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.
(Unaudited, in thousands, except share and per share data)
September 30,
December 31,
2024
2023
Assets
Current assets:
Cash and cash equivalents
$
12,393
$
5,374
Accounts receivable, net
5,766
7,752
Inventories, net
218
169
Prepaid expenses and other current assets
2,072
1,677
Total current assets
20,449
14,972
Property, plant and equipment:
Cost
116,137
110,646
Less accumulated depreciation
(63,727
)
(61,167
)
Property, plant and equipment, net
52,410
49,479
Goodwill
4,314
4,314
Investments in foreign joint ventures
11,557
12,009
Right-of-use assets and other noncurrent assets
620
525
Total assets
$
89,350
$
81,299
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$
10,260
$
5,707
Accrued liabilities
3,916
4,166
Current portion of long-term notes payable
2,150
1,682
Current portion of finance and operating lease obligations
204
164
Total current liabilities
16,530
11,719
Long-term notes payable, net of current portion and debt issuance costs
7,111
7,747
Long-term portion of finance and operating lease obligations
354
21
Total liabilities
23,995
19,487
Commitments and contingencies (Note 10)
Stockholders’ Equity:
Preferred stock; $0.001 par value, 1,000,000 shares authorized, no shares issued and outstanding at September 30, 2024 and December 31, 2023
—
—
Common stock; $0.001 par value, 37,500,000 shares authorized, 18,585,014 and 18,573,391 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively
19
19
Additional paid-in capital
103,132
102,057
Accumulated other comprehensive loss
(43
)
(18
)
Accumulated deficit
(37,753
)
(40,246
)
Total stockholders’ equity
65,355
61,812
Total liabilities and stockholders’ equity
$
89,350
$
81,299
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Stabilis Solutions, Inc. and its subsidiaries (the “Company”, “Stabilis”, “our”, “us” or “we”) is an energy transition company that provides turnkey clean energy production, storage, transportation and fueling solutions primarily using liquefied natural gas (“LNG”) to multiple end markets.
The Company serves customers in diverse end markets, including aerospace, agriculture, energy, industrial, marine bunkering, mining, pipeline, remote power and utility markets. LNG can be used to deliver natural gas to locations where pipeline service is unavailable, has been interrupted, or needs to be supplemented. Additionally, LNG can be used as a partner fuel for renewable energy, and as an alternative to traditional fuel sources, such as distillate fuel oil (including diesel fuel and other fuel oils) and propane, among others, to provide both environmental and economic benefits. 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.
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”). BOMAY is accounted for under the equity method.
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, 2023 included in the Company's Annual Report on Form 10-K, as filed on March 7, 2024.
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.
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.
Reclassifications
The Company reclassified $4.2 million from accrued expenses to accounts payable at December 31, 2023, to conform to current presentation resulting in no effect to results of operations or cash flows.
Derivative Instruments
The Company had certain natural gas derivative instruments as of September 30, 2024 and December 31, 2023. At September 30, 2024 and December 31, 2023, the fair value of the Company's derivatives was $0.2 million and $0, respectively. The accounting for changes in the fair value of a derivative instrument depends on whether it qualifies for and has been designated as a hedge as well as the type of hedge. The Company has not designated its derivatives as hedges under U.S. GAAP. The Company did not enter into any derivative transactions for speculative purposes. Periodically, the Company enters into forward sales contracts for the delivery of LNG to its customers. Certain of these sales contracts contain provisions that may meet the criteria of a derivative in the event delivery is not made. These contracts are accounted for under the normal purchase normal sales exclusion under U.S. GAAP and are not measured at fair value each reporting period. See Note 3 for a further discussion of our derivatives.
We recognize revenues when the transfer of promised goods or services are delivered to our customers in accordance with the applicable customer contract and we are entitled to be paid by the customer. Revenues are measured as consideration specified in the contract and exclude any sales incentives and amounts collected on behalf of third parties. Certain contracts may include multiple goods or services such as the usage of equipment and delivery of field support services that are bundled into an all-in price to the customer for each gallon of LNG delivered. Revenue recognition under these contracts requires significant judgment by the Company in order to determine the appropriate accounting for these transactions, including whether performance obligations should be accounted for separately versus together, how the price should be allocated among the performance obligations, and when to recognize revenue for each performance obligation. The Company has determined that these contracts have multiple performance obligations and the Company allocates the contract price to each performance obligation using its best estimates of the respective standalone selling price of each distinct good or service at the time the contract was negotiated.
Revenues from contracts with customers are disaggregated into (1) LNG Product (2) rental (3) service and (4) other.
LNG Product revenues
LNG Product revenues represent the sale of LNG from both produced and purchased sources as well as the transportation performed to deliver the LNG to our customers' locations. LNG Product revenues are recognized upon delivery of the LNG to the customer, at which point the customer controls the product and the Company has an unconditional right to payment. The Company acts as a principal when usingthird party transportation companies and therefore recognizes the gross revenue for the supply of LNG. The Company does not differentiate between the revenue from the sale of LNG production and purchased LNG as the criteria for revenue recognition are identical. Some of our contracts contain minimum take-or-pay amounts where a customer has agreed to source a minimum volume of LNG under the contract. Take or pay revenues are only recognized when the customer has failed to take the minimum contracted volumes upon completion of the time period specified within the contract and the Company has the unconditional right to receive payment for the take or pay amount. Certain of our sales contracts contain provisions that may meet the criteria of a derivative in the event delivery is not made. These contracts are accounted for under the normal purchase normal sales exclusion under U.S. GAAP and are not measured at fair value each reporting period. Our LNG contracts are generally one to 24 months in duration.
