# Stabilis Solutions, Inc.: Form 10-Q for the period ended Mar 31, 2023

- Company: [Stabilis Solutions, Inc.](/companies/slng.md) (CIK 1043186)
- Form: 10-Q
- Filed: 2023-05-10
- Accepted by EDGAR: May 10, 2023, 16:46 ET
- Period: 2023-03-31
- Accession: 0001628280-23-017287
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1043186/000162828023017287/slng-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1043186/000162828023017287/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $26.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $20.3m | us-gaap:CostOfRevenue |
| Selling, general and administrative | 3 months, 2023-01-01 to 2023-03-31 | $3.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $8.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $1.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.06 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.06 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 18,517,917 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | $93.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $3.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-03-31 | $6.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $18.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $86.9m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $16.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $25.2m | us-gaap:Liabilities |
| Long-term debt | at 2023-03-31 | $8.7m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-03-31 | $2.3m | us-gaap:DebtCurrent |
| Shareholders' equity | at 2023-03-31 | $61.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 19,488 characters.

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-Q ("this Report") and the consolidated financial statements included in the 2022 Annual Report on Form 10-K filed on March 9, 2023 with the U.S. Securities and Exchange Commission (the "SEC"). Historical results and percentage relationships set forth in the Condensed Consolidated Statements of Operations and Cash Flows, including trends that might appear, are not necessarily indicative of future operations or cash flows.

### Overview

Stabilis Solutions, Inc. and its subsidiaries is an energy transition company that provides turnkey clean energy production, storage, transportation and fueling solutions primarily using liquefied natural gas (“LNG”) to multiple end markets. We provide LNG solutions to customers in diverse end markets, including aerospace, agriculture, energy, industrial, marine bunkering, mining, pipeline, remote power and utility markets. LNG can be used to deliver natural gas to locations where pipeline service is unavailable, has been interrupted, or needs to be supplemented. LNG can also be used to replace a variety alternative fuels, including distillate fuel oil and propane, among others, to provide environmental and economic benefits. Increasingly, LNG is being utilized as a transportation fuel in the marine industry and as a propellant in the private rocket launch sector. We believe that these fuel markets are large and provide significant opportunities for LNG usage.

We believe that LNG as well as other clean energy solutions will provide an important balance between environmental sustainability, security and accessibility, and economic viability when compared to both renewables and other traditional hydrocarbon-based fuels and will play a key role in the energy transition.

The Company generates revenue by selling and delivering LNG to our customers, renting cryogenic equipment and providing engineering and field support services. We sell our products and services separately or as a bundle depending on the customer’s needs. Pricing depends on market pricing for natural gas and competing fuel sources (such as diesel, fuel oil, and propane among others), as well as the customer’s purchased volume, contract duration and credit profile.

*LNG Production and Sales—*Stabilis builds and operates cryogenic natural gas processing facilities, called “liquefiers,” which convert natural gas into LNG through a purification and multiple stage cooling process. We currently own and operate a liquefier that can produce up to 100,000 LNG gallons per day in George West, Texas and a liquefier that can produce up to 30,000 LNG gallons per day in Port Allen, Louisiana. We also purchase LNG from third-party production sources which allows us to support customers in markets where we do not own liquefiers. We make the determination of LNG and transportation supply sources based on the cost of LNG, the transportation cost to deliver to regional customer locations, and the reliability of the supply source.

*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 operates a fleet of mobile LNG storage and vaporization assets, including: transportation trailers, electric and gas-fired vaporizers, ambient vaporizers, storage tanks, and mobile vehicle fuelers. We also own several stationary storage and regasification assets. We believe this is one of the largest fleets of small-scale LNG equipment in North America. Our fleet consists primarily of trailer-mounted mobile assets, making delivery to and between customer locations more efficient. We deploy these assets on job sites to provide our customers with the equipment required to transport, store, and consume LNG in their operations.

*Engineering and Field Support Services—*Stabilis has experience in the safe, cost effective, and reliable use of LNG in multiple customer applications. We have also developed many processes and procedures that we believe improve our customers’ use of LNG in their operations. Our engineers help our customers design and integrate LNG into their operations and our field service technicians help our customers mobilize, commission and reliably operate on the job site.

