy industry in China through our 40% interest in our Chinese joint venture, BOMAY Electric Industries, Inc (“BOMAY”).
Inflationary Pressures:
We continue to experience inflationary pressures for increasing costs for natural gas, liquefaction and transportation at least for the near-term. While we pass a significant portion of the cost of natural gas and transportation on to our customers, we are not able to pass through all costs which has resulted in margin pressure. Recent global events, which include Russia’s invasion of Ukraine, are exacerbating these trends. The ultimate extent and effects of recent events are difficult to estimate, but we expect them to continue to place pressure on the price of natural gas in the near-term. For a more complete discussion of the risks we encounter in our business, please refer to Risk Factors in Part I, Item 1A of the Company's Annual Report on Form 10-K filed with the SEC on March 10, 2022 and Part II, Item 1A of the Company's Quarterly Reports on Form 10-Q filed with the SEC on May 5, 2022 and August 11, 2022.
Recent Developments:
U.S. Department of Energy ("DOE") Approval to Export LNG
During the quarter, Stabilis received authorization from the DOE to export domestically produced LNG to all free trade and non-free trade countries, including Asian, European, and Latin American importing nations for up to 51.75 billion cubic feet per year. The authorization is for a term of 28 years. Stabilis did not make any exports under this approval during the quarter.
Sale of Brazil Operations and Discontinued Operations
At September 30, 2022, the Company determined that it would exit its Brazil Operations. This decision resulted in discontinued operations presentation for its Brazil Operations and an impairment charge of $1.3 million measured as the estimated fair value of $0.9 million (calculated as the estimated net proceeds that would be received in an orderly and timely sale of the operations) less the carrying value of the Brazil net assets at September 30, 2022. On October 31, 2022, the Company entered into a sales agreement and closed on the sale of its Brazil Operations to its Brazil management team for approximately $.9 million See also Notes 2 and 15 in the Notes to Condensed Consolidated Financial Statements for further discussion of the Company's discontinued operations and sale of the Brazil Operations.
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Results of Operations
The Company supplies LNG to multiple end markets in North America and provides turnkey fuel solutions to help users of propane, diesel and other crude-based fuel products convert to LNG. The anticipated sale of the Brazil Operations represent all of the revenue and expenses previously reported within the Company's Power Delivery segment with the exception of the Company's equity method investment in BOMAY. Further, the Company also believes that the decision to exit the Brazil Operations at September 30, 2022 meets the criteria to be reported as discontinued operations. As a result, the Company believes that it has one reporting segment and the operating results presented in the tables below have been recast to separately present the revenues and expenses related to the Brazil Operations as discontinued operations for all periods presented.
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
The comparative tables below reflect our consolidated operating results for the three months ended September 30, 2022 (the “Current Quarter”) as compared to the three months ended September 30, 2021 (the “Prior Year Quarter”) (unaudited, amounts in thousands, except for percentages). Corporate allocations of $0.1 million previously reported within the Company's Power Delivery Segment have been reclassified to continuing operations for the Prior year Quarter and $0.5 million for the Prior Year Quarter was reclassified from selling, general and administrative expense to costs of rental, service and other in the table below to conform to current period presentation.
