Stabilis Solutions, Inc.

Ladies and gentlemen, before we begin today's call 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 August 5 2021. 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 press releases announcing the company's results. Investors are cautioned not to place any undue reliance on any forward-looking statement. I would now like to welcome you all to the Stabilis Solutions Q2 2021 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to Jim Redinger, President and CEO of Stabilis Solutions. Please go ahead, sir.

Thank you. Good morning, everyone. Thanks for joining us today. Again, this is Jim Redinger, the President and CEO of Stabilis, and joining me on the call is Andy Pujala, our Senior Vice President and Chief Financial Officer. We're here to report a lot of great things today, including our best second quarter ever and a number of exciting growth initiatives that took shape in the quarter. After I review some of the highlights of the quarter, Andy will jump in and discuss our financial results and then we'll follow up with a Q&A session. I'm pleased to report that Stabilis has continued its strong momentum from the first quarter of this year to produce yet another record performance in the second quarter. The company achieved its highest ever revenue for second quarter of $16.1 million, representing a year-over-year increase of 221% from the second quarter of 2020. This was the fourth quarter out of the past six that we have set a record revenue, either overall or for the comparable quarter. We also set a record for LNG gallons delivered in the quarter, with 13.7 million LNG gallons delivered in the second quarter. This record performance demonstrates the increased interest in LNG we're seeing from our customers every day across a lot of sectors. LNG provides our customers with a cleaner, reliable, and cost-effective fuel alternative if they navigate their business through the energy transition. And the marine fueling industry provides a great example of some of the tremendous growth opportunities ahead of us. Several industry sources project that the use of LNG as a marine fuel will grow at a 30% per year rate over the next five-year period, as more and more ship owners and operators use LNG to meet their emissions targets. As such, we expect the marine bunkering market to be a significant growth driver for Stabilis over the coming years. In addition to the LNG and hydrogen marine bunkering activities on the West Coast that we have discussed on previous calls, Stabilis is building a network of marine bunkering hubs that will allow us to provide LNG marine bunkering services throughout the Gulf Coast. On May 4th, we announced an MOU with the Port of Corpus Christi to develop and market LNG marine bunkering services. And just this week, we announced a second LNG marine bunkering memorandum of understanding with the Galveston Wharves, also known as the Port of Galveston, giving us two major LNG fueling locations on the Gulf Coast. At these locations, Stabilis will use our existing cryogenic equipment fleet and LNG supply network to provide shore-to-ship LNG bunkering services to marine vessels today. We are currently in discussions with several major marine LNG customers and plan to have our first LNG fueling events completed in 2021. As these fueling events increase in size and frequency, we plan to work with our port partners and our industry partners to install custom-built LNG marine bunkering solutions, such as bunkering barges in various ports across the country. In addition to the significant progress we made in the LNG marine bunkering market, Stabilis also recently completed the acquisition of its second LNG production facility in Port Allen, Louisiana, which is right across the river from Baton Rouge. The Port Allen facility is strategically located in the Gulf Coast region and will support some of our largest industrial customers. In addition, Port Allen currently supports marine bunkering for the largest LNG-powered offshore supply vessel fleet in the Gulf Coast. The facility has a production capacity of 30,000 LNG gallons per day, which increases our total production capacity by approximately 30%, and provides us further runway for organic growth. It also provides production diversification and flexibility between the Port Allen facility and our George West facility to better serve our customers. This state-of-the-art plant was acquired at a cost per LNG gallon of production that is significantly less than it would have cost us to build a new facility. and the site layout and pipeline access provide us future opportunities for expansion on that site. The Port Allen acquisition is expected to be accretive in 2021, and we project the incremental annual EBITDA to be between $2.5 and $3 million, due to both increased operating leverage across the business and incremental revenues. We believe there are other LNG production facility opportunities, acquisition opportunities available that will allow us to expand our production capacity further. And we will continue to take advantage of these opportunities when the value and strategic fit is compelling. To complete my review of the second quarter, we also secured a $10 million credit facility that will provide working capital to fund our growth. And of course, we were listed on NASDAQ and began trading in April. Overall, we feel like we're up to a great start this year, not only by improving the performance of our base business significantly, but also by investing in key growth markets and key growth opportunities. And as always, I'd like to acknowledge and thank everyone on our outstanding Stabilis team for their continued dedication and hard work. Every great business starts and ends with a tremendous team and a tremendous team effort, and at Stabilis, we're blessed with both. Later on in the call, I'll discuss our growth outlook, but first I'll turn it over to Andy to review our financial results. Andy?

