STABILIS SOLUTIONS, INC. The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-Q and the consolidated financial statements included in the 2020 Annual Report on Form 10-K filed onMarch 16, 2021 . 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 is an energy transition company that provides turnkey clean energy production, storage, transportation and fueling solutions including providing natural gas and hydrogen to multiple end markets inNorth America . Our diverse customer base utilizes LNG and hydrogen solutions as a fuel source in a variety of applications in the aerospace, industrial, utilities and pipelines, mining, energy, remote clean power and high horsepower transportation markets. Our customers use LNG as a partner fuel for renewable energy and as an alternative to traditional fuel sources, such as diesel, fuel oil, and propane, to reduce harmful environmental emissions and to lower fuel costs. Our customers also use LNG as a "virtual pipeline" solution when natural gas pipelines are not available or are curtailed. Stabilis seeks to provide our customers with safe, reliable and cost effective LNG and hydrogen fueling solutions and power delivery equipment and services. We provide multiple products and services to our customers, including: LNG Production, LNG and Hydrogen Sales-Stabilis builds and operates cryogenic natural gas processing facilities, called "liquefiers", which convert natural gas into LNG through a multiple stage cooling process. We currently own and operate a liquefier that can produce up to 100,000 LNG gallons (379 cubic meters) per day. InJune 2021 the Company purchased another LNG production facility that can produce 30,000 LNG gallons (114 cubic meters) per day. We also purchase LNG from third-party production sources which allows us to support customers in markets where we do not own liquefiers. Transportation and Logistics Services-Stabilis offers our customers a "virtual natural gas pipeline" by providing them with turnkey LNG transportation and logistics services inNorth America . We deliver LNG to our customers' work sites from both our own production facility and our network of approximately 25 third-party production sources located throughoutNorth America . We own a fleet of LNG fueled trucks and cryogenic trailers to transport and deliver LNG. We also outsource similar equipment and transportation services for both LNG and hydrogen from qualified third-party providers as required to support our customer base. Cryogenic Equipment Rental-Stabilis owns and operates a rental fleet of approximately 150 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 inNorth 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 fueling operations. Engineering and Field Support Services-Stabilis has experience in the safe, cost effective, and reliable use of LNG and hydrogen in multiple customer applications. We have also developed many processes and procedures that we believe improve our customers' use of LNG and hydrogen in their operations. Our engineers help our customers design and integrate LNG and hydrogen into their fueling operations and our field service technicians help our customers mobilize, commission and reliably operate on the job site. Stabilis generates revenue by selling and delivering LNG and hydrogen to our customers. We also generate revenue by renting cryogenic equipment and providing engineering and field support services. We sell our products and services separately or as a bundle depending on the customer's needs. LNG pricing depends on market pricing for natural gas and competing fuel sources (such as diesel, fuel oil, and propane among others), as well as the customer's purchased volume, contract duration and credit profile. Stabilis' customers use LNG and hydrogen in their operations for multiple reasons, including lower and more stable fuel costs, reduced environmental emissions, and improved operating performance. We believe that LNG and hydrogen consumption will continue to increase in the future. 22 -------------------------------------------------------------------------------- Power Delivery-Stabilis provides power delivery equipment and services for the oil and gas, marine, power generation and broad industrial market segments inBrazil , and builds electrical systems for sale inChina through our 40% interest in BOMAY. Recent Developments Appointment of Westy Ballard as CEO and resignation of James Reddinger-OnAugust 23, 2021 , the Company appointed Westervelt T. "Westy" Ballard, Jr., as its president and chief executive officer. The Company entered into a three-year employment agreement withMr. Ballard effective as ofAugust 23, 2021 , subject to successive one-year extensions. The Company's Board of Directors also appointedMr. Ballard as a director of the Company's Board of Directors, following which he was subsequently elected as a director by the Company's shareholders at the Company's annual stockholder meeting. In