Stabilis Solutions, Inc.

Good morning, ladies and gentlemen, and welcome to Stabilis Solutions' fourth quarter 2021 earnings conference call. Joining us today are Westy Ballard, President and CEO, and Andy Pujala, Chief Financial Officer. Before we begin, I would 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, March 10, 2022. 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 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. Currently, I'd like to turn the call over to Rusty Ballard, President and CEO of Stabilis Solutions. Please go ahead, sir.

Good morning, everyone, and thank you for joining us today. 2021 was a busy and transitional year globally, and our company was no exception. With a persistent pandemic, stressed supply chains, and inflationary pressures on the rise, uncertainty abounded. 2022 doesn't seem like things are slowing down either with the Eastern European conflict, soaring commodity prices and jittery capital markets. Despite all of this, I want to say how grateful I am to the incredible men and women of our company who've persevered through these trying times. And I remain in awe of their hard work and commitment on your behalf every day. Since joining the company in late August, our team has focused on several key initiatives that I feel are very important to the future success of the company. And I would like to update you on two specific areas. The first is the enhancement and optimization of our existing LNG business. And the other is advancing our strategy for the expansion of LNG into new and what I feel are really exciting markets. Along the optimization front, Think of this as managing the short-term while we continue to develop and deliver long-term strategies to add significant value to all of our stakeholders. In doing so, we continue to aggressively implement programs to increase efficiencies and productivity across almost every part of the company. It is our goal to institute a variety of ways to enable us to better predict outcomes versus react to them as we did during the latter part of 2021. In the fourth quarter, we refocused managerial roles and responsibilities, streamlined our commercial approach, and designed more effective tools to better track customer progress. During the quarter, we also realigned responsibilities in our operations and technical groups to ensure seamless collaboration between our organization and our customers. In 2021, inflationary pressures were on the rise, and transportation and labor were most meaningfully impacted at Stabilis. These higher costs contributed to margin decline throughout the year. However, beginning in the fourth quarter, through our efforts, we were able to better control costs as well as engage in meaningful interactions with our customers around price increases. As we progress through 2022, we will remain focused on recovering inflationary cost increases through our pricing programs and through aggressive management of our cost structure, where I can tell you that no stone will be left unturned. Our commercial teams continue to work diligently on executing 2022 pricing plans, and we have recently witnessed a considerable number of customers renew at favorable increases. On the cost front, several initiatives are underway to optimize our vendor base as well as to improve our labor efficiency. As we progress through the year, I am optimistic that we will continue to make great progress along these fronts, but also know that this is a continuous exercise. always with our focus on maximizing the return on our asset base and enhancing liquidity in our existing LNG business. While we have worked hard on our current business, also in the fourth quarter, we worked diligently to lay the groundwork for the expansion of our LNG business into two transitioning sectors, maritime and aerospace. These two platforms are really exciting to us and have enormous potential to drive scalable long-term value. Regulations are a key driver for lowering emissions across a variety of geographies and industries, and in the shipping industry, the International Maritime Organization, or IMO, is arguably the most influential regulator. With the world's fleet mostly powered by fuel oil, in January 2020, the IMO implemented a key regulation requiring ships outside certain designated emission control areas to limit the sulfur and fuel oils used to 0.5%. a significant reduction from the previous limit of 3.5%. Within these designated control emission areas, coastal areas of the U.S. being one of them, an even stricter limit of 0.1% has been implemented. With roughly 90% of the world's trade moving by sea, this is a considerable task to reduce emissions, requiring ship owners and operators to quickly identify ways to become compliant through meaningful investments in their existing fleets and or adopt alternative fuels for propulsion. The adoption of any alternative fuel for shipping will face challenges, and the severity of each challenge will vary. Key considerations include energy density, technological maturity, emissions, cost to retrofit, cost of new fuel sources, availability, and refueling infrastructure or bunkering. As carriers explore their alternatives, we believe LNG will be the choice of many, and signs indicate the market is rapidly escalating. Currently, the market is dominated by conventional fuel oil with alternative fuels representing less than 1% of the total fleet. However, that paradigm is rapidly changing as alternative fuels represent about 12% of total new-build ship orders and LNG representing a little more than half of that. With roughly 269 LNG-fueled vessels in the world, that number will grow considerably to a little over 700 over the next few years, a number that has potential to further increase. In addition to fuel oil, access to refueling points is another key consideration. Current global LNG bunkering consists of about 125 ports and bunkering vessels and another 100 or so developing capabilities. Heavy concentration is outside of the U.S. However, given the U.S.' 's favorable competitive positioning in natural gas, supply, reliability, security, and price, the U.S. has tremendous potential to be a premier bunkering hub for LNG-fueled vessels. Needless to say, we're pretty excited about this market and meaningful impact the switch to alternative maritime fuels can have on our company, so stay tuned. Moving to aerospace, driven by declining launch costs, advances in technology, and rapidly growing interest in the private sector, the race to space's final frontier is moving quickly, and the market is estimated to reach as high as $1 trillion by 2040. Space exploration is a tricky endeavor, however, requiring superior components and propellants for successful travel. Stating the obvious, propellant in space exploration is arguably one of the most crucial components of spaceflight, as without it, the rocket is grounded. Rocket fuel performance is measured by a property called specific impulse, which is essentially how efficiently the rocket is using its propellant to create thrust. So choosing the right liquid to mix with oxygen is paramount. LNG is increasingly becoming a leading choice for fuel source, given its overall positive characteristics compared to other fuels. LNG's combination of high energy density and low volumetric storage requirements result in more efficient and cost-effective space flights. LNG is also considerably easy to work with when storing because it doesn't require as large a tank infrastructure, and LNG is easier to transport. Production of LNG is cheaper and easier to produce than competing fuels and is safe and reliable. As we continue to build out this growth platform, we will continue to explore avenues to support not only primary propulsion needs of the industry, but for other launch vehicle propulsion and some component manufacturers using fuels in their test labs. Both the maritime transition and cleaner fuels and the new genre of space exploration are in early growth stages and not without their own set of growing pains. However, as they mature, we feel our numerous competitive advantages position us well to service these two rapidly growing platforms safely and efficiently. Aside from owning two strategically located liquefaction plants, Our comprehensive commercial, technical, and logistical capabilities also offer clear competitive advantages, allowing us to rapidly respond to customer requests across the entire U.S. As time progresses, we also look forward to collaborating with current and prospective customers to develop proprietary insights and capabilities to further their energy transition goals, including a variety of forms of LNG and hydrogen. Before I turn the microphone over to Andy, it's important for you to know that though we are a relatively new and small public company, we are absolutely dedicated to aggressively growing our company. In doing so, we will be thoughtful in our approach to methods of financing our growth, and when necessary, a variety of options will be explored, all with the unwavering goals to maximize stakeholder value and to make Stabilis a legitimate, investable security for many years to come. With that, I'll turn it over to Andy to discuss fourth quarter year results.