Thank you, Jim. As Jim mentioned in his opening remarks, for the second quarter ended June 30th, 2021, Stabilis reported its highest ever second quarter revenues of $16.1 million, an expected decrease sequentially from the $17.7 million in the first quarter, but a substantial year-over-year increase of 221% from the second quarter of 2020. As a reminder, our business is seasonal, with the first quarter normally being one of the strongest quarters of the year. due to winter peaking activity, primarily in the Northeast. Our year-on-year growth was largely driven by increased economic activity, including growth in power generation projects, continued expansion of the company's Mexico operations, and increased activity with aerospace and oil and gas related customers. Revenues from Stabilis LNG segment totaled $14.4 million this quarter, an increase of $10.4 million from the second quarter of 2020. but 1.4 million below our record Q1 due to the seasonality of our business I mentioned earlier. Our company delivered a record 13.7 million gallons of LNG to customers during the quarter, a 197% increase compared to the second quarter of 2020 and 2% higher than our previous record achieved in Q1 of this year. Revenues from our power delivery segment increased 70% compared to Q2 of last year to 1.7 million as a result of new projects. Sequentially, the power delivery segment was up approximately 8%. The company is making investments in both its sales and marketing and field service and logistics teams to meet increasing activity levels anticipated later in the year. Operating expenses and SG&A have increased during the quarter as a result. Earnings before interest, taxes, depreciation, and amortization, or EBITDA, was $1.6 million in the quarter. The company qualified for full forgiveness of its payroll protection program loan of approximately $1.1 million that was received in the early stages of the pandemic. Adjusted EBITDA after removal of the loan forgiveness was $0.5 million compared to an adjusted EBITDA loss of $0.8 million during Q2 of 2020. Net loss for the second quarter of 2021 was $1 million compared to a loss of $3.5 million in the year-ago quarter. Cash and cash equivalents as of June 30th were $3.3 million as compared to $3.1 million at the end of the first quarter. The company also had $3 million available under its credit facility with AmeriState Bank. With that, I'll turn the call back over to Jim to discuss our outlook.

Thanks, Andy. I think the theme of today's call is growth. The growth in our base business has been tremendous over the last several quarters. including driving record revenues and record LNG gallons delivered. We expect to continue to post strong results in our base business in 2021 and beyond as demand for LNG across multiple industry sectors continues to grow. In addition to this growth in the base business, though, we continue to lay the foundations for step change growth in the business as the energy transition opens up new markets for LNG and related products. As I discussed earlier, we're aggressively attacking the large and high growth marine LNG market with both port and customer relationships. With several international organizations projecting 30% compound annual growth and demand for LNG marine fuel over the next five years, we're very bullish on this market segment. We believe that our market leadership and shortage ship bunkering will translate into large long-term customer relationships that will support our entry into more profitable LNG bunkering investments. We're excited by the many possibilities that our port LNG production facility opens up for us, and we believe the deal will be highly accretive to shareholders based on the acquisition price and our ability to sell fuel from that location immediately. Furthermore, we believe that additional accretive acquisition opportunities exist, and we'll be reviewing them as they become available. Finally, we continue to make progress in our Mexican distributed natural gas business. We have several exciting projects in the Mexican business development pipeline, including both LNG and CNG, or compressed natural gas projects, and we hope to discuss those soon. Overall, Mexico remains a key growth market for Stabilis. We continue to make growth investments in all these businesses, such as adding marine LNG technical and business development personnel, adding to our sales coverage in targeted markets throughout the US and Mexico, and increasing our engineering and field service teams. These investments are critical to growing the top line and responding to the many opportunities we see in front of us. We're excited about our second quarter performance and are now focused on how we can continue to build on those results and improve on our existing business. The needs of the energy transition are driving our customers across all sectors to find what we call enlightened energy solutions, which are solutions that meet their environmental and sustainability goals, but also provide economically viable and reliable energy solutions. We look forward to updating on our progress over the coming quarters, and with that, I'll open the lineup for questions. Moderator?

Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while you poll for questions. Your first question is coming from Bill DeZellum. Your line is live. Good morning. Thank you.

Good morning. A couple of questions for you. The press release stated that marine bunkering will be a significant driver in 2022. What's needed to convert the announcement to an actual increase in revenue, or is it really referring to the Port Allen facility, which is up and running already?

Bill, we're seeing the demand for LNG bunkering growing, like I said on the earlier remarks, 30%. compound annual growth rate across the world. Right now, there's about one million tons per annum of demand, and it's expected to go to about four over the next several years. And so the growth is there. There are LNG bunkering hubs and services available in both Europe and Asia. And the growth in the U.S. is happening now in terms of building out that infrastructure. So our steps in partnering with the Port of Corpus Christi and Galveston Wharves is to provide availability of bunkering services along the Gulf Coast, which right now isn't readily available. And in doing that, it's already attracting LNG-fueled vessels to that market. So in the past, where they might have had to plan to fuel in other markets in Europe and Asia, we're now having dialogue with multiple customers about having those fueling events happen along the Gulf Coast as early as the third or fourth quarter of this year. So it's a – now that the service is available, the ship owners and operators are able to plan on coming to the Gulf Coast to fuel. And if you remember from prior calls, these fueling events, depending on the type of vessel, can be anywhere from a couple hundred thousand to as much as half a million gallons an event. So they're major events, and we expect to see – Those events start to happen here soon.