Rental revenues
Rental revenues are generated from the rental of cryogenic equipment to our customers. Revenues related to rental of equipment are recognized under Topic 606 and not ASC 842: Leases, as the Company maintains control of the equipment that the customer uses and can replace the rented equipment with similar equipment should the rented equipment become inoperable or the Company chooses to replace the equipment for maintenance purposes. Rental revenues based upon day rates or monthly rates for the use of equipment as specifically established within the contract are recognized as the rental period is completed and for periods that cross month end, revenue is recognized for the portion of the rental period that has been completed to date. Performance obligations for rental revenue are considered to be satisfied as the rental period is completed based upon the terms of the related contract. Rental revenues from contracts with bundled pricing are based upon the fair value of the pricing components at the time the contract was negotiated and are recognized when the performance obligation has been satisfied in accordance with the contract. The stated rental rates within each contract are representative of the stand-alone rental rates at the time the contract was negotiated.
Service revenues
Service revenues are generated from engineering and field support services and represent the human resources provided to the customer to support the use of LNG at the customer’s job site. These include support and costs for mobilization and demobilization of equipment at customer sites as well as onsite technical support while customers are consuming LNG. Service revenues that are not dependent upon the gallons delivered or rental period but based upon the specific contractual terms and can be based on an event (i.e. mobilization or demobilization) or an hourly rate as specifically established within the contract and are recognized as the event is completed or work is done. Service revenues from contracts with bundled pricing are based upon the fair value of the pricing components at the time the contract was negotiated and are recognized when the performance obligation has been satisfied in accordance with the contract. The stated hourly labor rates in each contract are representative of the stand-alone hourly rates at the time the contract was negotiated.
Other revenues
Other revenuesare items that, due to their nature, are disaggregated from the categories mentioned above such as expenses incurred by the Company on behalf of the customer that we contractually rebill to our customers on a cost-plus basis.
Disaggregated revenues
The table below presents revenue disaggregated by source, for the three and nine months ended September 30, 2024 and 2023 (in thousands):
The table below presents revenue disaggregated by geographic location, for the three and nine months ended September 30, 2024 and 2023 (in thousands):
Three Months Ended
Nine Months Ended
September 30,
September 30,
Revenues:
2024
2023
2024
2023
United States
$
16,602
$
13,758
$
52,482
$
48,943
Mexico
1,025
1,558
3,513
6,122
Total revenues
$
17,627
$
15,316
$
55,995
$
55,065
Variable and other Revenue Components
Certain of our contracts may include rental or service components at stated rates within the contract that vary depending on customer demand and are satisfied as the work is authorized by the customer and performed by the Company. Additionally, LNG product sales agreements may include both fixed and variable fees per gallon of LNG but are representative of the stand-alone selling price for LNG at the time the contract was negotiated. We have concluded that the variable LNG fees meet the exception for allocating variable consideration to specific parts of the contract. As such, the variable consideration for these contracts is allocated to each distinct gallon of LNG and recognized when that distinct gallon of LNG is delivered to the customer.
Taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between the Company and its customers, such as sales, use and value-added taxes, are excluded from revenue.
During the fourth quarter of 2023, the Company entered into a two-year marine bunkering contract with a new customer which represents approximately 31% and 34% of the Company's revenue for the three and the nine months ended September 30, 2024, respectively.
3. DERIVATIVE INSTRUMENTS
As of September 30, 2024 and December 31, 2023, 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 0.5 million MMBtu (million British thermal units) and 0.3 million MMBtu of natural gas at September 30, 2024 and December 31, 2023, respectively. The Company purchased the Call Options to manage the risk of increasing natural gas prices above what it can charge its customers. The Company may also enter into other derivative transactions when beneficial. 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, 2024 and December 31, 2023 (in thousands):
September 30,
December 31,
Location on Condensed Consolidated Balance Sheet
2024
2023
Prepaid expenses and other current assets (1),(2)
$
236
$
—
Right-of-use assets and other noncurrent assets (1),(2)
—
—
$
236
$
—
(1)
Amounts are presented on a gross basis.
(2)
The classification between current and noncurrent assets is based upon when the Call Options mature.
The Company has not designated the Call Options as a hedge under U.S. GAAP and all resulting gains and losses from changes in the fair value of its derivative instruments are included within change in unrealized loss or gain on natural gas derivatives within the Company's Condensed Consolidated Statements of Operations. The table below presents the changes in the fair value as well as the net realized gains and losses for all of its derivatives from the Call Options for the three and nine months ended September 30, 2024 and 2023 (in thousands):
Three Months Ended
Nine Months Ended
September 30,
September 30,
Changes in fair value of derivatives
2024
2023
2024
2023
Fair value of natural gas derivatives, beginning of period
$
329
$
81
$
—
$
572
Purchases of natural gas derivatives
—
—
359
—
Unrealized losses transferred to realized losses, net
(80
)
(316
)
(444
)
(862
)
Change in unrealized gain (loss) on natural gas derivatives (1)
(13
)
267
321
322
Fair value of natural gas derivatives, end of period
$
236
$
32
$
236
$
32
Three Months Ended
Nine Months Ended
September 30,
September 30,
Realized gain (loss) from derivative instruments
2024
2023
2024
2023
Unrealized gains (losses) transferred to realized gains (losses), net
$
(80
)
$
(316
)
$
(444
)
$
(862
)
Derivative settlement payments received (2)
—
—
—
—
Realized gain (loss) from natural gas derivatives, net (2)
$
(80
)
$
(316
)
$
(444
)
$
(862
)
(1)
Amounts are presented as their own separate line item within the Company's Condensed Consolidated Statements of Operations.
(2)
Amounts are included within cost of revenues on the Company's Condensed Consolidated Statements of Operations.
The Company also enters into forward contracts for purchases of natural gas and/or electricity to meet liquefaction requirements and forward sales contracts for the delivery of LNG to its customers. These contracts are not accounted for as derivatives, but accounted for under the normal purchase normal sales exclusion under U.S. GAAP which are not measured at fair value each reporting period.