connection withMr. Ballard's appointment, the Company granted Mr. Ballard RSUs, and agreed to grantMr. Ballard options to purchase the Company's common stock as further discussed in Note 14 of the Notes to Condensed Consolidated Financial Statements. OnAugust 22, 2021 , the Company entered into a separation and release agreement withJames C. Reddinger , the Company's prior president and chief executive officer. Under the separation and release agreement, the Company agreed to payMr. Reddinger's base salary throughDecember 31, 2022 . Additionally, the Company agreed thatMr. Reddinger's RSUs granted under the 2019 Long Term Incentive Plan as ofAugust 22, 2021 , would fully vest subject toMr. Reddinger's agreement to hold the shares throughDecember 31, 2022 , and his continued compliance with his obligations in his separation and release agreement. In accordance with the 2019 Long Term Incentive Plan, the RSUs will be settled upon the earlier of (i)Mr. Reddinger's death or (ii) the date that is six months after his separation from service. Acquisition of additional LNG facilities-OnJune 1, 2021 the Company acquired an LNG production facility inPort Allen, Louisiana . The plant is capable of producing 30,000 gpd of LNG. The facility is strategically located and will support some of Stabilis' largest customers. The facility increases the Company's total production capacity by 30%. Post-COVID 19 demand and increasing prices-The COVID-19 pandemic, in general, resulted in a period of depressed demand and uncertainty across many markets including our business, customers and suppliers. Roll-out, availability and access to vaccines has resulted in relaxing many of the COVID 19 restrictions creating a post-COVID-19 period of recovery in economic growth and demand in recent months. However, increases in economic growth and demand have been limited by supplies of natural gas, labor and transportation resources within our markets resulting a period of increasing costs. Further, natural gas inventories and production, which decreased during the COVID 19 pandemic, have been slow to respond. During the third quarter of 2021, we experienced higher than normal natural gas prices. Natural gas futures continue to trade at multi-year highs (in excess of$6.00 at certain times). We expect high natural gas price trends to continue in the near-term as winter approaches further pushing up demand in the physical market; however, no assurances can be made about price trends. Limited labor resources have also resulted in a shortage of drivers to transport our product to our customers and increasing costs. While we pass a significant portion of the cost of natural gas and transportation on to our customers, we are not able to pass through all costs which has resulted in margin pressure and decreasing margins. As post-COVID-19 pandemic demand continues to evolve, the economy, commodity prices, demand for our products and our cost of operations and share price may all be impacted. The ultimate extent and effects of these impacts are difficult to estimate; however, continued periods of increasing costs could adversely impact our future results and operating cash flows. 23 -------------------------------------------------------------------------------- Results of Operations The Company's revenues are derived from two operating segments. The Company's LNG Segment supplies LNG to multiple end markets inNorth America and provides turnkey fuel solutions to help users of propane, diesel and other crude-based fuel products convert to LNG. The Company's Power Delivery Segment provides power delivery equipment and services inBrazil and through our BOMAY joint venture inChina . The Company evaluates the performance of its segments based primarily on segment operating income. See also Note 4 to our Notes to Condensed Consolidated Financial Statements for further discussion of our segments. Three Months EndedSeptember 30, 2021 Compared to Three Months EndedSeptember 30, 2020 The comparative tables below reflect our consolidated operating results as well as the operating results of our two operating segments for the three months endedSeptember 30, 2021 (the "Current Quarter ") as compared to the three months endedSeptember 30, 2020 (the "PriorYear Quarter ") (unaudited, amounts in thousands, except for percentages). Three Months Ended Consolidated September 30, 2021 2020 $ Change % Change Revenue: LNG product$ 14,420 $ 6,594 $ 7,826 118.7 % Rental, service and other 3,359 1,073 2,286 213.0 Power delivery 1,925 1,352 573 42.4 Total revenues 19,704 9,019 10,685 118.5 Operating expenses: Costs of LNG product 11,988 5,044 6,944 137.7 Costs of rental, service and other 1,917 808 1,109 137.3 Costs of power delivery 1,542 996 546 54.8 Selling, general and administrative 6,155 2,338 3,817 163.3 Depreciation 2,324 2,266 58 2.6 Impairment of right-of-use lease asset 376 - 376 n/a Total operating expenses 24,302 11,452 12,850 112.2 Loss from operations before equity income (4,598) (2,433) (2,165) 89.0 Net equity income from foreign joint ventures' operations 246 573 (327) (57.1) Loss from operations (4,352) (1,860) (2,492) 134.0 Other income (expense): Interest expense, net (130) (2) (128) 98.5 Interest expense, net - related parties (120) (199) 79 (39.7) Other income (expense) 70 (31) 101 (325.8) Total other income (expense) (180) (232) 52 (22.4) Loss before income tax expense (4,532) (2,092) (2,440) 116.6 Income tax expense 93 41 52 126.8 Net loss$ (4,625) $ (2,133) $ (2,492) 116.8 % 24
