Excelerate Energy, Inc. (NYSE:EE) Q1 2024 Earnings Call Transcript

Excelerate Energy, Inc. (NYSE:EE) Q1 2024 Earnings Call Transcript May 9, 2024

Excelerate Energy, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, everybody, and welcome to the Excelerate Energy First Quarter 2024 Earnings Conference Call. My name is Sam, and I will be coordinating your call today. [Operator Instructions]. I will now hand you over to your host, Craig Hicks, Vice President of Investor Relations and ESG to begin. Craig, please go ahead.

Craig Hicks: Good morning, everyone. Thank you for joining Excelerate Energy’s First Quarter 2024 Earnings Call. Participating on the call today are Steven Kobos, President and Chief Executive Officer; and Dana Armstrong, Executive Vice President and Chief Financial Officer. Also joining the call today is Oliver Simpson, Executive Vice President and Chief Commercial Officer. Our first quarter 2024 earnings results press release and presentation were released yesterday afternoon and can be found on our website at ir.excelerateenergy.com. I would like to remind everyone that we will be making forward-looking statements on this call that involve a number of risks and uncertainties. Our actual results may differ materially from those expressed in these forward-looking statements, and we make no obligation to update or revise them.

Today’s remarks will also refer to certain non-GAAP financial measures. We provide a reconciliation to the most directly comparable GAAP financial measures at the back of the presentation. With that, it is my pleasure to pass the call over to Steven Kobos.

Steven Kobos: Thanks, Craig. Good morning, everyone. I’d like to start with saying we delivered strong financial results for the first quarter. Excelerate Energy’s financial performance reflects the robust earnings power of our core regasification business. It also highlights our commitment to operating our FSRU fleet at the highest levels of reliability and to delivering natural gas safely to our customers. As a global energy company, we take great pride in using our FSRU fleet to deliver integrated LNG solutions to customers who need them most. In addition to operating our core regas business, we are focused on expanding our presence in new and existing markets across our global footprint. On today’s call, I’m going to share with you some additional insights into our business development strategy to help provide a better understanding of where the opportunities are and when we expect to start deploying capital.

I’ll then hand the call over to Dana, who will walk through our financial results for the quarter. Since we were last together, the Excelerate team has made great progress toward our plan to grow our company and maximize value for our shareholders. To recap our strategy, we are optimizing our core regas business and are executing our comprehensive organic and inorganic growth road map with 3 key areas for value creation. First, acquiring an ownership interest in LNG regasification terminals; second, establishing a diversified LNG portfolio; and third, investing in downstream natural gas infrastructure. While many companies in our industry aspire to expand their presence in markets around the world, Excelerate already has an extensive global presence.

Excelerate operates approximately 20% of the global FSRU fleet. We have regional offices in 11 countries and an operational presence in Argentina, Bangladesh, Brazil, Finland, Germany, Pakistan, the UAE, and the United States. Let’s be clear. This is a competitive advantage for our company. We are using our expansive reach to pursue growth opportunities in both new and existing markets. This means leveraging our relationships with sovereigns. It means leveraging our reputation as the world’s leading provider of FSRUs, how, by having meaningful and constructive conversations for new regas infrastructure and long-term LNG supply. All our business development efforts are aligned with strategic areas of focus along the LNG value chain. We are optimistic that these discussions will lead to strategic investments that will enhance our long-term contract revenue and margins, create poultry demand for future vessel deployments, and capture incremental LNG and gas sales opportunities.

As part of our effort to calibrate our growth strategy, we have identified and evaluated in detail a number of organic and inorganic opportunities and have prioritized the most promising ones. So we have identified opportunities across our asset footprint, the majority of the opportunities we are exploring are focused in Asia Pacific and the Americas. Our commercial teams are now in advanced discussions with several potential partners worldwide who satisfy Excelerate’s requirements for value creation and for compliance. We continue to pursue opportunities to develop LNG regas terminals. We do this with a focus on priority projects in countries with growing economies and an increasing demand for LNG. These are markets like India, markets like Vietnam, and markets like Russell.

As it relates to capital investment, 10 of the projects range between $50 million and $400 million. 2 of the 12 projects have CapEx greater than this range, one of which is Piran. I cannot emphasize enough that the entire Excelerate management team understands the importance of being good stewards of our shareholders’ capital. We will continue to take a disciplined approach as we evaluate these investments and are committed to closing deals that meet or exceed our return hurdles. We are confident in the project portfolio that we have shared in today’s presentation, and we look forward to making subsequent announcements regarding several of these opportunities in the coming weeks and months. To recap what you’ve heard today, Excelerate Energy is a compelling growth story.

