Stabilis Solutions, Inc. (NASDAQ:SLNG) Q1 2023 Earnings Call Transcript May 13, 2023

Operator: Good morning, ladies and gentlemen, and welcome to Stabilis Solutions First Quarter 2023 Earnings Conference Call. Joining us today are Westy Ballard, President and CEO; and Andy Puhala, Chief Financial Officer. Before we begin, I’d like to remind everyone that today’s conference call will contain forward-looking statements within the meaning of the Private Securities Reform Act of 1995 and other securities laws. These forward-looking statements are based on the company’s beliefs and expectations as of today, May 11, 2023. Forward-looking statements are subject to the risks and uncertainties that may cause actual results to differ materially from those projected. The company undertakes no obligation to release updates or revisions to the forward-looking statements made in today’s conference call.

Additional information concerning factors that could cause those differences is contained in the company’s filings with the SEC and the press release announcing the company’s results. Investors are cautioned not to place undue reliance on any forward-looking statements. Please note that the company may refer to certain non-GAAP financial information on today’s call. You can find the reconciliations of the non-GAAP financial measures to the most comparable GAAP measures in the company’s earnings press release. Today’s call is being recorded. At this time, I would like to turn the call over to Westy Ballard, President and CEO of Stabilis Solutions. Please go ahead, sir.

Westy Ballard: Good morning, everyone, and thanks for joining us. I think we may have several new attendees on our call today. So before getting into the business results, let’s quickly take a step back and take a look at an overview of our company. We are an environmental transformation company and currently one of North America’s largest providers of small-scale liquefied natural gas, with future aspirations of expanding our offerings into additional clean emerging fuels. We own and operate two strategic liquefaction plants, and we also source LNG from over 30 supply points in the U.S. We have a robust and highly mobile asset base, and we believe we have the most comprehensive turnkey commercial, technical and engineering capabilities in the market to assist customers in the design, engineering and implementation of their fueling needs across the U.S., Canada and Mexico.

Our company serves two primary markets: industrial and marine. Our industrial business is our core legacy business and services companies across multiple industries, including mining, pipelines, remote power, food and agriculture, utilities, oil and gas and general industrial. This business also includes a growing presence in the aerospace industry. Sales cycles in our core industrial business tend to be shorter with minimal capital investment required. Aerospace has similar characteristics. However, as private rocket launch programs mature, we believe longer, more ratable commercial relationships are more likely. Our marine business consists of project management, engineering, production or third-party sourcing, delivery and fueling of LNG and vessels in the maritime industry, as well as the exportation of LNG outside the U.S. Sales cycles in both portions of our marine business tend to last longer, involve larger, more predictable LNG volumes, and will require considerable infrastructure and technical know-how as vessel operators and carriers better understand their needs.

And turning to the quarter, we had a solid start to the year where we made progress across several of our priorities and our capabilities continued to grow. Commercial interactions across all of our business lines have steadily increased, and we are excited to continue to build upon the substantial progress made in 2022. In our industrial business, demand was strong across multiple sectors, with oil and gas, agriculture and food and remote power leading the way. As I’ve said in the past, the diversity of end markets we serve is one the great attributes of our company, and the first quarter was no exception. We anticipate demand to continue in this business due to three primary drivers. First, LNG is generally less expensive than other fuel choices.

Second, many off-grid and off-pipeline gas customers require last-mile virtual pipelines. And third, the drive towards cleaner fuels. As we continue to identify ways of maximizing revenue and margin opportunities with our existing customer base and stimulating new and profitable demand in new sectors and geographies, we feel confident in our ability to execute given our positioning as one of North America’s large turnkey providers of last-mile delivery to the industrial sector. During the quarter, our marine business experienced solid activity, too. Operationally, we safely and successfully completed a significant, short-term bunkering project that called for the delivery of several million gallons of LNG sourced from a large trading position spread among several supply points, supported by our own sizable engineering and supply chain.

Our commercial, technical and operational expertise continues to give us a tremendous advantage in the market, and makes us uniquely qualified to execute bespoke bunkering solutions to vessel owners and operators design LNG bunkering fuel in North America. Our rapid planning process and unmatched mobile asset base afford us the ability to quickly deliver fuel across a variety of geographies, which was on display during the quarter as we successfully executed marine operations along the East, Gulf and West Coast, and contributed roughly 28% of total revenue for the quarter compared to 4% in the first quarter of 2022. As we progress, this continues to be an exciting opportunity for scaled growth at our company, driven by the International Maritime Organization’s key mandate requiring that lowering of sulfur emissions in the maritime industry.