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
The Company’s prepaid expenses and other current assets at September 30, 2024 and December 31, 2023 consisted of the following (in thousands):
September 30,
December 31,
2024
2023
Prepaid insurance
$
1,196
$
1,012
Prepaid supplier expenses
194
132
Other receivables
185
159
Natural gas derivatives at fair value, current
236
—
Deposits
129
237
Other
132
137
Total prepaid expenses and other current assets
$
2,072
$
1,677
5. PROPERTY, PLANT AND EQUIPMENT
The Company’s property, plant and equipment at September 30, 2024 and December 31, 2023 consisted of the following (in thousands):
September 30,
December 31,
2024
2023
Liquefaction plants and systems
$
55,932
$
48,523
Real property and buildings
2,066
2,066
Vehicles and tanker trailers and equipment
49,504
49,689
Computer and office equipment
545
458
Construction in progress
8,058
9,879
Leasehold improvements
32
31
116,137
110,646
Less: accumulated depreciation
(63,727
)
(61,167
)
$
52,410
$
49,479
Depreciation expense totaled $1.8 million and $2.0 million for the three months ended September 30, 2024 and September 30, 2023, respectively. Depreciation expense totaled $5.3 million and $6.0 million for the nine months ended September 30, 2024 and 2023, respectively, all of which is included in the Condensed Consolidated Statements of Operations as a separate line item.
The Company holds a 40% interest in BOMAY, which builds electrical systems. The majority partner in this foreign joint venture is Baoji Oilfield Machinery Co., Ltd. (a subsidiary of China National Petroleum Corporation), which owns 51%. The remaining 9% is owned by AA Energies, Inc. The Company made no sales to its joint venture during the three and nine months ended September 30, 2024 and 2023.
The tables below present a summary of BOMAY's assets, liabilities and equity at September 30, 2024 and December 31, 2023, and its operational results for the three and nine months ended September 30, 2024 and 2023 in U.S. dollars (in thousands):
September 30,
December 31,
2024
2023
Assets:
Total current assets
$
125,397
$
135,217
Total non-current assets
2,839
3,003
Total assets
$
128,236
$
138,220
Liabilities and equity:
Total liabilities
$
96,174
$
104,760
Total joint ventures’ equity
32,062
33,460
Total liabilities and equity
$
128,236
$
138,220
Three Months Ended
Nine Months Ended
September 30,
September 30,
2024
2023
2024
2023
Revenue
$
34,330
$
18,565
$
73,631
$
70,148
Gross profit
$
4,056
$
2,754
$
9,122
$
8,640
Net income
$
1,355
$
749
$
2,662
$
3,422
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, 2024 in U.S. dollars (in thousands):
Initial Investment at Merger (1), (2)
Undistributed Earnings
Cumulative Foreign Exchange Translation Adj
Investment in BOMAY
Balance at December 31, 2023
$
9,333
$
2,967
$
(291
)
$
12,009
Equity in earnings
—
1,162
—
1,162
Less: dividend distributions
—
(1,716
)
—
(1,716
)
Foreign currency translation gain (loss)
—
—
102
102
Balance at September 30, 2024
$
9,333
$
2,413
$
(189
)
$
11,557
(1)
Accumulated statutory reserves in equity method investments of $2.7million at September 30, 2024 and December 31, 2023 is included in our investment in BOMAY. In accordance with the People’s Republic of China, (“PRC”) regulations on enterprises with foreign ownership, an enterprise established in the PRC with foreign ownership is required to provide for certain statutory reserves, namely (i)General Reserve Fund, (ii)Enterprise Expansion Fund and (iii)Staff Welfare and Bonus Fund, which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A non-wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.
(2)
The Company’s initial investment in BOMAY differed from the Company’s 40% share of BOMAY’s equity as a result of applying fair value accounting pursuant to ASC 805. The basis difference is being accreted over an original period of nine years (the expected life of the joint venture). The Company's accretion during the nine months ended September 30, 2024 and 2023 both totaled approximately $97 thousand each, respectively, and is included in income from equity investment in foreign joint venture in the accompanying Condensed Consolidated Statements of Operations. The remaining basis difference, net of accumulated accretion at September 30, 2024 and December 31, 2023 is summarized in the following table (in thousands):
September 30,
December 31,
2024
2023
Original basis difference
$
1,165
$
1,165
Less accumulated accretion
(670
)
(573
)
Net remaining basis difference at end of period
$
495
$
592
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, 2024.
The Company’s accrued liabilities at September 30, 2024 and December 31, 2023 consisted of the following (in thousands):
September 30,
December 31,
2024
2023
Compensation and benefits
$
2,626
$
3,276
Other taxes payable
316
354
Other accrued liabilities
974
536
Total accrued liabilities
$
3,916
$
4,166
Accrued liabilities of $4.2 million at December 31, 2023 were reclassified from accrued liabilities to accounts payable, to conform to current presentation.
8. DEBT
The Company’s carrying value of debt, net of debt issuance costs at September 30, 2024 and December 31, 2023 consisted of the following (in thousands):
September 30,
December 31,
2024
2023
Secured term note, net of debt issuance costs
$
8,219
$
8,604
Insurance and other notes payable
1,042
825
Total
9,261
9,429
Less: amounts due within one year
(2,150
)
(1,682
)
Total long-term debt
$
7,111
$
7,747
Total interest expense was $0.2 million and $0.4 million during the nine months ended September 30, 2024 and 2023, respectively. During the nine months ended September 30, 2024 and 2023, the Company capitalized interest of $0.3 million and $0.1 million, respectively.
Revolving Credit Facility
On June 9, 2023, the Company, along with its subsidiaries, Stabilis LNG Eagle Ford LLC, Stabilis GDS, Inc. and Stabilis LNG Port Allen, LLC (collectively, the “Borrowers”) entered into a three-year loan agreement (the “Revolving Credit Facility”) with Cadence Bank. The Revolving Credit Facility provides for a maximum aggregate amount of $10.0 million, subject to a borrowing base of 80% of eligible accounts receivable. The Company may request an increase in the maximum aggregate amount under the Revolving Credit Facility by up to $5.0 million, subject to the approval of Cadence Bank. All borrowings under the Revolving Credit Facility are secured by the Company’s accounts receivable and deposit accounts. Borrowings under the Revolving Credit Facility incur interest at the Prime Rate published by the Wall Street Journal. Any unused portion is subject to a quarterly unused commitment fee of 0.5% per annum. As of September 30, 2024, no amounts have been drawn under the Revolving Credit Facility. The Revolving Credit Facility matures on June 9, 2026.
