Stabilis Solutions, Inc.

Welcome to the Stabilis Solutions second quarter 2023 earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would like to turn the call over to Andy Pujala, Chief Financial Officer. Mr. Pujala, please go ahead.

Thank you, Ashley. Good morning, and welcome to Stabilis Solutions' second quarter 2023 results conference call. I am Andy Pujala, Senior Vice President and CFO of Stabilis, and joining me today is our President and CEO, Westy Ballard. We issued a press release after the market closed yesterday detailing our second quarter operational and financial results. This release is publicly available in the investor relations sections of our corporate website at Stabilis-Solutions.com. 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 expectations and beliefs as of today, August 10, 2023. 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 provide updates or revisions to the forward-looking statements made in today's call. Additional information concerning factors that could cause those differences is contained in our filings with the SEC and in the press release announcing our results. Investors are cautioned not to place undue reliance on any forward-looking statements. Further, please note that we may refer to certain non-GAAP financial information on today's call. You can find reconciliations of the non-GAAP financial measures disclosed to the most comparable GAAP measures in our earnings press release. Today's call is being recorded and will be available for replay. With that, I'll hand the call over to Westy Ballard for his prepared remarks.

Thank you, Andy, and good morning to everyone joining us on the call today. I'd like to begin with a high-level overview of our recent performance, and then I want to move to really exciting growth initiatives we're working on. Our second quarter results were in line with our expectations and were attributable to the anticipated completion of a short-term marine bunkering contract, usual seasonal activity, much of which has been rewarded to Stabilis for the upcoming winter season, and lower pass-through natural gas feedstock commodity prices. These three components accounted for roughly 82% of total sequential revenue decline. As you know and may be aware, we generally do not generate margin or incur spot market risk with respect to the price of feed gas, and it is a cost passed directly on to our customers. During the second quarter, we also experienced lower utilization at our Texas liquefaction plant due to changes in the composition of our supplier's feed gas. The new source gas has a considerably different molecular composition, resulting in high levels of heavy hydrocarbons not experienced in prior years. These heavy hydrocarbons each have their own freezing point, so as their respective temperatures drop below those points, the heavy hydrocarbons freeze, clogging the flow of methane in the liquefaction process, which in turn disrupts LNG production until you eliminate the frozen hydrocarbons. Unfortunately, many LNG production plants in Texas are experiencing challenges with an increasing combination of nitrogen, heavy hydrocarbons, and other contaminants in their feed gas. During the quarter, we took action to eliminate these issues at our plant, and we are confident the challenge will be fully remediated during the quarter. Strategically, our objectives remain the same, protect and optimize our core industrial business while we accelerate growth into a massive and multi-year marine vessel bunkering and export demand cycle. Fueling of vessels with LNG is in its early stages given little prior regulatory requirements to use fuels other than widely dispersed marine fuel oil. So historically, only a small number of LNG-fueled vessels have been built and put into service. In 2020, the International Maritime Organization changed this, mandating that all vessels lower their sulfur emissions by 85%, requiring virtually every vessel operator in the world to decide on a cleaner approach, and LNG-fueled vessels have been the clear leader. Led by the abundance of inexpensive shale gas, the United States enjoys a structural cost advantage over most countries, positioning our nation to become a leader in the fueling of LNG vessels, But given the historically low number of LNG fuel vessels in service, U.S. LNG bunkering infrastructure, including production, storage, and bunker barging, is in its infancy, meaning that it will take time and considerable capital to fully develop the demand. New vessel construction is an expensive process generally spanning several years. With the IMO's low sulfur mandate still being relatively new, we anticipate that the growth in LNG-fueled vessels entering service will begin to positively inflect during 2024. At this time, we expect our addressable market will scale to more than 380 ships, up from less than 70 in 2021. In the meantime, vessel owners and operators continue to evaluate their future LNG-fueled vessel supply chain needs and prospective new trade lanes, and we continue to spend considerable time assisting them in their efforts. Over the last 12 months, we've made great progress in our marine strategy, as evidenced by our total marine revenue increasing by more than $16 million to 21% of total revenue, versus 5% in the prior year period. While it's impressive, it's important to note that growing into a developing and nascent industry can be very lumpy period over period, and it's not always linear. And we are confident the overall trajectory will continue to move higher, especially as a significant volume of new LNG-fueled vessels enter the market. Stabilis is uniquely positioned to be the leader in marine bunkering by leveraging our proven business model to expand and optimize our portfolio of owned and third-party assets to drive long-term growth and shareholder returns. And while we continue to develop this market, our financial footing remains on solid ground with sufficient cash and liquidity to fund our operations. During the second quarter, we generated $3.8 million of operating cash flow and ended the quarter with total cash in equivalence of $8.1 million. together with combined $4 million of availability under our bank facilities. As the sole publicly traded small-scale LNG growth platform in North America, there is nothing small about the small-scale LNG growth opportunity. Our growth prospects are exciting, and Stabilis is very well positioned as a long-term growth story and highly asymmetrical opportunity to invest in a rapidly growing company with a proven and durable business model. With that, I'll turn it over to Andy.