Stabilis Solutions, Inc.

Good morning, ladies and gentlemen, and welcome to Stabilis Solutions' third quarter 2021 earnings conference call. Joining us today are Westy Ballard, President and CEO, and Andy Pahala, 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, November 11, 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 the press release announcing the company's results. Investors are cautioned not to place undue reliance on forward-looking statements. Please also note that the company may refer to certain non-GAAP financial information on today's call. You can find 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'd like to turn the call over to Westy Ballard, President and CEO of Stabilis Solutions. Please go ahead, sir.

Thank you, and good morning, everyone, and thanks for joining us today. Considering this is my first conference call as CEO, I thought it would be helpful for me to provide a few initial observations as well as how I feel our company fits into the grand scheme of our world's environmental transformation to one that is cleaner and more sustainable. In doing so, one thing that remains abundantly clear to me is that a variety of solutions will be required to make this happen. Each of these solutions have their own unique characteristics and have and will continue to garner significant investment of time, intellect, research, capital, and political thought. Regardless of the industry or application, realizing a cleaner and more sustainable environment is about efficiency. It's about the transformation of how products are designed, delivered, and used. And it's about the drive to renewables. Renewable solutions will undoubtedly be the primary source for new power generation globally. And while there has been progress to date, many challenges, including legislative volatility, uncertainty of global participation, unreliability, and economic viability continue to inhibit and greatly postpone their comprehensive and widely accepted adoption. But that's not the case for all solutions, and one solution, natural gas, is available now. This fuel is sustainable, secure, reliable, and economically viable and will play a key role in the bridge to renewables. It is important to note that while liquefied natural gas is our current offering, We do not view it as the end game, but rather it's the starting point. As many of you know, I joined the company in late August and albeit a short period of time, my time here has only reinforced my initial thoughts on why this is such an exciting platform. And it starts with our people. Stabilis is incredibly blessed to have a really good team with talent spread across every aspect of the organization, commercial, technical, financial, and operations. I've had the good fortune of working with a variety of talents throughout my career, and I'm pleased to say that ours is exceptional. And I look forward to leveraging their skills and capabilities to support our current business and beyond. We're also blessed to have a fantastic customer base. It is our intention to remain close with our customers as well as to continue to design and develop commercial and operational strategies to better anticipate their needs and those needs of prospective new customers as well. And with this team and our wonderful customers, I feel there are focused strategies to build upon here at Stabilis. As you know, today we are one of the largest turnkey providers of liquefied natural gas solutions in all of North America. We produce, source, store, and transport via virtual pipeline, also known as trucks, LNG to customers in approximately 25 states and Mexico. We have a robust commercial and technical competency, that extends well beyond just the LNG solution. We have a consistent track record of safe and reliable delivery, having delivered in excess of 285 million gallons of LNG since our inception. Our approach is highly differentiated given our ownership of two strategically located liquefaction plants, which ensure better reliability, control, and consistency of our product, all complemented by our technical engineering and support offerings. In the US alone, more than half of the natural gas pipeline infrastructure was built prior to 1970, and with this aging infrastructure and a louder chorus opposing any material new investment in expanding that infrastructure, an increasing number of industries will face challenges in having access to this critical bridge fuel. Given our capabilities, our company is in a fantastic position to address these challenges. Practically every industry on the planet has a need for our products and services, as evidenced by an already diversified customer base spanning across many sectors. Beyond our legacy in-market participation, we feel that we can further expand our offerings into additional exciting growth drivers in sectors like maritime, airspace, and technology. Over the last several months, we have announced partnerships with key ports along the Gulf Coast to offer LNG fueling solutions for the global maritime industry. LNG bunkering infrastructure is much more mature internationally. However, given the recently enacted IMO 2020 mandate by the International Maritime Organization requiring significant desulfurization of ocean vessels, we think there are interesting opportunities to grow the LNG bunkering capability in the U.S. as well. While global demand for LNG marine fuel is expected to quadruple over the next three years alone, and the number of new-build LNG-fueled vessels on order is expected to double the fleet by 2023, we are also evaluating other low-carbon fuel sources as they become more viable and plentiful. We feel our experience and technical know-how will play an extremely important role in their adoption too. I'm also very excited about the Race to Space. Given its high energy density, along with a variety of other attributes, natural gas will likely play an increasingly important role in powering our nation's next generation of rockets into outer space. And like the maritime industry, by leveraging our robust commercial, technical, and operational capabilities, we will be well positioned to participate in what has promised to be an exciting growth driver. We also think there are interesting opportunities in the international markets, and our company has leadership with a considerable experience operating in foreign geographies. In the past, we have specifically discussed Mexico as our largest growth opportunity. We operate there today, and I can say that Mexico, along with other countries, present potentially exciting growth opportunities to expand current and future offerings. Many countries are in high demand for a variety of energy solutions across a variety of applications, and each of these have goals for lowering carbon emissions, and we will thoughtfully continue to evaluate our role in foreign markets and our best path forward. Operating internationally requires scale and significant balance sheet capacity. As we grow, it stands to reason that the international markets will become of increasing interest to our overall story. Beyond our current business, there are a variety of other solutions that are natural extensions of our company to drive future growth. Along the gas continuum, compressed natural gas and renewable natural gas each have very interesting facets. Tax subsidies and better understanding of the ability to scale R&G feedstock will play key roles in its sustained viability. Further down the renewable spectrum, momentum for hydrogen has increased largely driven by North America, Europe, and more recently, Australia. Similarly to RNG, governmental policies will play a key role in how companies think about their hydrogen strategies, but on a high level, this molecule possesses many, many interesting applications. In fact, earlier this year, we were engaged by West Coast Maritime Company to assist in fueling design and operational procedures for the bunkering of hydrogen for one of their passenger ferries. This has been a fantastic project, and we feel just the beginning of additional and exciting avenues we're evaluating in order to play a larger role in hydrogen. In addition to fuels, we're also evaluating a variety of other technologies and capabilities like emissions management to capture, sequester, repurpose, and or eliminate emissions. Those mentioned will be evaluated both organically and inorganically to further solidify our standing in facilitating this world's environmental transformation. And as these growth strategies become more developed, rest assured, we will be eager to share them with you. I am excited about our current and future developing plans. I am excited about our team. I am also excited about our positioning to be a significant contributor to what I believe is one of the most exciting new market opportunities of our lifetime. I believe this is only the beginning, which is why I think that our company is a tremendous growth story and one that warrants legitimate investor consideration. As a small and relatively new public company, we are committed to working tirelessly to help investors understand what is driving our business, why we are unique, and how we plan to deliver long-term value to all of our stakeholders. And with that, I will turn it over to Andy to discuss the third quarter results.