The Revolving Credit Facility contains various restrictions and covenants. Among other requirements, the Borrowers must maintain a consolidated net worth of at least $50.1 million as of September 30, 2024, such minimum amount increasing on December 31 of each fiscal year thereafter by 50% of the Borrowers’ positive net income for that fiscal year, and must maintain a minimum Fixed Charge Coverage Ratio of 1.2 to 1.0 on a consolidated basis, as defined in the Revolving Credit Facility, as of the last day of each fiscal quarter, on a trailing twelve (12) months basis. The Revolving Credit Facility also contains customary events of default. If an event of default under the Revolving Credit Facility occurs and is continuing, then Cadence Bank may declare any outstanding obligations under the Revolving Credit Facility to be immediately due and payable. In addition, if any of the Borrowers become the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency or similar law, then any outstanding obligations under the Loan Agreement will automatically become immediately due and payable. As of September 30, 2024, the Company was in compliance with all its covenants related to the Revolving Credit Facility.
Secured Term Note
On April 8, 2021, the Company entered into a loan agreement (the “Loan Agreement”) with AmeriState Bank (“Lender”), to provide for an advancing loan facility in the aggregate principal amount of up to $10.0 million (the “AmeriState Loan”). The Loan Agreement is secured by specific equipment owned by the Company. On September 19, 2023, the Loan Agreement was amended (the "First Amendment"), for the purpose of substituting certain items of collateral under the Loan Agreement. The AmeriState Loan is 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. As of September 30, 2024, $8.6 million remained outstanding with $1.0 million in remaining availability for future draws.
The Loan Agreement requires the Company to meet certain financial covenants which include a debt-to-net-worth ratio of not more than 9.1 to 1.0 and a debt service coverage ratio of not less than 1.2 to 1.0 on an annual basis beginning December 31, 2023. The Company was in compliance with all of its debt covenants as of September 30, 2024. 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.
The Company finances its annual commercial insurance premiums for its business and operations. For the 2024-2025 policies, the amount financed was $1.0 million. The outstanding principal balance on the premium finance note was $1.0 million at September 30, 2024. The Company makes equal monthly payments of principal and interest over the term of the note. The interest rate for the insurance financing is 7.95%. At December 31, 2023, the note's outstanding principal balance was $0.8 million.
9. RELATED PARTY TRANSACTIONS
Casey Crenshaw (our Chairman of the Board) is the beneficial owner of 50% of The Modern Group and is deemed to jointly control The Modern Group with family members. The Company purchases supplies and services from subsidiaries of The Modern Group. In addition, the Company leases office space from The Modern Group. The Company had total purchases and lease payments of $0.2 million and $0.4 million for the nine months ended September 30, 2024 and 2023, respectively. The Company had total purchases and lease payments of $0.1 million and $0.2 million for the three months ended September 30, 2024 and 2023, respectively. The Company had no sales to The Modern Group during the nine months ended September 30, 2024 and 2023. As of September 30, 2024 and December 31, 2023, the Company had no accounts receivable due from The Modern Group and accounts payable due to the Modern Group were immaterial.
Chart Energy and Chemicals, Inc. ("Chart E&C") beneficially owns 7.9% of our outstanding common stock at September 30, 2024. The Company made purchases from Chart E&C of $0.4 million and $22 thousand for the nine months ended September 30, 2024 and 2023, respectively. The Company made purchases from Chart E&C of $5 thousand and $11 thousand for the three months ended September 30, 2024 and 2023, respectively. The Company had no sales to Chart E&C during the nine months ended September 30, 2024 and 2023 and no accounts receivable due from Chart E&C at September 30, 2024 and December 31, 2023. The Company had an immaterial amount of accounts payable due to Chart E&C at September 30, 2024 and at December 31, 2023.
10. COMMITMENTS AND CONTINGENCIES
Environmental Matters
The Company is subject to federal, state and local environmental laws and regulations. The Company does not anticipate any expenditures to comply with such laws and regulations that would have a material impact on the Company’s condensed consolidated financial position, results of operations or liquidity. The Company believes that its operations comply, in all material respects, with applicable federal, state and local environmental laws and regulations.
Litigation, Claims and Contingencies
The Company may become party to various legal actions that arise in the ordinary course of its business. The Company is also subject to audit by tax and other authorities for varying periods in various federal, state and local jurisdictions, and disputes may arise during the course of these audits. It is impossible to determine the ultimate liabilities that the Company may incur resulting from any of these lawsuits, claims, proceedings, audits, commitments, contingencies and related matters or the timing of these liabilities, if any. If these matters were to ultimately be resolved unfavorably, it is possible that such an outcome could have a material adverse effect upon the Company’s condensed consolidated financial position, results of operations, or liquidity. The Company does not, however, anticipate such an outcome and it believes the ultimate resolution of these matters will not have a material adverse effect on the Company’s condensed consolidated financial position, results of operations, or liquidity.
11. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
Stock-based Compensation
The Company includes stock compensation expense within general and administrative expenses in the Condensed Consolidated Statements of Operations. During the three months ended September 30, 2024 and September 30, 2023, the Company recognized $0.3 million and $0.5 million of stock compensation expense, respectively. During the nine months ended September 30, 2024 and 2023, the Company recognized $1.1 million and $1.7 million of stock compensation expense, respectively.
