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spk01: Good morning, ladies and gentlemen, and welcome to Stabilist Solutions' second quarter 2022 earnings conference call. Joining us today are Wesley Ballard, President and CEO, and Andy Puhalla, 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 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 11, 2022. 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 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 note that the company may refer to 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 Stabilist Solutions. Please go ahead, sir.
spk05: Thank you, and good morning, everyone, and thank you all for joining us today. Despite considerable uncertainty across global markets, our strategy of being a leading catalyst for environmental transformation is remains the same. The drive to renewables will need a variety of solutions and liquefied natural gas is a fantastic choice as a bridge and companion fuel to alternatives. As one of North America's largest turnkey providers of LNG, we feel our platform at Stabilis affords us a unique opportunity for rapid growth along the LNG continuum and beyond. Our two strategically located liquefaction plants ensure better reliability, control, and consistency of our fuel. Our strong internal commercial, technical, and logistical capabilities are best in class to ensure our customers' design, engineering, and implementation needs are exceeded. However, LNG at Stabilis is only our starting point, not our end state. So in addition to expanding our capabilities into new and exciting sectors with high demand, such as aerospace and marine bunkering, over time, we expect to leverage our platform to introduce alternative fuel sources like biofuels and hydrogen to our customers as a complementary blend with LNG and, in other instances, as a standalone. Turning the quarter, revenue remains strong across multiple sectors, including mining, utilities, and oil and gas. Increased volumes and higher natural gas prices were the main factors in revenue strength. As I've mentioned in the past, the diversity of our end markets we served is one of the great attributes of our company, which is why I'm excited about our aerospace revenue in the quarter and first half of the year. As you know, this is an important growth catalyst for our company, which is why we are pleased that the second quarter aerospace volumes were 56% higher than the first quarter and year-to-date volumes were almost double all of 2021 volumes and now accounts for approximately 10% of our revenue. More broadly, along the operational front, we still have work to do here, especially on the cost side, to ensure our largest costs, primarily power, gas, and transportation, are better managed and offset by our commercial efforts. Over the past several months, our commercial and operational teams have worked hard engaging with customers on price increases to offset realized inflationary pressures and optimizing our operations. I view this as day in and day out work that's expected of a company. really never ends and requires a thoughtful approach to each market, ensuring that we appreciate its unique dynamics and that we tailor our approach to ensure success. On the growth front, our strategic agenda continues to make steady progress. At Stabilis, we feel the greatest value creation will be derived from quality growth catalysts that have potential to result in considerable scale. Aerospace, marine bunkering, and alternative fuels are prime examples. What's important to remember is that we are not trying to reinvent the wheel to address markets that don't exist, but instead we are leveraging our proven and durable business model and competencies to capitalize on significant demand from new frontier growth opportunities and a world eager for cleaner solutions. I mentioned earlier, we continue to see really positive signs of incremental growth from our aerospace business. As a reminder, Our main area of focus is the space launch services segment, which acts as the catalyst to launch payloads like satellites, cargo, probes, and personnel. Propellant is one of the more critical resources needed for launching rockets, and there continues to be considerable uptake of LNG as the fuel of choice for launch providers. Over the past several quarters, I feel we've done a fantastic job of understanding our customers' needs, and we continue to position ourselves in the best way possible to ensure they receive the quality of fuel and service they demand. Our success has largely been driven by a few key delivery points. However, we are aggressively looking to expand that footprint more broadly across the entire U.S. as our aerospace team continues to engage in relevant discussions along this front, and I am eager to see this develop as we move forward. Progress in the marine bunkering sector has been strong, too. Currently, we provide LNG bunkering services in two markets. but like aerospace, it is our intention to scale as rapidly as across multiple geographies as well. Given the nascent LNG marine bunkering infrastructure in the U.S., it is important to ensure we remain nimble and flexible as we think about our long-term approach to serve this market. We continue to participate in very constructive and insightful discussions with a variety of prospective customers, and I am highly optimistic that our marine LNG bunkering operations will begin to expand to additional geographies throughout the remainder of the year, and I look forward to sharing those with you as they further materialize. Before I turn it over to Andy, this marks my one-year anniversary since joining Stabilis, this month does, and I want to reiterate how excited I am about our developing plans. As a relatively new and small public company, we are absolutely dedicated to aggressively growing our company. In doing so, we will be disciplined 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 shareholder value and to make Stabilis legitimate investable security for years to come. This company has the foundation for tremendous growth and provides prospective investors what I feel is a truly ground floor and asymmetrical investment opportunity. With that, I'll turn it over to Andy to discuss the quarter's results.
