Stabilis Solutions Inc (SLNG) 2021 Q1 法說會逐字稿

Ladies and gentlemen, before we begin today's call, 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 security laws. These forward-looking statements are based on the company's beliefs and expectations as of today, May 6, 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 any forward-looking statement.

I would now like to welcome you all to the Stabilis Solutions Q1 2021 Earnings Conference Call. Today's call is being recorded.

At this time, I'll turn the call over to Jim Reddinger, President and CEO of Stabilis Solutions. Please go ahead, sir.

Thanks, Matthew. Good morning, everyone. Thanks for joining us today. Again, this is Jim Reddinger, the President and CEO of Stabilis. And joining me on the call is Andy Puhala, our Senior Vice President and Chief Financial Officer. We want to welcome everyone to our first quarter 2021 earnings conference call.

It's great to be here today. This is maybe my favorite quarterly earnings call that we've had during my time at Stabilis because we're here to report a lot of great things, including record revenue, record earnings, some great new customer contracts, enhanced liquidity for growth and a major exchange listing for our stock.

Let me go through each of these items one by one in my prepared remarks, and then we can discuss in more detail during the Q&A session.

After ending a turbulent 2020 with record fourth quarter performance, I'm pleased to report that Stabilis produced another record in the first quarter of 2021. The company achieved its highest-ever quarterly revenue, beating our previous record which was from the first quarter of 2020 by 28%. In fact, we've reported 3 of our 5 highest revenue quarters over the past 15 months, and our strong growth trajectory continues into 2021.

We continue to see broad-based demand for our energy transition services across our customer base. During the quarter, we delivered 13.4 million gallons of LNG and secured long-term sales contracts for over 40% of our production from our Texas-based LNG facility. We also recently extended one of our largest customers, what we believe will be an additional 6 to 18 months.

In addition to hitting record revenues, I'm also pleased to announce that the first quarter of '21 produced record quarterly EBITDA of $2.7 million and was our first profitable quarter, indicating that the business has begun to grow into its infrastructure and is creating operating leverage.

Our next major achievement for the quarter was securing a $10 million credit facility to fund our working capital needs. This credit facility will give us access to the capital we need to continue to grow the business.

And last, but certainly not least, I'm extremely pleased to report that we are now listed and trading on NASDAQ. We believe this move is a key milestone for Stabilis as it will further enhance our visibility in the marketplace, expose our company to a larger audience of institutional investors, increase trading liquidity and allow us better access to the capital markets to execute our growth strategies. We started trading on NASDAQ a week ago today. And so far, the results on trading volumes and price have been a significant improvement for the company and for our investors.

We're off to a great start this year, and I'd like to thank the Stabilis team for their dedication and hard work. These are all your achievements, and we really appreciate everything that you do.

Later in the call, I'll discuss our growth outlook. But first, I'll turn it over to Andy to review our Q1 2021 financial results. Andy?

Thank you, Jim. As Jim mentioned in his opening remarks, for the first quarter ended March 31, 2021, Stabilis reported it's highest-ever quarterly revenue of $17.7 million, a 29% sequential increase from the quarter ended December 31, 2020, and a 28% increase from the first quarter of 2020, Stabilis' previous record quarterly revenue. Year-on-year increase was largely driven by growth in power generation projects, continued expansion of the company's Mexico operations and increased activity with aerospace customers.

Revenues from Stabilis LNG segment totaled $16.1 million, a 33% sequential increase from the quarter ended December 31, 2020, and a 29% increase from the first quarter of 2020. The company delivered 13.4 million gallons of LNG to customers during the quarter, a 29% increase compared to the fourth quarter of 2020 and a 12% increase compared to the first quarter of 2020.

The Power Delivery segment's revenue decreased 5% sequentially to $1.5 million, due entirely to an unfavorable fluctuation in the exchange rate that increased 18% versus the first quarter of 2020. Had the Brazilian currency not weakened over the course of the last year, this quarter's revenue in US dollars for that segment would have been 32% higher in Q1 of 2020, which shows that the underlying business is growing.

In terms of operating expenses, we experienced approximately $600,000 of onetime higher gas, electric, third-party LNG and transportation costs as a result of the Texas winter freeze in February, which reduced the profit contribution from our record revenues.

Adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, grew to $2.7 million or 15% of revenue during the first quarter, a 14% improvement sequentially and a 78% improvement over the first quarter of 2020 and was our best EBITDA performance. These improvements and profitability were made in spite of the extraordinary costs related to the winter freeze.

Net income for the first quarter of 2021 rose to $0.2 million compared to net losses of $0.1 million in the fourth quarter of 2020 and a loss of $1.1 million during the first quarter of 2020.

Cash and cash equivalents as of March 31 were $3.1 million as compared to $1.8 million reported at December 31. As previously announced, the company secured a $10 million credit facility during April, which provides us with ample working capital and liquidity to execute our growth plans.

With that, I'll turn it back -- turn the call back over to Jim to discuss our outlook.

Thanks, Andy. We're excited about our first quarter performance and are now focused on how we can continue to build on these results.

First, we will continue to build and improve on our existing business. As you can see from our recent results, the needs of the energy transition are driving our customers across all sectors to find what we call enlightened energy solutions. These solutions -- these are solutions that meet the customers' environmental sustainability goals, but they also provide economically viable and reliable energy solutions. LNG, and increasingly hydrogen, provide these enlightened energy solutions.

Remote power generation services are becoming an increasingly important growth market for us, and we see potential opportunities with multiple customers in this sector. Most power generation companies are moving away from diesel fuel to improve their emissions profile, and LNG is well positioned to capture a large part of this market as it transitions to natural gas fuel.

As an example, we recently won a contract renewal with our largest domestic remote power generation partner that is using natural gas fuel to provide power generation to a remote location that does not have grid access. We expect that work from this contract extension will last at least through the end of 2021, but it could be significantly longer. We expect to be able to provide more details on this award soon.

Mexico also continues to be a key growth factor for us, and we are currently providing LNG to one of the largest mining companies in Mexico for mine haul fuel truck and power generation consumption.

We have recently added to our Mexico sales and field service teams and continue to increase our capabilities and presence in the market. Our pipeline of new sales and development opportunities remain strong, and we look forward to having additional project and customer wins to discuss with you in the near future.

And per our announcement earlier this week, we continue to work hard on expanding our presence in the emerging marine fueling market, which we believe is a tremendous growth opportunity for Stabilis.

This week, we announced that we have entered into a memorandum of understanding with the Port of Corpus Christi to develop an LNG marine bunkering infrastructure at the port. The Stabilis role will be to provide marketing, technical and operating expertise to the venture, and the port authority will provide access to initial fueling sites and access to customers.

Our mutual goal is to create momentum for LNG bunkering in the port that will quickly justify the installation of capital assets to serve the market such as LNG bunkering vessels and potentially LNG production.

This MOU is a great step forward for us in demonstrating our capabilities and becoming an innovator and leader in the LNG marine bunkering sector. And we're in discussions on a number of other opportunities in this space as well.

To sum up our outlook, we are well positioned to continue to take advantage of opportunities across multiple sectors for LNG and hydrogen fueling solutions, and we look forward to continuing to provide you updates as we have new project wins to announce.

The energy transition is moving forward quickly, and we believe Stabilis is well positioned to provide the enlightened energy solutions that the market requires to be cleaner as well as more cost effective and more secure.

With that, I'll open up the line for calls -- for questions. Matthew, please go ahead.

(Operator Instructions) Your first question is coming from Craig Shere.

Congratulations again on the strong quarter -- in fact, 2 quarters in a row.

Thanks.

So any update on Mexican contracting and permitting prospects? Could we see the 25,000 a day liquefier and storage deployed by year-end? And as Mexican contributions ramp over the next couple of years, any thoughts around hedging ForEx risks?

Yes. We don't have any definitive guidance on timing, but I can confirm that we continue to push forward on all the Mexican projects that we've discussed in the past. And we'll provide timing updates as soon as we can, but we need to navigate that process before we provide any firm guidance on it.

In terms of FX risk, we certainly have looked into it. And as our exposure there grows, we'll continue to evaluate it. But at this point in time, we don't have anything in place.

Understood. And on the potential for a lower cost George West brownfield expansion, do you have to have material new offtake commitments in hand for that? Or is it simply an issue of circling up the capital funding for this low cost project?

