Excelerate Energy, Inc. (NYSE:EE) Q1 2023 Earnings Call Transcript
Excelerate Energy, Inc. (NYSE:EE) Q1 2023 Earnings Call Transcript May 11, 2023
Operator: Hello and welcome to the Excelerate Energy First Quarter 2023 Earnings Conference Call. My name is Lauren and I'll be coordinating your call today. I will now hand you to host, Craig Hicks, Vice President, Investor Relations in ASG to begin. Please go ahead.
Craig Hicks: Good morning, everyone. Thank you for joining Excelerate Energy's first quarter 2023 financial results call. Participating on the call today are Steven Kobos, President and Chief Executive Officer; Dana Armstrong, Executive Vice President and Chief Financial Officer; and Daniel Bustos, Executive Vice President and Chief Commercial Officer. Our first quarter 2023 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 have provided a reconciliation to the most directly comparable GAAP financial measures at the back of the presentation. Now I'd like to turn the call over to Steven Kobos, Chief Executive Officer of Excelerate Energy.
Steven Kobos: Thanks, Craig, and thank you all for joining us this morning. On today's call, I will focus my remarks on our first quarter financial results, the current state The global LNG market, and progress on our commercial opportunities. Dana will then walk through the details of our quarterly financial performance before we open up the call to your questions. Excelerate Energy delivered solid financial and operational results in the first quarter. These were in line with our expectations. As we approach the midpoint of the year we remain focused on executing our strategic objectives and we are well positioned to pursue new commercial opportunities. Over the last 12 months, the increased demand for FSRU and LNG supply has continued to influence discussions on energy policy in both Europe and the global south.
As a leading provider of integrated LNG solutions, we are proud of the pivotal role Excelerate Energy is playing and strengthening energy security for countries around the world while supporting their transition to a clean energy future. We look forward to continuing our efforts as we scale our portfolio of strategic assets and expand into new and existing markets around the globe. With that, let's turn to our results and the highlights for the first quarter. Excelerate delivered another solid financial performance during the first quarter. We reported $31 million of net income and $80 million of adjusted EBITDA. This strong start to the year is a positive step towards achieving our financial guidance that we shared with you in March. On the commercial front, our time charter with the Federal Republic of Germany for the FSRU Excelsior commenced in late February.
We remain committed to supporting the German government as it procures alternative gas sources and works to advance its development of renewable energy. In April, we took advantage of the opportunity to suspend temporarily our charter with the German government. This was so we can deploy the FSRU Excelsior to provide regasification services at the Bahia Blanca terminal during the Argentine winter. As expected, regasification services at Bahia Blanca began earlier this month. Other notable highlights include the closing of our amended and restated $600 million senior secured credit facility in March and the purchase of the FSRU Sequoia in April. Dana will provide more insights on this transaction in just a few moments. Lastly, on May 9 we Excelerate Board of Directors declared another $0.025 dividend per share reaffirming our commitment to returning capital to shareholders.
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Next, I'll share some perspectives on the current state of the global LNG market. In Europe, the demand for FSRUs is being driven by countries that prioritize energy security and preparation for the upcoming winter. However, milder than expected winter has resulted in European natural gas inventories remaining at levels above historical averages. Current inventories are approximately 60% full compared to an average of approximately 45% over the last eight years. As Europe prepares for the '23, '24 winter season, the European Commission is targeting storage levels to be at approximately 90% capacity by November 1 of this year. Additionally, the market has seen benchmark LNG prices decline when compared to the highs of 2022. These lower LNG prices have enabled countries like Argentina, Bangladesh and other Asia-Pacific countries to resume spot purchases in the first quarter of this year.
Although the macro drivers vary between regions, we expect to see healthy global demand for LNG in the second half of 2023. Excelerate is committed to helping countries in both Europe and the global south access LNG supply necessary to meet their evolving energy needs. This continues to be the case in Bangladesh, were just last week we were awarded our second LNG cargoes this year. We are also continuing to advance negotiations with Petrobangla for our planned Payra project. This includes discussions on the term sheet and a long-term SBA. And as we mentioned on our last call, we continue to advance financing options and evaluate potential equity partners. Across our global footprint, we continue to see the environmental and social impact of our operations.