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Segment Results
Three Months Ended
LNG Segment September 30,
2021 2020 $ Change % Change
Revenue:
LNG product $ 14,420 $ 6,594 $ 7,826 118.7 %
Rental, service and other 3,359 1,073 2,286 213.0
Total revenues 17,779 7,667 10,112 131.9
Operating expenses:
Costs of LNG product 11,988 5,044 6,944 137.7
Costs of rental, service and other 1,917 808 1,109 137.3
Selling, general and administrative 5,655 1,757 3,898 221.9
Depreciation 2,284 2,237 47 2.1
Impairment of right-of-use lease asset 376 - 376 n/a
Total operating expenses 22,220 9,846 12,374 125.7
Loss from operations $ (4,441) $ (2,179) $ (2,262) 103.8 %
Three Months Ended
Power Delivery Segment September 30,
2021 2020 $ Change % Change
Revenue:
Power delivery $ 1,925 $ 1,352 $ 573 42.4 %
Operating expenses:
Costs of power delivery 1,542 996 546 54.8
Selling, general and administrative 500 581 (81) (13.9)
Depreciation 40 29 11 37.9
Total operating expenses 2,082 1,606 476 29.6
Loss from operations before equity income (157) (254) 97 (38.2)
Net equity income from foreign joint
ventures' operations 246 573 (327) (57.1)
Income from operations $ 89 $ 319 $ (230) (72.1) %
Revenue
LNG product revenue. During the Current Quarter , LNG product revenue increased
$7.8 million or 119% versus the Prior Year Quarter primarily related to:
•An increase of 6.8 million LNG gallons delivered during the Current Quarter
compared to the Prior Year Quarter particularly with power generation customers;
and
•Increased natural gas prices compared to the Prior Year Quarter .
Rental, service, and other revenue. Rental, service and other revenue increased
by $2.3 million or 213% in the Current Quarter relative to the Prior Year
Quarter due to the economic recovery and a higher concentration of current
projects with additional equipment and labor revenues from projects in Mexico
and power generation customers.
Power delivery. Power delivery revenue increased by $0.6 million or 42% in the
Current Quarter due to new contracts.
Operating Expenses
Costs of LNG product. Cost of product in the Current Quarter increased $6.9
million or 138%. As a percentage of LNG product revenue, these costs increase
from 76% from the prior year quarter to 83% in the Current Quarter . The
increased costs were attributable to:
25
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•Inflationary pressures including increased costs from higher natural gas
prices, increased transportation costs and increased liquefaction costs; and
•Additional LNG gallons delivered.
Costs of rental, service, and other. Costs increased $1.1 million or 137% in the
Current Quarter primarily related to increased labor and equipment rentals,
maintenance and travel costs to support the increase in rental, service and
other revenues.
Costs of power delivery. Costs increased $0.5 million or 55% in the Current
Quarter due to higher activity levels associated with new contracts.
Selling, general and administrative. Selling, general and administrative expense
increased $3.8 million or 163% during the Current Quarter due to higher
compensation costs primarily related to the executive transition and vesting of
incentives. During the Current Quarter , we recorded $2.2 million related to the
immediate vesting of restricted stock units associated with our executive
transition and an additional $0.8 million of severance and legal expenses. The
remaining increase is primarily related to increased headcount for sales and
business development personnel, commissions and travel.
Depreciation. Depreciation expense increased 3% during the Current Quarter as
compared to the Prior Year Quarter due to the acquisition of our Port Allen
facility on June 1, 2021 , partially offset by decreases from other assets
reaching the end of their depreciable lives.
Impairment of right-of-use lease asset. During the Current Quarter , we recorded
an impairment of $0.4 million related to the settlement and release of our
Houston office lease. See Note 10 of the Notes to Condensed Consolidated
Financial Statements for additional discussion of our lease settlement.
Net Equity Income From Foreign Joint Ventures' Operations
Income from investments in foreign joint ventures. Income from investments in
foreign joint ventures decreased $0.3 million during the Current Quarter due to
stronger than normal sales in the Prior Year Quarter .