| Three Months Ended September 30, | $ Change | % Change | |||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Revenues | 25,819 | 17,779 | 8,040 | 45.2 | % | ||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
| Cost of revenues | 19,904 | 14,369 | 5,535 | 38.5 | |||||||||||||||||||
| Change in unrealized gain on natural gas derivatives | (926) | — | (926) | n/a | |||||||||||||||||||
| Selling, general and administrative expenses | 3,658 | 5,286 | (1,628) | (30.8) | |||||||||||||||||||
| Gain from disposal of fixed assets | 46 | — | 46 | n/a | |||||||||||||||||||
| Depreciation expense | 2,115 | 2,284 | (169) | (7.4) | |||||||||||||||||||
| Impairment of right-of-use lease asset | — | 376 | (376) | (100.0) | |||||||||||||||||||
| Total operating expenses | 24,797 | 22,315 | 2,482 | 11.1 | |||||||||||||||||||
| Income (loss) from operations before equity income | 1,022 | (4,536) | 5,558 | 122.5 | |||||||||||||||||||
| Net equity income from foreign joint venture operations | 114 | 246 | (132) | (53.7) | |||||||||||||||||||
| Income (loss) from operations | 1,136 | (4,290) | 5,426 | 126.5 | |||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||
| Interest expense, net | (150) | (119) | (31) | (26.1) | |||||||||||||||||||
| Interest expense, net - related parties | (49) | (120) | 71 | 59.2 | |||||||||||||||||||
| Other income (expense) | (28) | 37 | (65) | n/a | |||||||||||||||||||
| Total other income (expense) | (227) | (202) | (25) | n/a | |||||||||||||||||||
| Net income (loss) from continuing operations before income tax expense | 909 | (4,492) | 5,401 | 120.2 | |||||||||||||||||||
| Income tax (benefit) expense | (115) | 89 | (204) | (229.2) | |||||||||||||||||||
| Net income (loss) from continuing operations | 1,024 | (4,581) | 5,605 | 122.4 | |||||||||||||||||||
| Loss from discontinued operations, net of tax | (1,301) | (44) | (1,257) | n/a | |||||||||||||||||||
| Net loss | $ | (277) | $ | (4,625) | $ | 4,348 | 94.0 | ||||||||||||||||
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Revenues
During the Current Quarter, revenues increased $8.0 million, or 45%, compared to the Prior Year Quarter related to an increase in LNG product revenue of $7.2 million and an increase in rental, service and other revenue of $0.8 million. The increase in LNG product revenue was primarily related to:
•Additional LNG gallons delivered during the Current Quarter compared to the Prior Year Quarter;
•Increased natural gas prices during the Current Quarter compared to the Prior Year Quarter; and
•Increased pricing charged to our customers in response to increased costs from inflationary pressures.
The increase in rental, service and other revenue related to additional projects (primarily for marine bunkering) with equipment and increased labor revenues.
Operating Expenses
Costs of revenues. Cost of revenues increased $5.5 million, or 39%. due to an increase in the cost of LNG product of $4.8 million and an increase in the costs of rental, service and other of $0.7 million in the Current Quarter compared to the Prior Year Quarter. The increased costs related to LNG product were attributable to:
•Additional LNG gallons delivered during the Current Quarter compared to the Prior Year Quarter;
•Increased natural gas prices during the Current Quarter compared to the Prior Year Quarter;
•Inflationary pressures, including increased transportation costs and increased liquefaction costs; and
•Increased electricity prices, particularly in Texas and Louisiana due to higher than average temperatures.
As a percentage of LNG product revenue, these costs decreased from 83% in the Prior Year Quarter to 74% in the Current Quarter. The decrease is primarily due to increased pricing charged to our customers. The increase in the costs of rental, service and other was primarily due to additional projects (primarily for marine bunkering) and increased costs for rental equipment to service additional contracts and increased service personnel to support increased services work.
Change in unrealized gain on natural gas derivatives. The Company incurred an unrealized gain of $0.9 million in the Current Quarter on its natural gas derivatives. The unrealized gain was due to higher future natural gas prices at September 30, 2022 as compared to June 30, 2022. The Company had no derivatives in the Prior Year 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 $1.6 million, or 31%, during the Current Quarter compared to the Prior Year Quarter. During the Prior Year Quarter, we recorded $2.2 million for the immediate vesting of restricted common stock related to our executive transition occurring in the Prior Year Quarter in addition to $0.8 million in severance and legal costs. Savings from the non-recurrence of these Prior Year Quarter expenses were partially offset during the Current Quarter by higher stock-based compensation expenses and increased compensation related to additional headcount to support our operations.
Gain from disposal of fixed assets. There were no significant gains or losses from disposal of fixed assets in either the Current Quarter or the Prior Year Quarter.
Depreciation. Depreciation expense decreased 7% during the Current Quarter as compared to the Prior Year Quarter due to assets reaching the end of their depreciable lives.
Net equity income from foreign joint venture operations. Income from investments the Company's foreign joint venture decreased $0.1 million during the Current Quarter due to supply chain challenges as well as foreign exchange losses resulting from a strong U.S. dollar compared to the Prior Year Quarter.
Interest expense, net. Interest expense increased $31 thousand during the Current Quarter as compared to the Prior Year Quarter primarily related to interest on additional borrowings from the Company's loan with AmeriState Bank.
Interest expense, net - related parties. Related party interest expense decreased $0.1 million during the Current Quarter as compared to the Prior Year Quarter primarily related to repayment of related party debt and due to amendments to the M/G Finance note payable which lowered the interest rate from 12% to 6%.
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Other income (expense). Other expense was $28 thousand during the Current Quarter compared to other income of $37 thousand in the Prior Year Quarter.