Excelerate's LNG deliveries displace diesel, fuel oil and coal resulting in cost savings and reduced emissions. Our FSRUs in Bangladesh deliver approximately 20% of the country's total gas supply. Since we introduced LNG to Bangladesh in 2018, the government has had increased confidence to move forward and cancel plans for numerous coal-fired power plants. And in Brazil, our operations served as a reliable backstop to the country's energy system for which intermittent renewable energy contributes approximately 85%. The flexibility and reliability of LNG in these countries allow businesses from large industrial users to small and medium sized enterprises to thrive and grow their operations. These are just a few examples of the tangible impact, we are making in countries around the world.
We look forward to sharing more details and our efforts in our upcoming sustainability report, which will be published later this year. In closing, as a global energy company Excelerate is focused on enhancing energy security and accelerating the transition to a clean energy future. Our strategic priorities remain, operating a profitable and growing fleet of FSRUs, growing our existing regasification business, expanding our downstream gas sales customer base in existing markets, leveraging our global presence to enter new markets, and managing a diversified portfolio of LNG supply. Now I will turn the call over to Dana to walk through our first quarter financial results.
Dana Armstrong: Thanks, Steven, and good morning everyone. We are pleased with Excelerate's performance for the first quarter of this year and we remain on track to execute within the guidance we provided on our last call. For the first quarter, our adjusted EBITDA was $80 million, a 27% increase over the first quarter of last year and a decrease of $10 million as compared to the fourth quarter of last year. The year-over-year increase was driven primarily by higher margins earned on our gas sales contracts in Brazil along with gas sales into Finland in the first quarter of this year, as well as higher FSRU services revenue driven by our new gas contracts in Finland and Germany. As compared to the fourth quarter of last year, the sequential decrease was driven primarily by the scheduled dry dock for the FSRU Excelsior along with higher planned maintenance expense at our terminal Bangladesh.
This sequential decrease was partially offset by margin over performance from our Brazil gas sales contracts. In recent weeks we closed on two transactions which has strengthened our balance sheet and financial position. Last quarter we discussed our amended and restated senior secured credit facility, which gives us enhanced flexibility and leaves us better positioned to finance our growth and business development initiatives. The facility consists of an amended 350 million revolving credit facility and a new $250 million Term Loan. The amended revolver has a four-year tenure that matures in March 2027 which is an extension from the original maturity of April 2025. Last month, we completed the purchase of the FSRU Sequoia one of the most capable vessels in our industry for $265 million using the proceeds from the term loan and cash on hand.
Acquiring the Sequoia at a price well below current market value ensures that the vessel will remain an integral part of Excelerate fleet for the long term. We look forward to continuing to utilize the vessel to provide flexible access to cleaner and more reliable energy for our customers. As a result of the vessel purchase, Excelerate will cease to incur roughly $28 million of annual rental expense for the Sequoia bareboat charter. Now let's turn to our liquidity and balance sheet. As of March 31, Excelerate had $530 million of cash and cash equivalents on hand, $42 million of letters of credit issued and no outstanding borrowings under our revolver. Our gross leverage ratio was 2.8x at the end of the first quarter compared to 2.2x at the end of the fourth quarter.
On a net debt basis, our leverage ratio was 1.1x. Next I'll share a few thoughts on our capital allocation and our financial outlook. Total CapEx for the quarter was $15 million. This includes roughly $7 million of maintenance CapEx, which is mostly related to the dry-dock activity, the additional $8 million of growth CapEx was primarily related to customer requested winterization upgrades for Finland. Maintenance CapEx for the year is still expected to range between $15 million and $35 million. As discussed on the last call, growth CapEx spend for 2023 beyond the $265 million that was spent in April to purchase the Sequoia will be disclosed either as incurred or subsequent to the execution of binding agreements. We are committed to maintaining a prudent and disciplined approach to capital investments, which means prioritizing investment opportunities that maximize the returns of our assets given the increased competition globally for FSRUs and LNG infrastructure.
Looking ahead, based on results to-date, we are reiterating our financial guidance for 2023. For the full year, we expect our adjusted EBITDA to range between $320 million and $340 million. We're confident in our ability to meet this guidance range. With that, we'll open up the call for Q&A.
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