Other Income (Expense)
Interest expense, net. Interest expense increased $0.1 million during the
Current Quarter as compared to the Prior Year Quarter primarily related to
interest on the Company's advancing loan with AmeriState Bank .
Interest expense, net - related parties. Related party interest expense
decreased $0.1 million during the Current Quarter as compared to the Prior Year
Quarter primarily related to repayment of the short-term note payable - related
party of $1.1 million as further discussed in Note 9 of the Notes to condensed
consolidated financial Statements and the maturity of capital leases in 2020 and
January of 2021, partially offset by a scheduled increase in interest rates.
Other income (expense). Other income was $0.1 million during the Current Quarter
compared to other expense of $31 thousand in the Prior Year Quarter .
Income tax expense. The Company incurred state and foreign income tax expense of
$0.1 million during the Current Quarter compared to $41 thousand during the
Prior Year Quarter . No U.S. federal income tax benefit was recorded for the
Current Quarter or Prior 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.
26
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Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30,
2020
The following comparative tables below reflect our consolidated operating
results as well as the operating results of our two operating segments for the
nine months ended September 30, 2021 (the "Current Year") as compared to the
nine months ended September 30, 2020 (the "Prior Year") (unaudited, amounts in
thousands, except for percentages):
Nine Months Ended
Consolidated September 30,
2021 2020 $ Change % Change
Revenue:
LNG product $ 37,927 $ 18,609 $ 19,318 103.8 %
Rental, service and other 10,364 5,613 4,751 84.6
Power delivery 5,129 3,638 1,491 41.0
Total revenues 53,420 27,860 25,560 91.7
Operating expenses:
Costs of LNG product 30,154 13,692 16,462 120.2
Costs of rental, service and other 5,649 3,381 2,268 67.1
Costs of power delivery 3,994 3,131 863 27.6
Selling, general and administrative 13,195 7,892 5,303 67.2
Gain from disposal of fixed assets (24) (11) (13) 118.2
Depreciation 6,767 6,802 (35) (0.5)
Impairment of right-of-use lease asset 376 - 376 n/a
Total operating expenses 60,111 34,887 25,224 72.3
Loss from operations before equity income (6,691) (7,027) 336 (4.8)
Net equity income from foreign joint
ventures' operations 1,075 1,347 (272) (20.2)
Loss from operations (5,616) (5,680) 64 (1.1)
Other income (expense):
Interest expense, net (224) (28) (196) 700.0
Interest expense, net - related parties (441) (681) 240 (35.2)
Other income 1,183 (6) 1,189 n/a
Total other income (expense) 518 (715) 1,233 (172.4)
Loss before income tax expense (5,098) (6,395) 1,297 (20.3)
Income tax expense 356 251 105 41.8
Net loss $ (5,454) $ (6,646) $ 1,192 (17.9) %
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Segment Results
Nine Months Ended
LNG Segment September 30,
2021 2020 $ Change % Change
Revenue:
LNG product $ 37,927 $ 18,609 $ 19,318 103.8 %
Rental, service and other 10,364 5,613 4,751 84.6
Total revenues 48,291 24,222 24,069 99.4
Operating expenses:
Costs of LNG product 30,154 13,692 16,462 120.2
Costs of rental, service and other 5,649 3,381 2,268 67.1
Selling, general and administrative 11,496 6,352 5,144 81.0
Gain from disposal of fixed assets (24) (11) (13) 118.2
Depreciation 6,653 6,706 (53) (0.8)
Impairment of right-of-use lease asset 376 - 376 n/a
Total operating expenses 54,304 30,120 24,184 80.3
Loss from operations before equity income $ (6,013) $ (5,898) $ (115) (1.9) %
Nine Months Ended
Power Delivery Segment September 30,
2021 2020 $ Change % Change
Revenue:
Power delivery $ 5,129 $ 3,638 $ 1,491 41.0 %
Operating Expenses:
Costs of power delivery 3,994 3,131 863 27.6
Selling, general and administrative 1,699 1,540 159 10.3
Depreciation 114 96 18 18.8
Total operating expenses 5,807 4,767 1,040 21.8
Loss from operations before equity income (678) (1,129) 451 (39.9)
Net equity income from foreign joint
ventures' operations 1,075 1,347 (272) (20.2)
Income (loss) from operations $ 397 $ 218 $ 179 82.1 %
Revenue
LNG product revenue. During the Current, Year LNG product revenues increased$19.3 million or 104% versus the Prior Year primarily related to: •An increase of 20.9 million LNG gallons delivered compared to the Prior Year particularly with power generation customers; and •Increased natural gas prices compared to the Prior Year. Rental, service, and other revenue. Rental, service and other revenues increased by$4.8 million or 85% in the Current Year compared to Prior Year primarily related to the economic recovery and a higher concentration of current projects with additional equipment and labor revenues from projects inMexico and power generation customers. Power delivery revenue. Power delivery revenue increased by$1.5 million or 41% in the Current Year due to new contracts. 