Income tax expense. The Company incurred a state and foreign income tax benefit of $0.1 million during the Current Quarter compared to a state and foreign income tax expense 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. Operating loss from discontinued operations, net of tax was $1.3 million and $44 thousand for the Current Quarter and the Prior Year Quarter, respectively. The Current Quarter operating loss from discontinued operations increased in the Current Quarter compared to the Prior Year Quarter due to the impairment of $1.3 million recorded as a result of the anticipated sale of the Brazil Operations. 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, 2022 Compared to Nine Months Ended September 30, 2021
The following table reflects line items from the accompanying Condensed Consolidated Statements of Operations for the nine months ended September 30, 2022 (the “Current Year”) as compared to the nine months ended September 30, 2021 (the “Prior Year”) (unaudited, amounts in thousands, except for percentages). Corporate allocations of $0.6 million previously reported within the Company's Power Delivery Segment have been reclassified to continuing operations for the Prior Year and $1.5 million for the Prior Year was reclassified from selling, general and administrative expense to costs of rental, service and other, and $0.3 million was reclassified from costs of LNG product to costs of rental, service and other to conform to current period presentation.
| Nine Months Ended September 30, | $ Change | % Change | |||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Revenues | 69,236 | 48,291 | 20,945 | 43.4 | % | ||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
| Cost of revenues | 54,945 | 37,301 | 17,644 | 47.3 | |||||||||||||||||||
| Change in unrealized gain on natural gas derivatives | (27) | — | (27) | n/a | |||||||||||||||||||
| Selling, general and administrative expenses | 9,643 | 10,558 | (915) | (8.7) | |||||||||||||||||||
| Gain from disposal of fixed assets | (34) | (24) | (10) | (41.7) | |||||||||||||||||||
| Depreciation expense | 6,589 | 6,653 | (64) | (1.0) | |||||||||||||||||||
| Impairment of right-of-use lease asset | — | 376 | (376) | (100.0) | |||||||||||||||||||
Total operating expenses | 71,116 | 54,864 | 16,252 | 29.6 | |||||||||||||||||||
| Loss from operations before equity income | (1,880) | (6,573) | 4,693 | 71.4 | |||||||||||||||||||
| Net equity income from foreign joint venture operations | 887 | 1,075 | (188) | (17.5) | |||||||||||||||||||
| Loss from operations | (993) | (5,498) | 4,505 | 81.9 | |||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||
Interest expense, net | (437) | (189) | (248) | (131.2) | |||||||||||||||||||
| Interest expense, net - related parties | (129) | (441) | 312 | 70.7 | |||||||||||||||||||
| Other income (expense) | (99) | 1,031 | (1,130) | n/a | |||||||||||||||||||
Total other income (expense) | (665) | 401 | (1,066) | n/a | |||||||||||||||||||
| Net loss from continuing operations before income tax expense | (1,658) | (5,097) | 3,439 | (67.5) | |||||||||||||||||||
| Income tax (benefit) expense | (248) | 229 | (477) | (208.3) | |||||||||||||||||||
| Loss from continuing operations | (1,410) | (5,326) | 3,916 | 73.5 | |||||||||||||||||||
| Loss from discontinued operations, net of tax | (1,441) | (128) | (1,313) | n/a | |||||||||||||||||||
| Net loss | $ | (2,851) | $ | (5,454) | $ | 2,603 | 47.7 | ||||||||||||||||
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Revenues
During the Current Year, revenues increased $20.9 million, or 43%, due to increased LNG product revenue of $20.8 million and increased rental, service and other revenue of $0.1 million compared to the Prior Year. The increase in LNG product revenue was primarily due to:
•Additional LNG gallons delivered during the Current Year compared to the Prior Year;
•Increased natural gas prices compared to the Prior Year; and
•Increased pricing charged to our customers.
The increase in rental, service and other revenue was primarily due to additional projects (primarily for marine bunkering) with additional equipment and labor revenues compared to the Prior Year.
Operating Expenses
Cost of revenues. Cost of revenues increased $17.6 million, or 47%, in the Current Year compared to the Prior Year due to and increase in the cost of LNG product of $16.5 million and an increase in the cost of rental, service and other revenue of $1.1 million. The increase in the cost of LNG product was due to:
•Additional LNG gallons delivered during the Current Year compared to the Prior Year;
•Increased natural gas prices during the Current Year compared to the Prior Year;
•Inflationary pressures including increased transportation costs and increased liquefaction costs; and
•Increased electricity prices, particularly in Texas and Louisiana due to higher than average temperatures.