### Results of Operations

Stabilis supplies LNG to multiple end markets in North America and provides turnkey fuel solutions to help users of propane, diesel and other crude-based fuel products convert to LNG. The sale of the Brazil Operations represents all of the revenues and expenses previously reported within the Company's Power Delivery segment with the exception of the Company's equity method investment in BOMAY. Further, the Company also believes that the decision to exit the Brazil Operations met 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 March 31, 2023 Compared to Three Months Ended March 31, 2022

The comparative tables below reflect our consolidated operating results for the three months ended March 31, 2023 (the “Current Quarter”) as compared to the three months ended March 31, 2022 (the “Prior Year Quarter”) (unaudited, amounts in thousands, except for percentages).

| Revenues: | Three Months Ended March 31, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $26,842 | $20,267 | $6,575 | 32.4% |
| **Operating expenses:** |  |  |  |  |
| Cost of revenues | 20,270 | 15,504 | 4,766 | 30.7 |
| Change in unrealized loss on natural gas derivatives | 169 | — | 169 | n/a |
| Selling, general and administrative expenses | 3,379 | 2,931 | 448 | 15.3 |
| Gain from disposal of fixed assets | — | (80) | 80 | n/a |
| Depreciation expense | 2,011 | 2,277 | (266) | (11.7) |
| Total operating expenses | 25,829 | 20,632 | 5,197 | 25.2 |
| Income (loss) from operations before equity income | 1,013 | (365) | 1,378 | 377.5 |
| Net equity income from foreign joint venture operations | 345 | 87 | 258 | 296.6 |
| **Income (loss) from operations** | 1,358 | (278) | 1,636 | 588.5 |
| **Other income (expense):** |  |  |  |  |
| Interest expense, net | (150) | (137) | (13) | (9.5) |
| Interest expense, net - related parties | (32) | (31) | (1) | (3.2) |
| Other income (expense) | (84) | (45) | (39) | (86.7) |
| Total other income (expense) | (266) | (213) | (53) | (24.9) |
| **Net income (loss) from continuing operations before income tax benefit (expense)** | 1,092 | (491) | 1,583 | 322.4 |
| Income tax benefit (expense) | (8) | 132 | (140) | (106.1) |
| **Net income (loss) from continuing operations** | 1,084 | (359) | 1,443 | 401.9 |
| Loss from discontinued operations, net of income tax | — | (47) | 47 | n/a |
| **Net income (loss)** | $1,084 | $(406) | $1,490 | 367.0 |

20

### Revenues

During the Current Quarter, revenues increased $6.6 million, or 32%, compared to the Prior Year Quarter. The increase in revenue primarily related to:

- Increased natural gas prices during the Current Quarter compared to the Prior Year Quarter;
- Increased pricing charged to our customers;
- Increased revenues from minimum purchase contracts ("take-or-pay"); and
- Increases in rental, service, and other revenue related to additional projects with higher equipment and labor components.

The above increases were partially offset by fewer gallons of LNG delivered in the Current Quarter compared to the Prior Year Quarter.

### Operating Expenses

*Costs of revenues.* Cost of revenues increased $4.8 million, or 31%, compared to the Prior Year Quarter. As a percentage of revenue, these costs were 76% in both the Current Quarter and the Prior Year Quarter. The increase in cost of revenues was attributable to:

- Increased natural gas prices during the Current Quarter compared to the Prior Year Quarter;
- Inflationary pressures, including increased transportation, liquefaction, personnel and other costs;
- Increased take-or-pay fees; and
- Increased costs of rental, service, and other revenue primarily related to increased labor and equipment rentals to support marine bunkering projects.

*Change in unrealized loss on natural gas derivatives.* The Company incurred an unrealized loss of $0.2 million in the Current Quarter on its natural gas derivatives. The unrealized loss was due to lower future natural gas prices at March 31, 2023 as compared to December 31, 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 increased $0.4 million, during the Current Quarter compared to the Prior Year Quarter. The increase was primarily related to increased compensation and headcount expense and increased professional services.

*Gain from disposal of fixed assets.* In the Prior Year Quarter, a gain of $0.1 million was recognized from the disposal of fixed assets. There was no gain in the Current Year Quarter.

*Depreciation.* Depreciation expense decreased 12% 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 in the Company's foreign joint venture increased $0.3 million during the Current Quarter due to increased operating activity in China.

*Interest expense, net.* Interest expense increased $13 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 in the Current Quarter was comparable to the Prior Year.

*Other income (expense).* Other expense was $84 thousand during the Current Quarter compared to other income of $45 thousand in the Prior Year Quarter related to transactional foreign exchange losses.

*Income tax expense*. The Company incurred a state and foreign income tax expense of $8 thousand during the Current Quarter compared to a state and foreign income tax benefit of $0.1 million during the Prior Year Quarter. No U.S. federal income tax benefit was recorded for the Current Quarter or Prior Year Quarter as any net U.S. deferred tax assets generated from operating losses were offset by a change in the Company's valuation allowance on net deferred tax assets.

*Discontinued Operations*. Operating loss from discontinued operations, net of tax was $47 thousand for the Prior Year Quarter. The Company sold its Brazil Operations on October 31, 2022. There was no activity from discontinued operations during the Current Quarter. See Note 2 in the Notes to Condensed Consolidated Financial Statements for further discussion of the Company's discontinued operations.

