Stabilis Solutions, Inc.

Good morning, ladies and gentlemen, and welcome to the Stabilist Solutions fourth quarter and full year 2022 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 1985 and other securities laws. These forward-looking statements are based on the company's beliefs and expectations as of today, March 9, 2023. 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 calls. 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 Wesley Ballard, President and CEO of Stabilis Solutions. Please go ahead.

Thank you and good morning and welcome to all of you that joined our call. Let me start by congratulating our entire company for delivering a fantastic 2022 despite considerable geopolitical and financial instability around the world. We remain focused and deliberate and executed on two key areas that we outlined for you this time last year. One, the optimization and enhancement of our existing business and operating model. And two, the advancement of our strategy into new and really exciting markets. Along the operational front, our team did a tremendous job managing costs with power, natural gas feedstock, and transportation as the main culprits. Behind the scenes, we also consolidated offices, divested non-core assets in Brazil and Mexico, closely monitored overtime and job site labor costs, and streamlined our commercial organization. Also during the year, our commercial and operational teams developed and executed on strategies to rationalize our customer base, elevate pricing, enhance profitability, and improve return on assets. We began laying the foundation for growth into the large and rapidly growing industries of marine and aerospace. We successfully executed bunkering operations on three coasts throughout the year and provided rocket fuel on two. Revenue across both sectors increased year over year to 24% of total revenue versus roughly 5% in 2021, which is noteworthy as we are expanding our revenue base into markets that are roughly 20 to 30 times larger than our historical industrial business. In addition to bunkering operations, we developed an international export capability, and in September announced that the U.S. Department of Energy granted us a 28-year license to export domestically produced LNG equivalent to roughly 52 billion cubic feet of natural gas annually. The DOE's approval not only provides us with the ability to assist in the world's lingering energy crisis, but is yet another wonderful opportunity for us to play a larger role in the world's addition of cleaner energy sources over the long term. This capability is very exciting and appears the market agrees as evidenced by our trading volume jumping from a daily average of roughly 7,700 shares to over 21 million shares on the day we made the announcement. Pretty compelling. As you can see, our entire team's efforts really paid off in 2022, having delivered strong operating cash flow resulting in a considerable increase in cash from $900,000 at the end of 2021 to $11.5 million at the end of 2022, which not only places us on dramatically better financial footing, but also advances our company's positioning for growth. In our industrial business, we believe we are the only true turnkey provider of last mile LNG delivery in North America through our considerable asset base and supported by our robust commercial, logistical, engineering, liquefaction, and field operations capabilities. Aging U.S. natural gas infrastructure and high political barriers to any significant new pipeline construction outside of the Gulf Coast continue to drive demand for last-mile virtual pipelines to off-grid and off-pipeline gas customer locations, and we currently deliver this capability in 25 states and Mexico. This market is not without its challenges as U.S. commercial power industrial net natural gas demand is forecasted to remain flat through 2020-30. This demand profile will require us to utilize our ingenuity to build upon our current portfolio to stimulate profitable demand in new and incremental industries and geographies. As we progress, we will continue to focus on maximizing cash flow in this business through broadening our commercial strategies and creating efficiencies and economies of scale across all facets of our supply chain, operations, engineering, and safety that will benefit not only this business group, but our entire franchise as well. In our aerospace business, advances in technology, declining launch costs, and rapidly growing interest from private sector financing has elevated its profile. Broadband communications, the Internet of Things, Earth observation, national security, weather, and GPS are primary drivers of demand, resulting in the number of satellites in orbit expected to grow 10 times by 2029. This will require an enormous uplift in launches per year, and as you can expect, propellant is one of the most critical items needed for launching rockets, and many launch providers are moving towards LNG as their fuel of choice over alternatives used in the past. This business has many similar characteristics to our industrial business, and we will continue to develop a variety of strategies to remain a market leader. Our marine business consists of two main components, one being marine bunkering and two, the ability to export LNG internationally. In the U.S., there are a variety of compelling drivers for vessels to bunker cleaner fuels here. Barriers to entry are high, and for a supplier to be successful in bunkering, they must have the ability to source and deliver volumes in scale, they must have the ability to bunker in a variety of ports, they must have considerable technical and supply chain capabilities, and they must have the ability to deliver fuels simultaneously with vessels loading and unloading their respective cargo or passengers. Our unparalleled abilities to aggregate considerable fuel volumes, utilizing both our production of energy and third party sources, along with our ability to deliver the last mile of the ship's flange, as we did in multiple geographies in the U.S. in 2022, clearly positions us as a market leader. The outlook in our export business is positive as well. The world remains considerably short energy and U.S. natural gas will play a vital role in addressing this imbalance. The marine industry continues to undergo considerable change since the International Maritime Organization required the lowering of emissions beginning in 2020. And this change takes time. But as the velocity of LNG fuel ship commissionings increases in early 2024, combined with the persistent volatility in global energy supply and demand, we intend to leverage our proven track record to remain a major leader in the space. As I mentioned, there are a variety of actions in motion, and we see several green shoots on the horizon. To deliver on our expectations, in 2023, we expect to increase investment across a variety of fronts, including sales and marketing. We will also invest in key technical and operational areas of our company, where the onboarding and training of these resources takes time to ensure future delivery of our solutions safely and efficiently to customers. Along the CapEx front, during the year, we expect to invest in liquefaction storage, and rolling stock to timely support all of our growth initiatives. We are still evaluating numerous locations and constructs, but one of the beneficial competitive elements in small-scale LNG is our ability to construct liquefaction in modules and with accelerated commissioning schedules. Clearly, the global macro challenges of 2022 have not ended, and I think it is safe to say that 2023 still carries considerable risk and uncertainty. So with this, Many of the anticipated operating capital investments are variable and we will be vigilant and thoughtful in our approach throughout the year. It is also important to note that while exciting, the markets in which we continue to focus on are still in their infant stages and our revenue expectations and results are not linear as there is variability in the adoption and capital invested to support sustained growth in the marine and aerospace sectors. But looking out over the next several years, The future is really, really bright. And with that, I will turn it over to Andy to discuss the fourth quarter results and year-end results.