Shipowners and operators have to quickly identify ways to become compliant through meaningful investments in their existing fleets and/or adopt alternative fuels for propulsion. This paradigm shift spawned a massive increase of newbuild orders for the LNG fuel vessels, resulting in a number of vessels growing exponentially from roughly 285 in the world today to over 700 over the next few years. In doing so, these vessels need fuel. Currently, the vast majority of LNG bunkering occurs outside the U.S. However, given the United States’ favorable competitive positioning in natural gas – so supply reliability, security and price, the U.S. has tremendous potential to be a premier bunkering hub. This will require considerable technical, operational and infrastructural capabilities.

Barriers to entry are high, and for a supplier to ultimately be successful in bunkering, they must have the ability to source and deliver volumes in scale, they must have the mobility and flexibility to bunker in a variety of ports, they must have considerable technical and supply chain capabilities, and they must have the ability to deliver fuel simultaneously with vessels loading and unloading their respective cargoes or passengers. While we have had great success over the last few quarters delivering bunkering solutions to customers and we continue to materially increase the number of commercial discussions with prospective customers, it is important to note that the U.S. LNG bunkering market, while growing, is still at an early stage. As I’ve mentioned earlier, unlike our industrial business, marine commercial cycles have long lead times and many prospective customers are still in the process of determining their strategies for fueling their new assets, many of which won’t hit the market until next year.

In the meantime, we will continue to lay a considerable operational foundation in addition to evaluating the expansion of our assets and infrastructure to capitalize on this most exciting market. Outlook in our export business, while very positive, is also still at an infant state. However, I strongly believe that the prospects for the exportation of considerable volumes the U.S. Department of Energy has granted us are very compelling. As increased demand, geopolitical uncertainty and dislocation and natural gas prices continue, we are well positioned to be a valuable participant in the export business. We will work diligently to expand our scale, and for our business to be successful, additional capital and operational investments will be required.

As we think about financing, we will explore a variety of prospective debt and equity sources of capital, with heavy emphasis and focus on those that know our industry and our company. One of the attractive components to small-scale LNG is the ability to rapidly deploy capital in a modular fashion with potentially strong and quick returns on capital. Our prospects are exciting and certainly not short-term. Stabilis is very much positioned as a long-term growth story and a highly asymmetrical opportunity to invest in a rapidly growing company with a proven and durable business model, diversified across multiple sectors and geographies. And with that, I will turn it over to Andy to discuss the quarter results.

Andy Puhala: Thanks, Westy, and good morning, everyone. Stabilis had another good quarter in Q1, building on the performance we saw last year and generating positive net income and double-digit EBITDA margins for the quarter. For the first quarter of 2023, Stabilis reported revenues of $26.8 million, 32% higher than the year-ago quarter, but down 9% from the fourth quarter of 2022, in part due to the completion during Q1 of a short-term bunkering project that Westy referred to in his comments. Net income from continuing operations was $1.1 million in the quarter compared to a net loss from continuing operations of $0.4 million in the year ago quarter. Net income from continuing operations was $0.2 million in the fourth quarter of 2022.

Adjusted EBITDA for the quarter was $3.5 million compared to $2 million in the year ago quarter and $3.9 million in the fourth quarter of 2022. We ended the quarter with $7.9 million of total available liquidity. The reduction in cash balances from the fourth quarter relates to the purchase of liquefaction, bunkering and storage assets, which can be quickly deployed to a variety of locations to support anticipated growth. We have sufficient liquidity to fund our operations, and we believe we have access to a variety of capital sources to fund our growth initiatives. This concludes our prepared remarks. So at this time, moderator, please open the line for questions.

Q&A Session

Operator: Certainly. At this time, we will be conducting a question-and-answer session. [Operator Instructions] And the first question today is coming from Martin Malloy from Johnson Rice.

Operator: Thank you. The next question is coming from Barry Haimes from Sage Asset Management. Barry, your line is live.

Operator: The next question is coming from Bill Dezellem from Tieton Capital. Bill, your line is live.

Operator: Thank you. The next question is coming from Liam Burke from B. Riley. Liam, your line is live.

Operator: Thank you. [Operator Instructions] And the next question is coming from Spencer Lehman. Spencer is a Private Investor. Spencer, your line is live.

Operator: Thank you. And next, we have a follow-up from Barry Haimes from Sage Asset Management. Barry, your line is live.

Operator: Thank you. And next up, we have a follow-up from Spencer Lehman. Spencer, your line is live.

Operator: Thank you. This does conclude today’s Q&A session. There are no more questions in queue. I would now like to hand the call back to Westy Ballard for closing remarks.

Westy Ballard: Great. Thanks again for joining us, and we look forward to seeing you out on the road in the market very soon. Take care.

Operator: Thank you. This does conclude today’s conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.