28 -------------------------------------------------------------------------------- Operating Expenses Cost of LNG product. Cost of LNG product in the Current Year increased$16.5 million or 120%. As a percentage of LNG product revenue, these costs increased from 74% in the Prior Year to 80% in the Current Year. The increased costs were attributable to: •Inflationary pressure including increased costs from higher natural gas prices, increased transportation costs and increased liquefaction costs; and •Additional LNG gallons delivered. Cost of rental, service, and other. This cost increased$2.3 million or 67% in the Current Year primarily related to increased labor and equipment rentals to support the increase in rental, service and other revenues. Costs of power delivery. Costs increased$0.9 million or 28% in the Current Year due to costs associated with new contracts. Selling, general and administrative. Selling, general and administrative expense in the Current Year increased by$5.3 million or 67% from the Prior Year primarily due to the executive transition and vesting of incentives occurring in the Current Year. During the Current Year, we recorded$2.2 million related to the immediate vesting of restricted stock units associated with our executive transition and an additional$0.8 million of severance and legal expenses. The remaining increase is primarily related to higher compensation costs related to increased headcount for sales and business development personnel, commissions and travel. Depreciation. Depreciation expense essentially remained the same, slightly decreaseing by 1% during the Current Year as compared to the Prior Year due to assets reaching the end of their depreciable lives, offset by additional depreciation expense on ourPort Allen facility which was acquired onJune 1, 2021 . Impairment of right-of-use lease asset. During the Current Year, we recorded an impairment of$0.4 million related to the settlement and release of ourHouston office lease. See Note 10 of our Notes to Condensed Consolidated Financial Statements for additional discussion of our lease settlement. Net Equity Income FromForeign Joint Ventures' Operations Income from investments in foreign joint ventures. Income from investments in foreign joint ventures decreased$0.3 million from the Prior Year due to stronger sales in the Prior Year. Other Income (Expense) Interest expense, net. Interest expense in the Current Year increased$0.2 million primarily due to interest associated with the Company's advancing loan withAmeriState Bank . Interest expense, net - related parties. Related party interest expense decreased$0.2 million during the Current Year primarily related to repayment of the short-term note payable - related party of$1.1 million as further discussed in Note 9 of the Notes to Condensed Consolidated Financial Statements and the maturity of capital leases in 2020 and January of 2021, partially offset by a scheduled increase in interest rates in the Current Year. Other income (expense). Other income was$1.2 million in the Current Year compared to expense of$6 thousand in the Prior Year. Current Year income related to the Paycheck Protection Program loan forgiveness and the release of escrow funds from the Myers transaction settlement. Gain on the disposal of fixed assets. The gain from disposal of rolling stock was$11 thousand in the Prior Year compared to$24 thousand in the Current Year. Income tax expense. The Company incurred foreign tax expense of$0.4 million during the Current Year compared to$0.3 million during the Prior Year. NoU.S. federal income tax benefit was recorded for the Current Year or Prior Year as any netU.S. deferred tax assets generated from operating losses were offset by a change in the Company's valuation allowance on net deferred tax assets. 29 -------------------------------------------------------------------------------- Liquidity and Capital Resources Overview The Company is subject to substantial business risks and uncertainties inherent in the LNG industry. 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. Historically, our principal sources of liquidity have consisted of cash on hand, cash provided by our operations, and distributions from our BOMAY joint venture. Additionally, the Company obtained equipment financing from MG Finance, a related party. During the Current Year, our principal sources of liquidity were cash provided by our operations and an advancing loan facility withAmeriState Bank in the aggregate principal amount of up to$10.0 million . We have used a portion of our cash flows generated from operations to invest in fixed assets to support growth as well as to pay interest and principal amounts outstanding under our borrowings and increased working capital needs generated from organic growth. As ofSeptember 30, 2021 , we had$2.9 million in cash and cash equivalents on hand and$11.7 million in outstanding debt (net of debt issuance costs) and finance lease obligations (of which$4.0 million is due in the next twelve months). Future availability under the advancing loan facility atSeptember 30, 2021 , was$3.0 million . The Company has experienced a recent increase in activity and additional revenue opportunities. Accordingly, management believes the business will generate sufficient cash flows from its operations along with availability under our advancing loan facility that is sufficient to fund the business for the next 12 months. As we continue to grow, the Company continues to evaluate additional financing alternatives, however, there is no guarantee that additional financing will be available or available at terms that would be beneficial to shareholders. Cash Flows Cash flows provided by (used in) our operating, investing