Issuance of Stock-based Awards
The Company has a long-term incentive plan (the “Amended and Restated Plan”) which provides for a maximum number of shares of common stock available for issuance of 5,500,000 shares. The plan was amended in 2023 to increase the maximum number of shares from 4,000,000 to 5,500,000, as approved by shareholders. 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.
The Company made no stock-based awards during the nine months ended September 30, 2024.
Issuances of Common Stock
During the nine months ended September 30, 2024, and 2023, shares of common stock were issued upon vesting of restricted stock units, net of withholding shares for tax payments, totaling 11,623 shares and 153,324 shares, respectively. There were no stock options or stock appreciation rights exercised during the nine months ended September 30, 2024 or 2023.
The calculation of net income per common share for the three and nine months ended September 30, 2024 and 2023 are presented below. Dilutive securities consist of unvested restricted stock units ("RSUs") deemed outstanding using the treasury method. RSUs excluded from dilutive securities under the treasury method were 5,059 shares at September 30, 2024. In addition, stock options of 2,074,505 and stock appreciation rights of 658,437 were excluded from diluted securities, as the exercise price exceeds the market price and inclusion would have had an anti-dilutive effect at September 30, 2024.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2024
2023
2024
2023
Weighted average shares:
Basic weighted average number of common shares outstanding
18,585,014
18,518,915
18,582,970
18,470,423
Dilutive securities (1)
8,530
—
8,530
—
Total shares including dilutive securities
18,593,544
18,518,915
18,591,500
18,470,423
Net income (loss)
$
997
$
(207
)
$
2,493
$
(1,297
)
Net income (loss) per common share:
Basic net income (loss) per common share
$
0.05
$
(0.01
)
$
0.13
$
(0.07
)
Diluted net income (loss) per common share
$
0.05
$
(0.01
)
$
0.13
$
(0.07
)
(1)
The Company had no dilutive securities for the three and nine months ended September 30, 2023 since the Company incurred net losses for these periods and inclusion would be anti-dilutive.
13. SUPPLEMENTAL CASH FLOW INFORMATION
The Company's supplemental disclosure of cash flow information for the nine months ended September 30, 2024 and 2023 is as follows (in thousands):
Nine Months Ended
September 30,
Supplemental Disclosure of Cash Flow Information:
2024
2023
Interest paid
$
446
$
489
Income taxes paid
250
207
Significant non-cash investing and financing activities:
Acquisition of fixed assets included within accounts payable and accrued expenses
$
4,743
$
150
Equipment acquired through finance lease
350
—
ROU assets from leases
167
—
Receivable of insurance proceeds from disposition of assets
ITEM2. 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 2023 Annual Report on Form 10-K filed on March 7, 2024 with the U.S. Securities and Exchange Commission (the “SEC”). Historical results and percentage relationships set forth in the Condensed Consolidated Statements of Operations and Cash Flows, including trends that might appear, are not necessarily indicative of future operations or cash flows.
Overview
Stabilis Solutions, Inc. and its subsidiaries is an energy transition company that provides turnkey clean energy production, storage, transportation and fueling solutions, primarily using liquefied natural gas (“LNG”), to multiple end markets. We provide LNG solutions to customers in diverse end markets, including aerospace, agriculture, energy, industrial, marine bunkering, mining, pipeline, remote power and utility markets. LNG can be used to deliver natural gas to locations where pipeline service is unavailable, has been interrupted, or needs to be supplemented. LNG can also be used to replace a variety of alternative fuels, including distillate fuel oil and propane, among others, to provide environmental and economic benefits. Increasingly, LNG is being utilized as a transportation fuel in the marine industry and as a propellant in the private rocket launch sector. We believe that these fuel markets are large and provide significant opportunities for LNG usage.
The Company generates revenue by selling and delivering LNG to our customers, renting cryogenic equipment and providing engineering and field support services. We sell our products and services separately or as a bundle depending on the customer’s needs. Pricing depends on market pricing for natural gas and competing fuel sources (such as diesel, fuel oil, and propane among others), as well as the customer’s purchased volume, contract duration and credit profile.
LNG Production and Sales—Stabilis builds and operates cryogenic natural gas processing facilities, called “liquefiers,” which convert natural gas into LNG through a purification and multiple stage cooling process. We currently own and operate a liquefier that can produce up to 100,000 LNG gallons per day in George West, Texas and a liquefier that can produce up to 30,000 LNG gallons per day in Port Allen, Louisiana. We also purchase LNG from third-party production sources which allows us to support customers in markets where we do not own liquefiers. We make the determination of LNG and transportation supply sources based on the cost of LNG, the transportation cost to deliver to regional customer locations, and the reliability of the supply source. Revenues earned from the production and sales of LNG are included within LNG Product revenue.
Transportation and Logistics Services—Stabilis offers our customers a “virtual natural gas pipeline” by providing turnkey LNG transportation and logistics services in North America. We deliver LNG to our customers’ work sites from both our own production facilities and our network of third-party production sources located throughout North America. We own a fleet of cryogenic trailers to transport and deliver LNG. We also outsource similar equipment and transportation services from qualified third-party providers as required to support our customer base. Revenues earned from the transportation and logistical services of LNG to our customers are included within LNG Product revenue.
Cryogenic Equipment Rental—Stabilis operates a fleet of mobile LNG storage and vaporization assets, including: transportation trailers, electric and gas-fired vaporizers, ambient vaporizers, storage tanks, and mobile vehicle fuelers. We also own several stationary storage and regasification assets. We believe this is one of the largest fleets of small-scale LNG equipment in North America. Our fleet consists primarily of trailer-mounted mobile assets, making delivery to and between customer locations more efficient. We deploy these assets on job sites to provide our customers with the equipment required to transport, store, and consume LNG in their operations. Revenues earned from cryogenic equipment rental are included within Rental revenue.
Engineering and Field Support Services—Stabilis has experience in the safe, cost effective, and reliable use of LNG in multiple customer applications. We have also developed many processes and procedures that we believe improve our customers’ use of LNG in their operations. Our engineers help our customers design and integrate LNG into their operations and our field service technicians help our customers mobilize, commission and reliably operate on the job site. Revenues earned from engineering and field support services are included within Service revenue.