Thanks, Westy, and good morning, everyone. For the fourth quarter of 2022, Stabilis reported revenues of $29.6 million, 15% higher than the third quarter of this year and 42% higher than the year-ago quarter. In the fourth quarter, we delivered a record number of LNG gallons to customers, largely driven by the marine and aerospace activity Westy mentioned in his comments. Net income from continuing operations was 0.2 million compared to 1 million in Q3 and a loss from continuing operations of 2.3 million in the year ago quarter. Adjusted EBITDA for the quarter was 3.9 million compared to 2.3 million in the third quarter of this year. and 0.7 million in the year-ago quarter. As we mentioned on our last call, we completed the sale of our Brazilian operations during the fourth quarter, and Brazilian results are shown as discontinued operations for all comparative periods. For the full year of 2022, we reported revenues of 98.8 million, an increase of 43% from the prior year, driven by improved pricing, additional LNG gallons delivered, and stronger natural gas prices. Our fuel full year results for 2022 included strong incremental margins, we generated an additional 24 cents of direct margin defined as revenues less cost of revenues for every incremental dollar of revenue in 2022. If you normalize for the significantly higher natural gas commodity prices in 2022, which are a pass through to our customers, Our incremental margins in 2022 were 52% as a result of our work on pricing, customer rationalization, and cost controls that was a major focus for us in 2022 and will continue to be. Net loss from continuing operations for the year was 1.2 million compared to 7.6 million in 2021. Adjusted EBITDA for the year was 9.6 million, an improvement of 86%. compared to the $5.2 million reported in 2021. During the year, we generated positive cash flows from continuing operations of $13.6 million, a significant improvement over the $4.7 million generated in 2021. We ended the year with $11.5 million of cash on our balance sheet and $1 million of available capacity under our bank agreement. The combination of our anticipated 2023 operating cash flows, cash on hand, and capacity under our bank agreement will provide us adequate liquidity to execute our 2023 growth plan. This concludes our prepared remarks. So at this time, Kelly, please open the line for questions.