We are investing strategically in our FSRU internal assets to enhance our earnings and to provide us with a solid foundation for substantial growth. As a leader in the LNG space, we are essential both to ensuring energy security and accelerating the energy transition. We are leveraging our share at the global FSRU fleet and our presence around the world to pursue growth opportunities in new and existing markets. We are in advanced talks with several counterparties for investments along the value chain as we focus on maximizing value for our shareholders through our disciplined capital allocation strategy. With that, I’ll now turn the call over to Dana.

Dana Armstrong: Thanks, Steven, and good morning, everyone. As stated by Steven, Excelerate delivered strong financial results for the first quarter that were in line with our expectations. We reported a net income of $28 million, which is a sequential increase of $8 million or up 40% as compared to last quarter. Adjusted EBITDA for the first quarter was $75 million, up $4 million or up about 6% versus last quarter. The sequential increase in adjusted EBITDA over the fourth quarter of last year was mostly driven by the timing of vessel operating costs and the timing of certain SG&A expenses, including business development expenses, which were lower than the first quarter of this year as compared to the last quarter of last year.

Our first quarter 2024 financial results include the impact of our dry dock for the FSRU Summit LNG in Bangladesh. Summit is 1 of 2 FSRUs in our fleet that are under in build, own, operate transfer of boot structure. The other is the FSRU Excellence, which underwent dry dock services in the fourth quarter of last year. Because of the book structure, the majority of the dry dock costs for the second and first quarters and the excellence in the fourth quarter of last year were expensed to the income statement instead of classified as maintenance CapEx. The Summit and Excellence are the only 2 vessels in our fleet that are required to expense drawdown cost. For the full year 2024, the vast majority of our earnings will be driven by our FSRU and terminal services business since all 10 of our vessels are currently contracted.

This is noteworthy for a few reasons. First, the shift in revenue contribution from gas sales to FSRU and terminal services is driven largely by the transition from our previous gas-held agreement, or GSA, in Brazil to a long-term 10-year regas charter with Petrobras for our FSRU second. As we’ve said before, the transition of Sequoia from a 1-year DSA to a long-term 10-year charter contract will provide enhanced visibility to both near-term and long-term cash flows for Excelerate. Our core FSRU and terminal assets are underpinned by a high-quality contract portfolio that is comprised of over $4 billion long-term fixed-fee contracts with a remaining weighted average of roughly 7 years. We believe these attractive financial attributes distinguish our core rep business and the major reason why Excelerate Energy represents a relatively low-risk investment opportunity.

As of the end of the first quarter, our total debt, including finance leases, was $752 million. We had $579 million of cash and cash equivalents on hand, $40 million of letters of credit issued under our revolver, and no outstanding borrowings under our revolver, allowing for about $310 million of unfavorable revolver borrowing capacity. In the first quarter, the Excelerate Board of Directors approved a program to repurchase up to $50 million of [Croutonstock]. During the first quarter, Excelerate purchased 588 shares or $9.4 million of our Class A common stock. With the free cash flow generated by our core regas business, our strong balance sheet, and the liquidity provided by our revolving credit facility, we remain confident that we will have sufficient capacity to fund our growth and strategic objectives in the near term and long term.

Now let’s turn to an update on our financial guidance for 2024. We are reaffirming our previously communicated financial guidance for 2024. For the full year, we continue to expect adjusted EBITDA to range between $315 million and $335 million. This range is inclusive of roughly $20 million in expected business development costs. For the full year, we continue to expect maintenance CapEx to range between $50 million and $60 million and committed growth CapEx to range between $70 million and $80 million. As a reminder, committed growth CapEx is defined as capital allocated and committed to specific infrastructure investments currently in execution for previously approved capital projects. This year, most of this committed growth CapEx is related to milestone payments on our newbuild FSRU, which will be delivered in June 2026.

We will continue to provide updates on our committed growth capital estimates as definitive contracts are executed with counterparties that drive incremental capital needs for 2024. With that, we’ll open up the call for Q&A.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Chris Robertson from Deutsche Bank.

Chris Robertson: Congratulations on a strong quarter. Just going back, Dana, to the point that you made around the share repurchase program, I just wanted to clarify, is 588,000 shares. Could you clarify the average price per share paid?

Dana Armstrong: Yes, sure. So, it’s 588,000 shares and it ended up being $9.4 million. So, it was roughly just under $16 per share.

Chris Robertson: Looking at the project portfolio that’s been proposed here, several different projects, obviously. So, Stephen, wondering if you could maybe just expand upon that further maybe by rank order or some other mechanism here. Just talking about what would make a project the most attractive in your eyes? I mean, there’s a lot on the table here. But as you’re going through the different variables, whether it’s a return or a risk-adjusted return or the type of project and the type of counterparty, et cetera. Could you just clarify maybe how you’re thinking about what’s the most important factors for you?