U.S. Department of Energy ("DOE") Approval to Export LNG
In the third quarter of 2022, Stabilis received authorization from the DOE to export domestically produced LNG to all free trade ("FTA") and non-free trade ("non-FTA") countries, for up to 51.75 billion cubic feet per year (or approximately 1.0 MTPA) of natural gas equivalent. The authorization is for shipments of LNG and is for a term of 28 years. As of September 30, 2024, the Company has met the initial time requirement to initiate exports to non-FTA countries. For exports to FTA countries, the Company has five years from the date it received the authorization with which to initiate exportation of LNG.
The DOE authorization received during the third quarter of 2022 supplements the Company's other existing export license from the DOE, which authorizes the Company to import and export LNG from and to Canada and Mexico, via truck. In the nine months ended September 30, 2024, we delivered LNG to Mexico and Belgium.
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.
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
The comparative tables below reflect our consolidated operating results for the three months ended September 30, 2024 (the “Current Quarter”) as compared to the three months ended September 30, 2023 (the “Prior Year Quarter”) (unaudited, amounts in thousands, except for percentages).
Three Months Ended
September 30,
2024
2023
$ Change
% Change
Revenues:
LNG Product
$
14,256
$
12,122
$
2,134
17.6
%
Increase / (decrease) in gallons delivered
2,591
n/a
Rental
1,614
1,330
284
21.4
Service
1,681
1,579
102
6.5
Other
76
285
(209
)
(73.3
)
Total revenues
17,627
15,316
2,311
15.1
Operating expenses:
Cost of revenues
12,638
12,056
582
4.8
Change in unrealized (gain) loss on natural gas derivatives
13
(267
)
280
n/a
Selling, general and administrative expenses
3,035
3,002
33
1.1
Gain from disposal of fixed assets
(102
)
(1,002
)
900
(89.8
)
Depreciation expense
1,776
2,003
(227
)
(11.3
)
Total operating expenses
17,360
15,792
1,568
9.9
Income (loss) from operations before equity income
267
(476
)
743
n/a
Net equity income from foreign joint venture operations
516
284
232
81.7
Income (loss) from operations
783
(192
)
975
n/a
Other income (expense):
Interest income (expense), net
81
60
21
35.0
Interest (expense), net - related parties
—
(15
)
15
n/a
Other income (expense), net
10
(3
)
13
n/a
Total other income (expense)
91
42
49
116.7
Net income (loss) before income tax (benefit) expense
874
(150
)
1,024
n/a
Income tax expense
(123
)
57
(180
)
(315.8
)
Net income (loss)
$
997
$
(207
)
$
1,204
n/a
Revenue
During the Current Quarter, revenues increased $2.3 million, or 15%, compared to the Prior Year Quarter. The change in revenue primarily related to:
●
Increased gallons of LNG delivered in the Current Quarter compared to the Prior Year Quarter resulting in an increase in revenues of $2.5 million;
●
Increased customer pricing mix in the Current Quarter compared to the Prior Year Quarter, resulting in increased revenues of $0.8 million; and
●
Increased rental, service and other revenues in the Current Quarter compared to the Prior Year Quarter, resulting in increased revenues of $0.2 million;
●
These increases were partially offset by decreased revenues of $0.8 million related to lower natural gas prices and $0.4 million in decreased take-or-pay contracts in the Current Quarter compared to the Prior Year Quarter.
Operating Expenses
Cost of revenues. Cost of revenues increased $0.6 million, or 5%, compared to the Prior Year Quarter. As a percentage of revenue, these costs were 72% and 79% in the Current Quarter and the Prior Year Quarter, respectively. The change in cost of revenues was primarily attributable to:
●
Increased gallons of LNG delivered in the Current Quarter compared to the Prior Year Quarter resulting in an increase in cost of revenues of $2.0 million; and
●
Increased rental, service and other costs in the Current Quarter compared to the Prior Year Quarter resulting in an increase in cost of revenues of $0.1 million;
●
These increases were partially offset by lower natural gas, liquefaction and transportation costs in the Current Quarter compared to the Prior Year Quarter resulting in decreased cost of revenue of $1.5 million.
Change in unrealized gain/loss on natural gas derivatives. The Company recognized a loss of $13 thousand from the change in unrealized (gain) loss on natural gas derivatives in the Current Quarter compared to a gain of $0.3 million in the Prior Year Quarter. The loss was due to low natural gas prices.
Selling, general and administrative expenses. Selling, general and administrative expense increased $33 thousand in the Current Quarter compared to the Prior Year Quarter primarily due to increased compensation costs related to hiring, partially offset by decreased professional services costs.
Depreciation. Depreciation expense decreased $0.2 million during the Current Quarter as compared to the Prior Year Quarter due to assets reaching the end of their depreciable lives.
Gain on disposal of assets. The Company recorded a gain on disposal of assets of $0.1 million in the Current Quarter related to the sale of certain fixed assets during the Current Quarter in which proceeds of $0.1 million were received. In the Prior Year Quarter, a gain on the disposal of assets was recorded related to insurance proceeds received for assets damaged in a fire.
Net equity income from foreign joint venture operations. Equity income from the Company's foreign joint venture increased by $0.2 million in Current Quarter compared to the Prior Year Quarter due to increased net profits by the joint venture.
Interest (expense) income. Interest income, net was $0.1 million for both the Current Quarter and the Prior Year Quarter, related to interest income earned on the Company's cash balances during the both periods.
Interest expense, net - related parties. There was no related party interest expense in the Current Quarter, as the related party debt financing was paid in full at the end of fiscal year 2023, as compared to related party interest expense of $15 thousand in the Prior Year Quarter.
Other income (expense). Other income was $10 thousand during the Current Quarter compared to other expense of $3 thousand in the Prior Year Quarter related to transactional foreign exchange gains (losses).