spk00: Thanks, Westy, and good morning, everyone. For the second quarter of 2022, Stabilis reported revenues of $25.8 million, up 12% from the $23 million reported in Q1 of 2022, and 61% higher than the year-ago quarter. Revenues from our LNG segment were $23.2 million, up 14% from the first quarter of 2022, and also up 61% from the year-ago quarter. Sequentially, gallons of LNG delivered were up 5%. Additionally, higher commodity prices accounted for approximately $2 million of the revenue increase, which was partially offset by a normal seasonal decrease in equipment rental and labor revenues related to winter peaking projects. Year over year, gallons delivered were up 14%, and higher commodity prices accounted for approximately $5.4 million of the revenue increase. Revenues from our power delivery segment were $2.6 million, down 5% from the first quarter of 2022, but 59% higher than the year-ago quarter. Net loss for the quarter was $2.2 million compared to a loss of $400,000 in the first quarter of 2022 and $1 million in the year-ago quarter. Included in the loss was a $900,000 unrealized loss on the mark-to-market of gas derivatives used to hedge natural gas purchases related to a customer contract as well as a one-time cost of $200,000 related to the current expiration of a take-or-pay gas contract related to a previously completed project. Adjusted EBITDA for the quarter, taking into account the two special items just mentioned, was $1.6 million compared to $2 million in the first quarter of 2022 and $500,000 in the year-ago quarter. Please see the adjusted EBITDA reconciliation in our press release for further details. Stabilis generated strong free cash flow during both the quarter and six months into June 30th and finished the quarter with total liquidity, including cash and available capacity under our Ameristate Bank facility of $5.1 million. With that, moderator, let's please open the call for questions.
spk01: Thank you very much. Ladies and gentlemen, the floor is now open for questions. If you do have a question, please press star one on your phone at this time. We also, while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please wait while we poll for questions.
spk03: Thank you. Your first question is coming from Barry Hames of Sage Asset Management.
spk01: Barry, please ask your question.
spk04: Thanks so much for taking my questions. A couple. One is I wonder if you could talk a little bit more about any thoughts about getting the profitability up in the LNG sector, which is the core sector. And then second question is if we look at some of the new initiatives like aerospace and bunkering, Were they EBITDA positive in the quarter, or because they're more in startup mode, were they a cost to EBITDA in the quarter? Thanks so much.
spk05: Barry, I'll go in reverse order. They are EBITDA positive, absolutely. And we think that that business, as it continues to scale, we will continue to endeavor to have that be an EBITDA positive business. We think so, especially on an incremental basis, because we've got a G&A structure that would support that. So we think there's probably even incremental cash flow growth out of those as we expand. That won't necessarily be every single market, but that's certainly what we're endeavoring to do. The first question, I couldn't hear your first question. Could you repeat that, please?
spk04: Yeah. Any thoughts about getting the profitability up in the LNG business, in the core business?
spk02: Yeah, absolutely.
spk05: We've got a lot of levers to pull here. And I'll say, I keep talking about the optimization of the core business, and that's not something that just happens, starts on a Monday and ends on a Friday. That's continuous regardless of where we are and what we're up to in our growth cycle. And so we think that there are a lot of different commercial levers we can pull to have better consistency of takeaway capacity, which then inspires us to have the ability to better corral our large inputs in power and raw material gas costs. So, yeah, we think there are a lot of different levers that we still have to pull to have incremental margin expansion in our core business, absolutely. And, again, that's not a finite exercise. That's continuous.
spk04: Just one follow-up there. Any thoughts on – and you can use, you know, whatever time frame you want, you know, at a year or two – what you think the margin potential is in that business?
spk05: Thanks. It's hard to say, and it's hard to say for a couple reasons, because we'll probably start expanding on some of that infrastructure. And so I don't want to think through a kind of binary lens where you've got this core business coming out of, say, a South Texas liquefaction plant, because we'll add incremental capacity there with incremental customers, whether it's space or bunkering, et cetera. And so it's hard to really kind of put a finer point on what that margin profile looks like, but certainly it's several basis points above where we are today.
spk02: Thank you.
spk03: Thank you very much. Ladies and gentlemen, if you do have a question, please press star 1 on your phone keypad.
spk02: Okay, it doesn't look like we've got anyone else in the queue there, gents.
spk01: Would you like to hand back for closing remarks?
spk05: Thanks, everybody, for joining our call this morning, and we look forward to talking to you in the future.
spk01: Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
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