Steven Kobos: Sure. Thanks, Chris. We are excited to provide a little more clarity because the fact of the matter is this is a prioritized list. We think it’s an enormous TAM out there. So to look at this and say, this looks like a lot of projects. Actually, this is tearing down the opportunity set that we see substantially. Now as I mentioned on the call, obviously, we’re going to look at everything through the hurdles that we have. We’re going to look at it through the wax we have for different countries. But what we’ve shared for a long time is that we care about fundamentals and markets. We care about the need for the energy. So we’re looking not just at the project fundamentals. Those have to be there. But we also want to know that the market itself needs the gas, has an economy that needs to fuel it, is otherwise going to shift to coal.

But certainly, any of these are going to meet our hurdle expectations and our country-specific WACC. So we feel confident that we have prioritized the right subset of the TAM.

Operator: Our next question is from Wade Suki of Capital One.

Wade Suki: Well, just to flesh out a little bit more kind of dovetailing on Chris’ question on the project portfolio. Any clarity you can give on the, let’s call them, 12 prioritized projects in terms of terminals, ships, new builds, maybe adjacent asset classes, and things like that would be fantastic. Maybe a little more detail to the extent you feel comfortable.

Steven Kobos: Thanks. I’m going to turn it over to Oliver Simpson here in a second. But I would just say, look, we are a global LNG company. We have a presence all over the world. Everybody knows all of this LNG needs to find a home. We are the home builders. But Oliver, you want to get into the way some of the nitty-gritty on the asset classes, et cetera, we’re looking at.

Oliver Simpson: Sure, yes. Thanks for the question, Wade. So I think what you see with the list of 12 projects is we have a wide range of geographical projects, covering a number of different types of projects that have a different reach across the LNG value chain. So I think we see from the asset class, obviously, a number of these projects will require new FSRUs. We have a growth strategy for our fleet. That’s a core part of our strategy, and we’ll be looking to add whether it’s new builds or conversions as appropriate for those projects. But I think also, as you see some of these projects, a number of these projects have offered integrated solutions, which allow us to drive incremental returns, make gas sales, and deliver additional products to our customers.

So I think, in general, we’re excited about the broad range that these projects offer. And to Steven’s earlier point, these are really projects in markets that we’ve targeted and like. I think that hopefully gives a little more color.

Wade Suki: Fantastic. And I’d love to get a sense, obviously, you all are very active on the commercial side. Just get a sense of what the thinking is of the customer these days. We’ve got, as you mentioned, a good amount of LNG hitting the market here in the next couple of years. Gas prices have come down. Just give us a sense of what the temperature is, what are the concerns, what’s on the top of mind for the customer, if you wouldn’t mind.

Steven Kobos: I’ll just jump in. I think what we’re seeing all over the world and especially within a number of these global south markets, they’re back at the table. The disruption of the war, the war in Ukraine was surprising to the Global South. They weren’t prepared for it. It took them away from the LNG market for a while, but we’ve gone through that now. And they’ve recognized and accepted that LNG is a key part of their strategy. We’ve seen it all over the place, like India’s announcements on the increased share of natural gas that they intend to have in their energy mix by 2030. All kinds of ways that they’re manifesting it, the reentry into the spot market, the contracting for long-term supply, and the focus on LNG projects in general. So the sentiment out there is bullish and it is part of the energy mix for the South and we remain a credible alternative to coal in much of the world.

Operator: Our next question comes from Jeremy Tonet of JPMorgan.

Noah Katz: This is Noah Katz on for Jeremy. First, I wanted to touch on your capital allocation priorities. I know you guys authorized up to $50 million of repurchases through February 2026. So are there any thoughts on weighing repurchases versus future dividend raises and leverage reductions? Or are you thinking about any other bolt-on opportunities? Anything you can provide there would be great.

Dana Armstrong: Jeremy, thanks for the question. So we will continue to stress the importance of growth in our capital allocation strategy. I mean, as Steven just said and Holly said, there’s a lot of focus out there with the Global South, and we expect to use our cash to generate growth on these projects. So as far as the share repo, as you know, we purchased $9 million through the end of the quarter. We have $50 million, the remaining $41 million to use through February 6. We’ll use that optimistically where it makes sense. But our priority will remain growth. As we have excess cash on hand, we’ll evaluate debt paydowns. We’ll evaluate potential dividend increases as of long term. But our priority right now is obviously growth.

Noah Katz: Can you guys speak to what you’re seeing with other growth opportunities outside of FSRUs, such as with investing additional assets in vessels for onshore regasification efforts with smaller players?