Income tax expense. The Company incurred state and foreign income tax benefit of $0.1 million during the Current Quarter compared to income tax expense of $0.1 million during the Prior Year Quarter due to revisions to estimated state taxes in the Current Quarter. No U.S. federal income taxes were recorded for the Current Quarter or Prior Year Quarter as any net U.S. deferred tax assets generated from operating losses or used from operating income were offset by a change in the Company's valuation allowance on net deferred tax assets.
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
The comparative tables below reflect our consolidated operating results for the nine months ended September 30, 2024 (the “Current Year”) as compared to the nine months ended September 30, 2023 (the “Prior Year”) (unaudited, amounts in thousands, except for percentages).
Nine Months Ended
September 30,
2024
2023
$ Change
% Change
Revenues:
LNG Product
$
44,295
$
44,595
$
(300
)
(0.7
)%
Increase / (decrease) in gallons delivered
8,562
n/a
Rental
5,469
4,640
829
17.9
Service
5,298
4,745
553
11.7
Other
933
1,085
(152
)
(14.0
)
Total revenues
55,995
55,065
930
1.7
Operating expenses:
Cost of revenues
39,702
42,911
(3,209
)
(7.5
)
Change in unrealized (gain) loss on natural gas derivatives
(321
)
(322
)
1
(0.3
)
Selling, general and administrative expenses
9,822
9,424
398
4.2
Gain from disposal of fixed assets
(301
)
(1,002
)
701
(70.0
)
Depreciation expense
5,344
6,006
(662
)
(11.0
)
Total operating expenses
54,246
57,017
(2,771
)
(4.9
)
Income (loss) from operations before equity income
1,749
(1,952
)
3,701
n/a
Net equity income from foreign joint venture operations
1,008
1,314
(306
)
(23.3
)
Income (loss) from operations
2,757
(638
)
3,395
n/a
Other income (expense):
Interest income (expense), net
105
(237
)
342
n/a
Interest (expense), net - related parties
—
(71
)
71
(100.0
)
Other income (expense), net
15
(127
)
142
n/a
Total other income (expense)
120
(435
)
555
n/a
Net income (loss) before income tax (benefit) expense
2,877
(1,073
)
3,950
n/a
Income tax (benefit) expense
384
224
160
71.4
Net income (loss)
$
2,493
$
(1,297
)
$
3,790
n/a
Revenue
During the Current Year, revenues increased $0.9 million, or 2%, compared to the Prior Year. The change in revenue primarily related to:
●
Increased gallons of LNG delivered in the Current Year compared to the Prior Year resulting in an increase in revenues of $9.3 million;
●
Increased pricing related to customer mix in the Current Year compared to the Prior Year resulting in an increase in revenues of $2.3 million; and
●
Increased rental, service and other revenues in the Current Year compared to the Prior Year, resulting in an increase in revenues of $1.2 million;
●
These increases were partially offset by lower natural gas prices in the Current Year compared to the Prior Year resulting in decreased revenue of $7.3 million and decreased revenues from minimum purchase take-or-pay contracts in the Current Year compared to the Prior Year of $4.6 million.
Operating Expenses
Cost of revenues. Cost of revenues during the Current Year decreased $3.2 million, or 8%, compared to the Prior Year. As a percentage of revenue, these costs were 71% and 78% in the Current Year and the Prior Year, respectively. The change in cost of revenues was primarily attributable to:
●
Lower natural gas prices in the Current Year compared to the Prior Year resulting in decreased costs of revenues of $8.3 million;
●
Decreased rental, service and other costs in the Current Year compared to the Prior Year, resulting in decreased costs of $0.8 million;
●
Decreased costs from minimum purchase take-or-pay contracts during the Current Year compared to the Prior Year of $1.4 million; and
●
These decreases were partially offset by increased gallons of LNG delivered in the Current Year compared to the Prior Year resulting in higher costs of $7.3 million.
Change in unrealized gain/loss on natural gas derivatives. The Company recognized a gain of $0.3 million in the change in unrealized (gain) loss on natural gas derivatives for both the Current Year and the Prior Year. The gains in both periods were due to offsetting amortization of realized losses as call option volumes expired.
Selling, general and administrative expenses. Selling, general and administrative expense increased $0.4 million in the Current Year compared to the Prior Year primarily due to increased compensation costs partially offset by decreased professional services costs.
Depreciation. Depreciation expense decreased $0.7 million during the Current Year as compared to the Prior Year due to assets reaching the end of their depreciable lives.
Gain on disposal of assets. The Company recorded a gain on disposal of assets of $0.3 million in the Current Year related to the sale of certain assets in which proceeds of $0.3 million were received. In the Prior Year, a gain on the disposal of assets was recorded related to insurance proceeds received for assets damaged in a fire.
Net equity income from foreign joint venture operations. Equity income from the Company's foreign joint venture decreased by $0.3 million in Current Year compared to the Prior Year due to decreased net profits by the joint venture.
Interest (expense) income. Interest income, net was $0.1 million for the Current Year compared to interest expense of $0.2 million in the Prior Year. The decrease in interest expense, net compared to the Prior Year is due to capitalized interest on capital projects and interest income earned on the Company's cash balances during the Current Year.
Interest expense, net - related parties. There was no related party interest expense in the Current Year, as the related party debt financing was paid in full at the end of fiscal year 2023, as compared to related party interest expense of $0.1 million in the Prior Year.
Other income (expense). Other income was $15 thousand during the Current Year compared to expense of $0.1 million in the Prior Year related to transactional foreign exchange gains (losses).
Income tax expense. The Company incurred a state and foreign income tax expense of $0.4 million during the Current Year compared to $0.2 million during the Prior Year due to improved operating results. No U.S. federal income taxes were recorded for the Current Year or Prior Year as any net U.S. deferred tax assets generated from operating losses or used from operating income were offset by a change in the Company's valuation allowance on net deferred tax assets.