and financing activities are summarized below (unaudited, in thousands): Nine Months Ended September 30, 2021 2020 Net cash provided by (used in): Operating activities $ 5,478$ 2,467 Investing activities (6,690) (315) Financing activities 2,451 (2,564) Effect of exchange rate changes on cash (115) (157) Net increase (decrease) in cash and cash equivalents 1,124 (569) Operating Activities Net cash provided by operating activities totaled$5.5 million for the nine months endedSeptember 30, 2021 compared to$2.5 million for the same period 2020. The increase in net cash provided by operating activities of$3.1 million as compared to the Prior Year was primarily attributable to increased revenues and changes in working capital, partially offset by a reduced distribution from our BOMAY joint venture. Investing Activities Net cash used in investing activities totaled$6.7 million and$0.3 million for the nine months endedSeptember 30, 2021 and 2020, respectively. The increase in net cash used in the Current Year was primarily due to the acquisition of the LNG plant inPort Allen, Louisiana and purchases of vaporizers and other LNG equipment. Financing Activities Net cash provided by financing activities totaled$2.5 million for the nine months endedSeptember 30, 2021 , compared to net cash used in financing activities totaling$2.6 million for the Prior Year. The change compared to Prior Year was primarily attributable to proceeds from theAmeriState Bank loan facility. 30 -------------------------------------------------------------------------------- Future Cash Requirements Uses of Liquidity and Capital Resources We require cash to fund our operating expenses and working capital requirements, including costs associated with fuel sales, capital expenditures, debt repayments and repurchases, equipment purchases, maintenance of LNG production facilities, mergers and acquisitions (if any), pursuing market expansion, supporting sales and marketing activities, support of legislative and regulatory initiatives, and other general corporate purposes. While we believe we have sufficient liquidity and capital resources to fund our operations and repay our debt, we may elect to pursue additional financing activities such as refinancing existing debt, 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. Debt Level and Debt Compliance We had total indebtedness of$12.1 million in principal as ofSeptember 30, 2021 with the expected maturities as follows (in thousands). September 30, 2021 Remainder 2021 $ 347 2022 4,575 2023 117 2024 680 2025 1,000 Thereafter 5,331 $ 12,050 Debt issuance costs (400) Total long-term debt, including current maturities $
11,650
We expect our total interest payment obligations relating to our indebtedness to be approximately$0.6 million for the full year endingDecember 31, 2021 . Certain of the agreements governing our outstanding debt have certain covenants with which we must comply. As ofSeptember 30, 2021 , we were in compliance with all of these covenants. Off-Balance Sheet Arrangements As ofSeptember 30, 2021 , 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. NEW ACCOUNTING STANDARDS See Note 2-Recent Accounting Pronouncements to the Notes to Condensed Consolidated Financial Statements included elsewhere in this report for information on new accounting standards. 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 withU.S. GAAP. The preparation of these Condensed Consolidated Financial Statements 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. 31 -------------------------------------------------------------------------------- Critical Accounting Policies Revenue Recognition The Company recognizes revenue associated with the sale of LNG at the point in time when the customer obtains control of the asset. In evaluating when a customer has control of the asset, the Company primarily considers whether the transfer of legal title and physical delivery has occurred, whether the customer has significant risks and rewards of ownership, and whether the customer accepted delivery and a right of payment exists. Revenues from the providing of services, transportation and equipment to customers is recognized as the service is performed. Revenue is measured as consideration specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Amounts are billed upon completion of service or transfer of a product and are generally due within 30 days. Revenues from contracts with customers are disaggregated into (1) LNG product, (2) rental, service, and other, and (3) power delivery. LNG product revenue generated includes the revenue from the product and delivery of the LNG to our customer's location. Product revenue is recognized upon delivery of the related item to the customer, at which point the customer controls the product and the Company has an unconditional right to payment. Product contracts are established by agreeing on a sales price or transaction price for the related item. Revenue is recognized when the customer has taken control of the product. Payment terms for product contracts are generally within thirty days from the receipt of the invoice. The Company acts as a principal when using third party transportation companies and therefore recognizes the gross revenue for the delivery of LNG. Rental, service and other revenue generated by the Company includes