As a percentage of LNG product revenue, these costs decreased from 79% in the Prior Year to 78% in the Current Year. The decrease is primarily due to increased pricing charged to our customers. The increase in cost of rental, service, and other was primarily due to additional projects (primarily for marine bunkering) and increased costs for rental equipment to service additional contracts and increased service personnel to support increased services work.
Change in unrealized gain on natural gas derivatives. We incurred an unrealized gain of $27 thousand in the Current Year on our natural gas derivatives. The unrealized gain was due to higher future natural gas prices at September 30, 2022 as compared to the time of purchase of the derivatives. We had no derivatives in the Prior Year. See Note 4 in the Notes to Condensed Consolidated Financial Statements for a further discussion of our derivatives.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased $0.9 million or 9% in the Current Year compared to the Prior Year. During the Prior Year, we recorded $2.2 million for the immediate vesting of restricted common stock related to our executive transition occurring in the Prior Year in addition to $0.8 million in severance and legal costs. Savings from the non-recurrence of these Prior Year expenses were partially offset during the Current Year by higher stock-based compensation expenses and increased compensation related to additional headcount to support our operations.
Gain from disposal of fixed assets. There were no significant gains or losses from disposal of fixed assets in either the Current Year or the Prior Year.
Depreciation. Depreciation expense decreased $0.1 million in the Current Year compared to the Prior Year primarily due to assets reaching the end of their depreciable lives.
Net equity income from foreign joint venture operations. Income from investments in the Company's foreign joint venture decreased $0.2 million during the Current Year compared to the Prior Year primarily due to supply chain challenges as well as foreign exchange losses resulting from a strong U.S. dollar compared to the Prior Year.
Other Income (Expense)
Interest expense, net. Interest expense increased $0.2 million during the Current Year as compared to the Prior Year primarily related to interest on the additional funding of the Company's loan with AmeriState Bank.
Interest expense, net - related parties. Related party interest expense decreased $0.3 million during the Current Year compared to the Prior Year primarily related to repayment of related party debt and due to amendments to the M/G Finance note payable which lowered the interest rate from 12% to 6%.
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Other Income (Expense). Other expense was $0.1 million during the Current Year compared to other income of $1.0 million in the Prior Year due to Paycheck Protection Program loan forgiveness of $1.1 million recognized in the Prior Year.
Income tax (benefit) expense. The Company incurred an income tax benefit in the Current Year of $0.2 million compared to income tax expense of $0.2 million in the Prior Year. The benefit in the Current Year was due to a favorable income tax result upon filing the Mexico income tax return. 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. Operating loss from discontinued operations was $1.4 million and $0.1 million for the Current Year and the Prior Year, respectively. The Current Year operating loss from discontinued operations increased compared to the Prior Year due to the impairment of $1.3 million recorded as a result of the anticipated sale of the Brazil Operations. 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 our AmeriState Loan, and distributions from our BOMAY joint venture. In prior years, the Company also obtained equipment financing from M/G Finance, a related party. During the Current Year, our principal sources of liquidity were cash provided by our operations, cash generated from sales of assets and deposits received from customers. We have used cash flows generated from operations to invest in fixed assets and increased working capital to support growth as well as to pay interest and principal amounts outstanding under our debt borrowings. The Company's decision to exit its Brazil Operations is not anticipated to adversely impact the Company's future cash flows.
As of September 30, 2022, we had $11.1 million in cash and cash equivalents on hand and 13.1 million in outstanding debt (net of debt issuance costs) and lease obligations (of which $3.6 million is due in the next twelve months). The Company has a $10.0 million loan facility with $1.0 million available for future draws under the loan facility at September 30, 2022. The Company has also filed a shelf registration statement (described below) which provides the Company the flexibility to raise capital to fund working capital requirements, repay debt and/or fund future transactions.
The Company is subject to substantial business risks and uncertainties inherent in the LNG industry. The Company has implemented a number of cost control measures and increased pricing to customers in response to inflationary costs; however, there is no assurance that the Company will be able to generate sufficient cash flows in the future to sustain itself or to support future growth. We have experienced a significant increase in sales since mid-2021. Accordingly, management believes the business will generate sufficient cash flows from its operations along with availability under our loan facility that is sufficient 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.