Jim, am I understanding correctly that, you know, unlike when my automobile needs fuel, I just pop into the gas station, that this is actually a scheduled event and they would be contacting you to be sure that you're prepared for delivering that couple hundred thousand or half million gallons. And so you have some line of sight there going on. Is that correct?

Yeah, you have some line of sight. It depends on the operator and the circumstance, but it's anywhere from a few days to a few weeks visibility on when that's coming. Ultimately, this market will develop into more of the, as you called it, the gas station model where it's more freely available. But in early days of development, as we put more assets to service here, it will be more of a planned event.

That's helpful. And what do you need to do at Corpus Christi, and what's the physical activity that's still remaining to be prepared? Is there infrastructure that needs to be put in place, and so this is a construction project, or kind of walk us through how we get from here to actually fueling ships, please.

Sure, sure. So the whole premise behind our strategy is we've got a fleet of cryogenic equipment, mobile cryogenic equipment. We've got a network of LNG supply, including our own supply. And our strategy is to put those things to work to provide the LNG bunkering services now, as opposed to waiting for the market to develop to justify the larger investments that are going to need to happen eventually in bunkering vessels and on port or in port LNG supply. And so we're trying to get out in front of the market, offer the solution today. Um, and then once the volumes build, we can back that up with further, uh, longer term investments, uh, in these individual ports. So right now, uh, there's a permitting process and, uh, uh, an approval process to go through with fire marshals and coast guards and other agencies. Uh, but once we do get through those processes, we'll be able to roll up to ports and do bunkering from our mobile equipment to the ships almost immediately.

So to make sure I'm clear, once the permitting is complete, you'll use your mobile assets or portable assets, but as time goes on and the activity level increases, that's when you will put more CapEx in place and have permanent infrastructure.

Yes. Exactly.

That's really helpful. Thank you. And presumably that's a model that's repeatable, you know, whether it be a port on the West Coast, on the East Coast, or the Gulf Coast, frankly, in Mexico, I suppose, for that matter.

Yeah. And then we're looking at opportunities in all those places now.

Excellent. Thank you. And then one additional question, and this is really coming from a point of ignorance as opposed to being critical. your gallons delivered in Q2 were slightly greater than the gallons delivered in Q1. So congratulations. That's a big positive. But yet the revenues were down 1.6 million sequentially. Can you talk through how that interplay between the Q1 seasonality and the Q2 and revenues in gallons, how all that works.

Yeah, yeah, yeah. So as we've talked about in the past, we've got a seasonal peak in our business that happens in the winter seasons, primarily driven by winter peaking activities at pipelines and utilities where they need to have LNG to supplement their pipelines when peak demand comes in the cold seasons. And so we have a very nice business across the country and primarily in the Northeast where we have a lot of equipment rental and manpower engaged in those winter months to serve those winter peaking needs. And so when we get rolled from Q1 to Q2, there's a large equipment rental and labor component from those winter peaking jobs that comes down sort of in that February, March timeframe. And so that gap in revenue that you're seeing is primarily consisting of that winter peaking equipment and labor component.

Great. Thank you. And then I am going to try to squeak one more question in. You, in many of the past calls, have had announcements about significant project wins or progress that you're making towards whether it be mining or some other large potential new customers. What update do you have for us today?

I thought we did pretty well with the listings and the all the things that happened in the second quarter. So I think we were pretty busy in the second quarter on the project we talked about in Marine and on the acquisition that we made, on the relisting, et cetera. I'd say that we've had pretty consistent growth and demand across a number of sectors, not just in one or two projects, across a number of sectors that are growing this record revenue, and we continue to see that happening going forward. We are progressing on Several projects, like I mentioned, in the Mexico market that we hope to be able to come back with more information on soon. And, yeah, a number of other things in the pipeline that we'll talk about as soon as we can.

Great. Thank you, and congratulations on a nice quarter. Thanks, Bill.

Thank you. There are no further questions in the queue at this time. Once again, ladies and gentlemen, if you have any questions or comments, please press star 1 on your phone at this time. Please hold while you poll for questions. There are no further questions in the queue. I will now hand the conference back to Jim Redinger for closing remarks. Please go ahead.

Thanks much. Appreciate everybody getting on the call today, and we look forward to talking to you after we have another good quarter and third quarter. Thanks much.