Liquidity and Capital Resources
Historically, our principal sources of liquidity have consisted of cash provided by our operations, cash on hand, proceeds received from borrowings under debt agreements and distributions received from our BOMAY joint venture. During the Current Year, our principal sources of liquidity were cash provided from our operations, our existing cash balances and distributions received from our BOMAY joint venture. The Company used cash flows generated from operations to invest in fixed assets to support growth, as well as to pay interest and principal outstanding under its debt agreements.
The Company has a three-year Revolving Credit Facility with Cadence Bank which provides for a maximum aggregate amount of $10.0 million, subject to a borrowing base of 80% of eligible accounts receivable. The Company may request an increase in the maximum aggregate amount under the Revolving Credit Facility by up to $5.0 million, subject to the approval of Cadence Bank. All borrowings under the Revolving Credit Facility are secured by the Borrowers’ accounts receivable and deposit accounts. Borrowings under the Revolving Credit Facility incur interest at the Prime Rate published by the Wall Street Journal. Any unused portion is subject to a quarterly unused commitment fee of 0.5% per annum. As of September 30, 2024, no amounts have been drawn under the Revolving Credit Facility. The Revolving Credit Facility matures on June 9, 2026. The Revolving Credit Facility contains various restrictions and covenants. The Company also has $1.0 million in remaining availability under its Secured Term Note with Ameristate Bank. As of September 30, 2024, the Company was in compliance with all its covenants related to its debt.
As of September 30, 2024, we had $12.4 million in cash and cash equivalents on hand and $9.8 million in outstanding debt (net of debt issuance costs), and lease obligations (of which $2.4 million is due in the next twelve months). The Company has total availability under the Revolving Credit Facility and the Ameristate Secured Term Loan Facility of $3.2 million at September 30, 2024. During the nine months ended September 30, 2024, the Company made no draws on either the Revolving Credit Facility or the Ameristate Secured Term Loan Facility. 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 the Company's debt agreements to fund the business for the next twelve months. As we continue to grow, management continues to evaluate additional financing alternatives, however, there is no guarantee that additional debt or equity financing or other opportunities to raise capital will be available or available at terms that would be beneficial to shareholders.
Cash flows provided by (used in) our operating, investing and financing activities are summarized below (unaudited, in thousands):
Nine Months Ended September 30,
2024
2023
Net cash provided by (used in):
Operating activities
$
11,522
$
5,380
Investing activities
(3,180
)
(8,982
)
Financing activities
(1,289
)
(2,943
)
Effect of exchange rate changes on cash
(34
)
8
Net increase (decrease) in cash and cash equivalents
7,019
(6,537
)
Cash and cash equivalents, beginning of period
5,374
11,451
Cash and cash equivalents, end of period
$
12,393
$
4,914
Operating Activities
Net cash provided by operating activities totaled $11.5 million for the nine months ended September 30, 2024 compared to $5.4 million for the same period in 2023. The increase in net cash provided by operating activities of $6.1 million as compared to the Prior Year was primarily attributable to higher net income, changes in working capital and higher distributions received from the Company's equity investment in BOMAY.
Investing Activities
Net cash used in investing activities totaled $3.2 million for the nine months ended September 30, 2024 compared to $9.0 million for the nine months ended September 30, 2023. The decrease in net cash used in investing activities in the Current Year of $5.8 million was primarily due to cash paid to purchase additional liquefaction assets to support growth in the Prior Year and proceeds received from the sale of assets in the Current Year.
Financing Activities
Net cash used in financing activities totaled $1.3 million for the nine months ended September 30, 2024, compared to $2.9 million for the nine months ended September 30, 2023. The decrease in cash used in financing activities in the Current Year compared to the Prior Year is due to lower debt payments as a result of having fully repaid related party debt as of December 31, 2023.
Future Cash Requirements
We require cash to fund our operating expenses and working capital requirements, including costs associated with fuel sales, debt repayments, purchases of equipment and other capital expenditures, maintenance of LNG production facilities, mergers and acquisitions (if any), pursuing market expansion, supporting sales and marketing activities and other general corporate purposes. While we believe we have sufficient liquidity and capital resources to fund our operations and repay our debt, we may elect to pursue additional financing activities such as refinancing existing debt, obtaining new debt, or debt or equity offerings to provide flexibility with our cash management. Certain of these alternatives may require the consent of current lenders or stockholders, and there is no assurance that we will be able to execute any of these alternatives on acceptable terms or at all. Additionally, the Company may pursue expansion activities to increase liquefaction capabilities. In the event the Company pursues expansion, there is no assurance the Company will be able to secure additional liquidity.
Capital expenditures for the nine months ended September 30, 2024 were $3.6 million and primarily related to the purchase of additional liquefaction assets, refurbishments and upgrades to existing assets and rolling stock. Future capital expenditures over the next twelve months will be dependent upon business needs as well as the availability of additional capital at favorable terms which is difficult to predict. At September 30, 2024, the Company had purchase orders and payables open related to capital expenditures of approximately $6.0 million.
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. At September 30, 2024 we have made no issuances under the Shelf Registration.
Off-Balance Sheet Arrangements
As of September 30, 2024, we had no transactions that met the definition of off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial position, operating results, liquidity, cash requirements or capital resources.
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, 2024 from those disclosed within the Company's Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on March 7, 2024.
ITEM3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a “smaller reporting company,” the Company is not required to provide this information.
ITEM4.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, 2024.
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.
PART II. OTHER INFORMATION
ITEM1. 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.
ITEM1A. 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, 2023 filed with the SEC on March 7, 2024 (“Form 10-K”), which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. During the nine months ended September 30, 2024, there have been no material changes in our risk factors disclosed in our 2023 Form 10-K.
ITEM5. OTHER INFORMATION.
None of the Company's officers or directors adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company's fiscal quarter ended September 30, 2024, as such terms are defined under Item 408(a) of Regulation S-K.
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.