I mean we certainly would like to have visibility on how the new assets would be used as we invest in them. So we're -- to expand that facility, we'd have to have either pretty good visibility on our portfolio of demand or some specific contracts that would take up enough of it to make it economically attractive.

Do you think such commercial opportunities would be potentially on the table this year?

I mean we're in a number of discussions that could make it viable. We don't have anything to announce at this moment, but I'd say it's something we're certainly open to, if the contracts materialize.

Your next question is coming from Bill Dezellem.

Let me start with the Corpus Christi marine bunkering agreement. I think that you pretty well answered the question with your opening remarks, but I wanted to understand the magnitude and scale of that agreement. It sounds like for now it's small. But if you are successful that it ultimately could be quite meaningful, if you are including in your potential of -- potentially LNG generation there on site.

Yes. I mean the marine bunkering sector's growing quickly, but it's a bit of a chicken and egg issue with assets. And so what we're doing with the port is, Stabilis has an LNG production plant and a full yard of LNG distribution and storage assets about 50, 60 miles up the road from the port. So it's a great fit between the 2 of us. And Phase 1 of the plan is to get on some hard marketing going and encourage current LNG vessels to visit the port and to fuel there using our Stabilis equipment and expertise and to encourage conversions of vessels that could be LNG fueled to start coming into the port.

So that will take some time to develop. But Phase 1 is to use our existing capabilities and assets to conduct that. And as we build momentum in the port, Phase 2 would be to invest in assets that can provide higher volume fueling services, which we think will come hopefully soon to the port.

It's just -- so Jim, did I misinterpret your comments -- your opening remarks that in spite of the fact that George West is very close to Corpus Christi that at some point, if the volumes are enough, you feel like you could have on-site production. Did I hear that wrong?

It's a possibility, Bill. I mean we really don't know what the future is going to look like. It could be a situation where the port is fueled either directly into ships or into storage from the current or an expanded George West facility. It could be the case where Stabilis build different -- build additional liquefaction on or near the port for the LNG bunkering.

It could be the case where existing LNG supplies in the port could be used for bunkering. And it could be the case where a bunkering vessel fuels elsewhere and sails into port. So we're working with the port and with the customers to try to figure out how they're going to be fueling their vessels and how we can best serve that. So that's really the phase we're in now.

Great. And Jim, one more question on this path before I move to another one. Since I've not ever run the logistics for a shipping company, would they potentially -- shippers, would they potentially bring a ship into Corpus Christi specifically and solely for a refueling of LNG or is it really done where they are either taking on or off cargo?

I think the higher probability is ships that are coming into port for cargo. As you know, it's a large port for hydrocarbons and it's growing in other products as well. So I would think, Bill, that most of it would be ships that are visiting the port for a reason of picking up or dropping off cargo. I don't know if there'd be any ships that were sailing by that would use it as a fueling port. But I think the higher probability is ships that are already coming and going.

Right. Okay. That's quite helpful. That was my presumption also. So the second quarter is seasonally down from the first quarter, that's just normal. But you've signed contracts that represent 40% of the George West volume. So as a result of that, should we be thinking about the second quarter revenues being in excess of the first quarter revenues now?

We are -- as you know Bill, we haven't given guidance or we don't give guidance going forward. I think the second -- the first quarter has always been seasonally strong because of a lot of the winter peaking activities that we're involved in, which involves both LNG supply but also some high volumes of revenue on rental of equipment.

And so as that rolls off, generally the second quarter misses that revenue. But you're correct. We do have some additional revenue coming in the system. So I don't have any guidance for you right now as to what direction that's going to go. But I think as we've seen in the fourth quarter of '20 and the first quarter of '21, we think it'll be positive momentum from past years into the second quarter of this year.

And then lastly, now that you've achieved break-even, is it a correct perception and assumption that profits from this point really accelerate, meaning you're kind of in that hockey stick -- beginning of that hockey stick phase because you have your fixed cost. And essentially, you have incremental gross margin that falls to the bottom line. And if I calculated it correctly, in the Q1 versus Q4, the incremental gross margin on LNG was 30% and was 64% on the rental business. Are we thinking about just the structure of where we're at in your life cycle correctly?