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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, | |||||||||||
| 2022 | 2021 | ||||||||||
Net cash provided by (used in): | |||||||||||
Operating activities | $ | 11,538 | $ | 5,429 | |||||||
Investing activities | 69 | (6,690) | |||||||||
Financing activities | (1,422) | 2,451 | |||||||||
Effect of exchange rate changes on cash | 7 | (76) | |||||||||
| Net increase in cash and cash equivalents | $ | 10,192 | $ | 1,114 | |||||||
Operating Activities
Net cash provided by operating activities totaled $11.5 million for the nine months ended September 30, 2022 compared to $5.4 million for the same period in 2021. The increase in net cash provided by operating activities of $6.1 million as compared to the Prior Year was primarily attributable to deposits received from customers and improved profitability in the Current Year when excluding the impacts of non-cash expenses and gains included in net loss such as depreciation, stock-based compensation, unrealized loss on natural gas derivatives and gain on extinguishment of debt compared to the Prior Year.
Investing Activities
Net cash provided by investing activities totaled $0.1 million for the nine months ended September 30, 2022 compared to cash used of $6.7 million for the nine months ended September 30, 2021. The decrease in net cash used in the Current Year was primarily due to the acquisition of our Port Allen liquefaction facility on June 1, 2021, which included $5.0 million in cash paid. Additionally, proceeds of $2.0 million were received for assets held for sale during 2022.
Financing Activities
Net cash used in financing activities totaled $1.4 million for the nine months ended September 30, 2022, compared to net cash provided by financing activities totaling $2.5 million for the Prior Year primarily from proceeds received from borrowings under the AmeriState Loan of $7.0 million, partially offset by repayments of debt.
Future Cash Requirements
We require cash to fund our operating expenses and working capital requirements, including costs associated with fuel sales, capital expenditures, debt repayments and repurchases, equipment purchases, maintenance of LNG production facilities, mergers and acquisitions (if any), pursuing market expansion, supporting sales and marketing activities, support of legislative and regulatory initiatives, and other general corporate purposes. While we believe we have sufficient liquidity and capital resources to fund our operations and repay our debt, we may elect to pursue additional financing activities such as refinancing existing debt, obtaining new debt, or debt or equity offerings to provide flexibility with our cash management. Certain of these alternatives may require the consent of current lenders or stockholders, and there is no assurance that we will be able to execute any of these alternatives on acceptable terms or at all.
Capital expenditures for the nine months ended September 30, 2022 were $1.7 million and primarily related to capital expenditures for our operations in Mexico and the addition of rolling stock and replacement assets. The Company had open purchase orders of approximately $1.5 - $2.0 million at September 30, 2022 for capital expenditures over the next twelve months.
Shelf Registration Statement
On April 11, 2022, the Company filed a registration statement on Form S-3 (the "Shelf Registration") 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. 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
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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.
Off-Balance Sheet Arrangements
As of September 30, 2022, 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, 2022 from those disclosed within the Company's Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 10, 2022.
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, 2022.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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.
ITEM 1A. RISK FACTORS.
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, 2021 filed with the SEC on March 10, 2022 (“Form 10-K”) and Part II, "Item 1A. Risk Factors" of the Company's Quarterly Report on Form 10-Q filed with the SEC on May 5, 2022 (the "First Quarter Form 10-Q"), which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. During the three months ended September 30, 2022, there have been no material changes in our risk factors disclosed in our 2021 Form 10-K and our First Quarter Form 10-Q.
ITEM 5. OTHER INFORMATION.
On October 31, 2022, the Company entered into a sales agreement and closed on the sale of its Brazil Operations to the general manager of the Brazil Operations for approximately $0.9 million consisting of a cash payment of $0.2 million and a note receivable due in annual installments of $0.1 million, $0.1 million, $0.2 million and $0.3 million over the next four years. The Company does not expect to record a gain or loss on the sale due to the impairment loss recorded during the three and nine months ended September 30, 2022, in discontinued operations. See further discussion in Notes 2 and 15 of the Notes to Condensed Consolidated Financial Statements regarding the Company's decision to exit its Brazil Operations.
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ITEM 6. EXHIBITS.
(a) Index to Exhibits
Exhibit No. | Exhibit Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 4.1 | ||||||||
| 4.2 | ||||||||
| 4.3 | ||||||||
| 4.4 | ||||||||
| 4.5 | ||||||||
| 4.6 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
101 | * Interactive XBRL Instance Document (XBRL tags are embedded within the Inline XBRL document) | |||||||
104 | * Cover Page Interactive Data File (formatted as XBRL and contained in Exhibit 101). | |||||||
* Filed herewith.
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SIGNATURES
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 3, 2022 | ||||||||
| 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) | ||||||||
35