Thanks, Westy, and good morning, everyone. I'm pleased to report that for the third quarter of 2021, Stabilis reported its highest ever quarterly revenues of $19.7 million, 23% higher than the second quarter of this year and 118% higher than the year-ago quarter. Revenues from the company's LNG segment were also a record of $17.8 million, a 24% improvement from the second quarter of this year, and 132% improvement over the same quarter last year. The company delivered a record of 15 million gallons of LNG during the quarter, 10% higher than the second quarter of this year, and 82% higher than the year-ago quarter. Plant utilization of our two LNG plants was combined 73% during the quarter. Our ability to further improve this utilization along with our network of third-party LNG providers, allows us to further grow the organic revenue base to support some of the exciting growth opportunities that Westy mentioned in his opening remarks. Revenues from our power delivery business were $1.9 million in the quarter, 16% above the segment's Q2 revenues and 42% above the same quarter last year. SG&A expenses were $6.2 million during the quarter, primarily due to approximately 3 million of charges related to severance, legal expenses, and immediate vesting of long-term incentives related to our CEO transition during the quarter, which should not be recurring. Without these costs, our G&A would have been approximately 3.2 million, 17% lower than Q2 of this year, in part due to cost control initiatives currently underway. SG&A for the comparable quarter last year was 2.3 million, as our cost structure was significantly reduced to support the lower revenues during the height of the pandemic. The company also recorded an impairment charge of $376,000 during the quarter related to the termination and settlement of the lease for our previous corporate headquarters. Earnings before interest, taxes, depreciation and amortization, or EBITDA, was a loss of $2 million in the quarter, primarily as a result of the CEO transition costs and impairment charge mentioned earlier. Adjusted EBITDA after removal of these items was $1.4 million for the quarter, 162% improvement over the $0.5 million recognized in the second quarter of this year, and a 274% increase compared to an adjusted EBITDA of $0.4 million during the same quarter of last year. Net loss for the quarter was 4.6 million. As many of you are aware, inflationary pressures have impacted a wide variety of companies over the last several months, and we have experienced these same headwinds in gas feedstock, transportation and logistics, and personnel costs that have compressed our margins over the past several quarters. We are focused on cost controls and cost reduction opportunities, as well as reviewing our customer pricing to ensure our revenue is commensurate with any aforementioned cost pressures to protect our margins. We finished the quarter with $2.9 million of cash on hand and $3 million of availability on our advancing loan with AmeriState Bank, which, along with our anticipated cash flows from operations and available financing options, should provide us sufficient liquidity to build on our record revenues and support our organic growth plans. With that, I'll turn the call back over to Westy for some closing remarks.