equipment and human resources provided to the customer to support the use of LNG and power delivery equipment and services in their application. Rental contracts are established by agreeing on a rental price or transaction price for the related piece of equipment and the rental period which is generally daily or monthly. The Company maintains control of the equipment that the customer uses and can replace the rented equipment with similar equipment should the rented equipment become inoperable or the Company chooses to replace the equipment for maintenance purposes. Revenue is recognized as the rental period is completed and for periods that cross month end, revenue is recognized for the portion of the rental period that has been completed to date. Payment terms for rental contracts are generally within thirty days from the receipt of the invoice. Performance obligations for rental revenue are considered to be satisfied as the rental period is completed based upon the terms of the related contract. LNG service revenue generated by the Company consists of mobilization and demobilization of equipment and onsite technical support while customers are consuming LNG in their applications. Service revenue is billed based on contractual terms that can be based on an event (i.e. mobilization or demobilization) or an hourly rate. Revenue is recognized as the event is completed or work is done. Payment terms for service contracts are generally within thirty days from the receipt of the invoice. Performance obligations for service revenue are considered to be satisfied as the event is completed or work is done per the terms of the related contract. Power Delivery revenue is generated from time and material projects, consulting services, and the resale of electrical and instrumentation equipment. Revenue is billed based on contractual terms that can be based on an event or an hourly rate. Revenue is recognized as the event is completed or work is done. Payment terms for service contracts are generally within thirty days from the receipt of the invoice. Performance obligations for service revenue are considered to be satisfied as the event is completed or work is done per the terms of the related contract. The resale of electrical and instrumentation equipment is billed upon delivery and are generally due within thirty days from the receipt of the invoice. All outstanding accounts receivable, net of allowance, on the consolidated balance sheet are typically due and collected within the next 30 days for our LNG business and 12 months for our power delivery business. 32
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Impairment of Long-Lived Assets andGoodwill LNG liquefaction facilities, and other long-lived assets held and used by the Company are reviewed periodically for potential impairment whenever events or changes in circumstances indicate that a particular asset's carrying value may not be recoverable. Recoverability generally is determined by comparing the carrying value for the asset to the expected undiscounted future cash flows of the asset. If the carrying value of the asset is not recoverable, the amount of impairment loss is measured as the excess, if any, of the carrying value of the asset over its estimated fair value. The estimated undiscounted future cash flows are based on projections of future operating results; these projections contain estimates of the value of future contracts that have not yet been obtained, future commodity pricing and our future cost structure, among others. Projections of future operating results and cash flows may vary significantly from actual results. Management reviews its estimates of cash flows on an ongoing basis using historical experience, business plans, overall market conditions, and other factors.Goodwill represents the excess of the cost of an acquired entity over the fair value of the identifiable assets acquired less liabilities assumed. Intangible assets are assets that lack physical substance (excluding financial assets).Goodwill acquired in a business combination and intangible assets with indefinite useful lives are not amortized, and intangible assets with finite useful lives are amortized.Goodwill and intangible assets not subject to amortization are tested for impairment annually or more frequently if events or changes in circumstances indicate the assets carrying value may not be recoverable. We currently test goodwill for impairment annually in the third quarter unless we determine that a triggering event has occurred requiring an earlier test. Income Taxes Deferred income taxes are accounted for under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that the deferred tax asset will not be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in selling, general and administrative expenses. Fair Value Measurements The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in the fair value measurements, the fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels in accordance withU.S. GAAP: Level 1 Inputs-Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. Level 2 Inputs-Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Level 3 Inputs-Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby, allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
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