Yes. I'd say 2 things, Bill. One is the underlying profitability of the base business continues to improve. And if I'm looking at sort of whether you call it the base business or the same-store, however you want to refer to it, but the base assets we have in the business that's configured now, the profitability and the revenue continue to improve.

At the same time, and this has been happening over the last year and will continue to happen, we're investing in future growth. And a lot of the projects we've talked about -- a good example is the effort we're going to put into the Port of Corpus Christi in terms of people and equipment and engineering to get that off the ground.

So I think the base business profitability, the underlying profitability of the business will continue to improve. But at the same time, we're also going to be investing in future growth in projects. So if you look at the bottom line going forward, we're going to continue to fund growth from the cash and from the profits that we're producing.

So that's going to be a push and a pull from that standpoint. I mean we think the bigger prizes are ahead of us. And so while we're going to optimize profitability of the current business, we're also going to continue to invest in those bigger prizes.

And Jim, what has been the driver of the underlying base business becoming more profitable? Could you talk and expand on that please?

Sure. I think fundamentally, from a macro perspective, as we talk about -- consistently talk about this energy transition and the fact that all of our customers are looking for cleaner fueling solutions. And at the same time, they need cleaner fueling solutions that are economically viable and then are secure and reliable.

And so as we've talked about the energy transition and we've talked about our product being, what we call, enlightened energy, which is providing all 3 of those factors, we feel that LNG and increasingly, hydrogen really fit into that macro slipstream, where the world wants to continue to get greener and cleaner, but also needs to have sources of fuel that are reliable and cost effective.

So that macro continues to push us forward. I think over the last number of years, 10-plus years, LNG as a fuel has been evolving and become more widely and commonly accepted in a variety of applications that we serve. And so that market adoption continues to accelerate. And a great example of that is in the power generation sector, where many of the major power rental companies have said that they're going to move away from diesel fuel and into natural gas and other fuels.

So we're seeing some pretty big macro factors that are pushing the use of LNG forward. And that obviously allows us to grow into new markets and to create new demand and to both increase volume, but also increase pricing and profitability for what we're doing.

So it's really a very favorable macro environment for us. And while this is something we really saw and talked about a number of years ago, it's really kicked into effect now.

(Operator Instructions) Your next question is coming from Craig Shere.

Just a follow-up. You mentioned in your prepared remarks, Jim, growing into your infrastructure. How important do you view the ability to immediately deploy spare equipment to obtaining some of your recent commercial traction? Would you say you've got a year or more runway before running short of spare transport and storage equipment and at full capacity utilization, both from George West running over nameplate capacity through your transport and storage equipment. Could you ultimately post -- just on the assets you now have running full steam, could you ultimately post $20-plus million or more annual EBITDA?

Yes. I'd say a couple of things, Craig. One is, there's clearly infrastructure assets of the company, but there's also -- just to kind of set where I was going before, we've got pretty significant investment in both being a public company and in being a growth company. And so the public company investment is in the legal and finance and accounting and all the support that goes into that.

And the growth company includes people and equipment and technology that allows us to attack some of the project opportunities that we've talked about. And as we see with the Port of Corpus Christi agreement coming to fruition, that was several years of investment of time and energy and people and et cetera to get that off the ground. So those are 2 pretty big sources of infrastructure that I was talking about that we're starting to grow into from a revenue and an earnings perspective.

From an equipment perspective, we do think that there's more room to run on our ability to improve utilization of both the plant and the rolling stock equipment and utilization and also ultimately, pricing as we get that equipment into more profitable longer-term contracted lines of business.

So I don't want to give any specific guidance as to where that could go, but we -- as we see in the first quarter with a record EBITDA quarter even with some of the noise in there from the Winter Storm Uri, we do think there's lots of room to expand that.

I would say, Craig, just as I said to Bill earlier that we will continue to invest in growth initiatives. And so while the base business we believe will continue to perform extremely well and produce great cash flow returns for us, we are going to continue to invest some of those cash flow returns back into the growth of the business.

(Operator Instructions) There are no further questions in the queue at this time. I will now turn the floor back to our hosts.

Great. Well, thanks everyone for being on the call. It's a great quarter to announce. I know we've had a flurry of news here lately that's all been positive, so we appreciate everyone following us and we appreciate the support. And we'll talk to you next quarter. Thank you.

Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.