### Liquidity and Capital Resources

Historically, our principal sources of liquidity have consisted of cash on hand, cash provided by our operations, proceeds received from borrowings under the AmeriState Loan and distributions received from our BOMAY joint venture. In prior years, the Company also obtained financing from MG Finance, a related party. During the Current Quarter, our principal source of liquidity was our existing cash balances and cash provided by operations. We have used cash flows to invest in fixed assets and increase working capital to support growth as well as to pay interest and principal amounts outstanding under our debt. The Company's sale of the Brazil Operations on October 31, 2022 is not anticipated to adversely impact the Company's future cash flows.

As of March 31, 2023, we had $6.9 million in cash and cash equivalents on hand and $11.3 million in outstanding debt (net of debt issuance costs) and lease obligations (of which $2.5 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 at March 31, 2023. The Company has also filed a shelf registration statement (described below) which provides the Company the flexibility to raise capital to fund working capital requirements, repay debt and/or fund future transactions.

The Company is subject to substantial business risks and uncertainties inherent in the LNG industry and there is no assurance that the Company will be able to generate sufficient cash flows in the future to sustain itself or to support future growth. Management believes the 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.

### Cash Flows

Cash flows provided by (used in) our operating, investing and financing activities are summarized below (unaudited, in thousands):

| Net cash provided by (used in): | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | $93 | $3,155 |
| Investing activities | (3,727) | (818) |
| Financing activities | (961) | (1,132) |
| **Effect of exchange rate changes on cash** | 5 | (3) |
| **Net increase (decrease) in cash and cash equivalents** | $(4,590) | $1,202 |
| **Cash and cash equivalents, beginning of period** | 11,451 | 910 |
| **Cash and cash equivalents, end of period** | $6,861 | $2,112 |

#### Operating Activities

Net cash provided by operating activities totaled $0.1 million for the three months ended March 31, 2023 compared to $3.2 million for the same period in 2022. The decrease in net cash provided by operating activities of $3.1 million as compared to the Prior Year Quarter was primarily attributable to higher net working capital requirements.

#### Investing Activities

Net cash used in investing activities totaled $3.7 million for the three months ended March 31, 2023 compared to $0.8 million for the three months ended March 31, 2022. The increase in net cash used in the Current Quarter was primarily due to cash paid to purchase additional assets.

#### Financing Activities

Net cash used in financing activities totaled $1.0 million for the three months ended March 31, 2023, compared to $1.1 million for the three months ended March 31, 2022. For both periods, the cash used was for repayment of debt.

### Future Cash Requirements

We require cash to fund our operating expenses and working capital requirements, including costs associated with fuel sales, 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 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 three months ended March 31, 2023 were $3.7 million and primarily related to the purchase of additional liquefaction assets and rolling stock. The Company had purchase orders open of approximately $4.0 million for capital expenditures at March 31, 2023. Future capital expenditures over the next twelve months will be dependent upon investment opportunities as well as the availability of additional capital at favorable terms.

### Shelf Registration Statement

On April 11, 2022, the Company filed a registration statement on Form S-3 (the "Shelf Registration") which was declared effective on April 26, 2022 and will permit the Company to issue up to $100.0 million in either common stock, preferred stock, warrants or a combination of the above, and gives the Company the flexibility to raise capital to fund working capital requirements, repay debt and/or fund future transactions. On December 16, 2022, the Company filed a prospectus supplement to the Shelf Registration that allows the Company to sell and issue shares of common stock directly to the public "at the market" as permitted in Rule 415 under the Securities Act. As a smaller reporting company, we are subject to General Instruction I.B.6 of Form S-3, which limits the amounts that we may sell under the Shelf Registration to no more than one-third of our public float in any twelve month period as measured in accordance with such instruction. There is no assurance that we will be able to raise capital pursuant to the Shelf Registration on acceptable terms or at all. We made no issuances under the Shelf Registration during the three months ended March 31, 2023.

### Off-Balance Sheet Arrangements

As of March 31, 2023, we had no transactions that met the definition of off-balance sheet arrangements that may have a current or future material effect on our consolidated financial position or operating results.

### Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates.

There have been no significant changes in the Company's "Critical Accounting Policies and Estimates" during the three months ended March 31, 2023 from those disclosed within the Company's Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 9, 2023.

### New Accounting Standards

See Note 1 to the Notes to Condensed Consolidated Financial Statements included elsewhere in this Report for information on new accounting standards.

## Controls and procedures

As filed, 1,524 characters.

### 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 March 31, 2023.

### Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

## Risk factors

As filed, 556 characters.

Our operations and financial results are subject to various risks and uncertainties, including those described in the Part I. “Item 1A. Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 9, 2023 (“Form 10-K”), which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. During the three months ended March 31, 2023, there have been no material changes in our risk factors disclosed in our 2022 Form 10-K.

Filed May 10, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-017287. Last ingested by Listed: Oct 24, 2026, 15:04 ET. No prices; not investment advice.