Thanks, Westy, and good morning, everyone. For the fourth quarter of 2021, Stabilis reported another quarter of record revenues. Q4 revenues were $23.7 million, 21% higher than the third quarter of this year and 73% higher than the year-ago quarter. Revenues from our LNG segment of $20.9 million were also a record, a 17% increase from the third quarter of this year and 73% higher than the year-ago quarter. In the fourth quarter, we delivered a record number of LNG gallons to customers, consisting of broad-based increases with customers in Mexico, the energy and aggregate sectors, and aerospace. These increases were partially offset by fewer gallons delivered to power generation customers due to the seasonal decline in electricity needed for cooling in the southeastern U.S. Our revenues also benefited from higher gas prices during the fourth quarter of 2021. Generally, we pass these gas commodity costs through to our customers. Sequentially, our revenues benefited by approximately $4.3 million due to a higher gas index. Year over year for the fourth quarter, the impact of higher gas prices on our revenues was approximately $4.1 million. Revenues from our power delivery segment were $2.9 million, an increase of 49% from the third quarter of this year, and 77% higher than the year-ago quarter as our Brazilian subsidiary is seeing increased demand for their products and services as Brazil emerges from severe COVID outbreaks and restrictions over the past two years. Net loss for the quarter was 2.3 million compared to 4.6 million in Q3 and 0.1 million in the year-ago quarter. Adjusted EBITDA for the quarter was 0.9 million compared to 1.4 million in the third quarter of this year and $2.3 million in the year-ago quarter. For the full year of 2021, revenue increased by 86% from the prior year as the company resumed its growth trajectory that was interrupted by COVID in early 2020. Stabilis reported full-year 2021 revenues of $77.2 million and LNG segment revenues of $69.2 million, both of which were company records. For the full year, we saw a significant increase in demand for LNG across multiple sectors, particularly around remote power generation. Our Mexico business continued to grow and mature in 2021 and was responsible for approximately 14% of our total revenues. Power delivery segment revenues were $8 million for the year compared to $5.3 million in 2020. Net loss for the year was $7.8 million compared to $6.8 million in 2020. Adjusted EBITDA for the year was $5.5 million, an improvement of 60% compared to the $3.5 million reported in 2020. During the year, we generated positive cash flows from operating activities of $4.9 million, a significant improvement over the $1.3 million generated in 2020. We ended the year with 2.1 million of cash on our balance sheet and 2 million of available capacity under our bank agreement with AmeriState Bank. Additionally, in March of 2022, we executed an amendment to our term loan with MG Finance, which extends the maturity to December of 2023, reduces our interest rate, and reduces our debt service requirements in 2022. The combination of our anticipated 2022 operating cash flows cash on hand, capacity under our bank agreement, amended term loan, and limited 2022 CapEx needs will provide us adequate liquidity to execute our 2022 growth plan. With that, let's open the call for questions. Moderator?