Stabilis Solutions, Inc. (NASDAQ:SLNG) Q3 2023 Earnings Call Transcript

Stabilis Solutions, Inc. (NASDAQ:SLNG) Q3 2023 Earnings Call Transcript November 12, 2023

Operator: Welcome to the Stabilis Solutions Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions] I would now like to turn the call over to Andy Puhala, Chief Financial Officer. Mr. Puhala, please go ahead.

Andrew Puhala : Good morning and welcome to Stabilis Solutions' Third Quarter 2023 Results Conference Call. I'm Andy Puhala, Senior Vice President and CFO of Stabilis. And joining me today is our President and CEO, Westy Ballard. We issued a press release after the market closed yesterday detailing our third quarter operational and financial results. This release is publicly available in the investor relations section of our corporate website at stabilis-solutions.com. 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 expectations and beliefs as of today, November 9, 2023.

Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. The company undertakes no obligation to provide updates or revisions to the forward-looking statements made in today's call. Additional information concerning factors that could cause those differences is contained in our filings with the SEC and in the press release announcing our results. Investors are cautioned not to place undue reliance on any forward-looking statements. Further, please note that we may refer to certain non-GAAP financial information on today's call. You can find reconciliations of the non-GAAP financial measures disclosed to the most comparable GAAP measures in our earnings press release.

Today's call is being recorded and will be available for replay. With that, I'll hand the call over to Westy Ballard for his prepared remarks.

Westervelt Ballard : Great. Thanks, Andy. And good morning to everyone joining us on the call. Today, I'm going to begin with a high-level overview of our third quarter financial performance, followed by an update on the exciting strategic progress we've made to further position Stabilis as a leading small-scale LNG fueling solutions company in North America. Our third quarter results were in line with our expectations. We delivered sequential revenue growth of 19% driven by a combination of higher sales volumes, strong demand from the equipment and labor portions of our business and higher-pass-through natural gas feedstock community -- commodity prices. Following roughly five months of reduced production at our George West liquefaction facility in Texas due to changes in feed gas composition, the facility returned to normal production levels at the end of August.

The return to these production levels was a result of our corrective actions taken, and we expect these levels to continue moving forward. On balance, the George West gas composition changes adversely impacted our second and third quarter adjusted EBITDA by $1.2 million and $1.3 million, respectively. With that overview, I'll now shift to a discussion of how our teams are working to execute our corporate strategy and specifically the significant progress we're making within the LNG marine bunkering market. In October, we announced a multiyear marine bunkering contract with Carnival Corporation. Carnival is a pioneering global cruise line committed to the decarbonization of their fleet through the adoption of LNG and alternative fuels and the first cruise line to introduce LNG-powered cruise ships in North America.

Under the terms of the contract, in addition to LNG supply, Stabilis will provide project management and permitting, field personnel, waterside infrastructure and logistics services to the Carnival Jubilee over the 2-year contract, with an option to extend the contract for up to an additional two years at the request of Carnival. Our supply of LNG will be on a firm and ratable basis; and will initially be provided from our own liquefaction facility in Texas; and delivered to the Clean Jacksonville, an LNG barge owned by Seaside LNG. We estimate the contract will utilize between 50% to 60% of our George West liquefiers' existing 100,000 gallon per day production over the life of the contract. Our relationship with Carnival is an important step in further solidifying our position as a premier provider of comprehensive and scalable supply chain and marine LNG fueling solutions and one committed to building a leading marine bunkering platform not only along the Gulf Coast but also at strategic ports across the country.

Since entering the LNG bunkering market two short years ago, we have engaged in full project development, management, engineering, support personnel, supply and operational services for the successful delivery of more than 2,000 loads of LNG to container ships, cruise ships and offshore supply vessels along three U.S. coasts. The Carnival contract will significantly increase our LNG marine bunkering business in the Gulf of Mexico and exponentially increases our volumes compared to historical levels. In addition to the Carnival award, we are engaged in front-end commercial, engineering and operational discussions with numerous vessel operators as they continue to evaluate their LNG fueling supply chain needs for their future LNG fuel vessels coming into service within their existing trade lanes and from potentially new ones.

A technician in goggles and gloves examining a gas pipeline, ensuring safe transportation of gas.

In further support of this, during the quarter, we completed the purchase of key components for an additional 100,000 gallon per day LNG train; and continue to evaluate a variety of waterfront locations for its deployment. This purchase represents the initial foundational footprint for future location and could rapidly scale thereafter given the modular expansion characteristics of small-scale LNG. This purchase, by no means, is an end state but instead the beginning of what we feel will be considerable investment in further expanding and optimizing our supply chain capabilities within our portfolio of owned and third-party assets across the U.S. As we actively evaluate expansionary options, it is important to remind everyone of our ability to rapidly source LNG at scale from a variety of third-party suppliers as well as from our George West, Texas liquefaction plant.

Given our plant's advantaged proximity in the Gulf of Mexico, we can utilize it to bridge LNG bunkering demand for Gulf of Mexico vessels till such time that we've expanded our footprint. With this asset, not only do we leverage an unmatched capability in the market, but in doing so, a portion of our plant sales mix shifts from predominantly spot offtake customers to customers at similar or higher margins; and for secure, ratable and termed contracts. As part of our growth strategy, we also continue to evaluate strategic partnerships with key ports and industry participants equipped to help support our rapid growth. We are also evaluating potential organic and inorganic expansionary opportunities that complement our strategic focus on clean fuels, new products, services and capabilities.

While we are the sole publicly traded small-scale LNG growth platform in North America, there is nothing small about the small-scale LNG growth opportunity. Our growth prospects are exciting. And Stabilis is very much positioned as a long-term growth story and a highly asymmetrical opportunity to invest in a rapidly growing company. Before I hand the call over to Andy, I would encourage you to review our new investor presentation which we recently added to the IR section of our corporate website at www.stabilis-solutions.com. This presentation walks you through our markets and the significant opportunities for profitable growth that we see ahead of us. Andy, I'll turn it over to you.

Andrew Puhala : Thank you, Westy. I'd like to add a little color to the reported results, particularly as it relates to our balance sheet, liquidity and future capital needs. Stabilis continues to consistently generate positive cash flows from operations and generated $1.5 million of cash from operations in the third quarter and $5.4 million in the first nine months of 2023, which allows us to continue to organically fund our core operations while pursuing these significant strategic opportunities that Westy has discussed. Noteworthy is that, even when our George West facility was operating at limited capacity due to our feed gas composition issues, we were still able to manage the business to positive operating cash flows.

Consistent positive cash flow from our industrial business will continue to be one of our key operational priorities as we scale the business. At September 30, Stabilis had total cash and equivalents of $4.9 million, together with $3.7 million of availability under our credit facilities. Total debt outstanding as of September 30 was $10.6 million, resulting in a ratio of net debt-to-trailing 12-month adjusted EBITDA of 0.7x. We have ample liquidity to fund our current operations and we continue to maintain a conservative capital structure. Additionally, the company has accelerated its capital investments in 2023 as we prepare for several exciting growth opportunities such as the recently announced Carnival bunkering contract. During the quarter, the company incurred $3.8 million of CapEx, bringing the year-to-date total to $9 million compared to only $1.7 million in the first nine months of 2022.

The increase is indicative of our growing conviction about the marine bunkering business. Included in the Q3 CapEx was the final payment for the major components of our second 100,000 gallon per day liquefaction train to support demand within our marine business. We're in contact with a variety of capital providers as we evaluate our financing options. We intend to be thoughtful in protecting shareholder value as we finance these expansionary projects. That concludes our prepared remarks. Operator, please open the line for the Q&A session.

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