Stabilis Solutions Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 4 speakers on the call.

Operator

Welcome to the Stabilis Solutions Third Quarter 20 24 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. I would now like to turn the call over to Andy Puhalla, Chief Financial Officer. Mr. Puhalla, please go ahead.

Speaker 1

Good morning and welcome to Stabilis Solutions' Q3 2024 results conference call. I'm Andy Puhalla, Senior 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 Q3 operational and financial results. This release is publicly available in the Investor Relations section 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

Speaker 2

within

Speaker 1

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, November 7, 2024. 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.

Speaker 1

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 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 remarks.

Speaker 2

Thank you, Andy, and good morning to everyone, excuse me, joining us on the call. We've got a lot of great to talk about today, really building off the momentum when I joined as CEO a little over 3 years ago. And in doing so, really outlined 2 primary strategic objectives. The first objective was to stabilize and optimize our existing business to ensure we had a liquidity profile equipped to support both our core business as well as the business we would seek to build in the years ahead. And over the last 24 months, we have demonstrated our commitment to a disciplined returns focused approach towards capital allocation, while positioning the business to scale within both established and emerging growth industries in search of cleaner fuel alternatives.

Speaker 2

During the Q3, we delivered more than 15% revenue growth, while continuing to shift our revenue mix from spot sales toward longer term contractual agreements. To that end, 68% of our 3rd quarter revenue was under ratable contractual agreements, up from 43% in the previous year. This pronounced shift in the quality and consistency of our revenue mix and the enhanced gas processing capabilities we deployed last year to address feed gas consistency issues resulted in exceptional utilization of our 2 owned LNG production facilities and has contributed to a significant improvement in our margin realization consistent with our strategic focus on driving improved operating leverage. And given our improved margins and operating leverage, we ended the 3rd quarter with $15,600,000 of available cash and liquidity and a net cash position on our balance sheet versus $8,600,000 of total liquidity in the year ago period. Our improved financial foundation and strong liquidity profile have enabled continued investment of operating cash flows to grow the business.

Speaker 2

Along our strategic focus of strengthening the durability of our business and liquidity profile, we established a second objective, which was to identify, prioritize and pursue key growth initiatives that can drive long term shareholder value. Fueling large marine vessels, providing power for data centers and for emergency response situations and fueling high performance rocket boosters in the aerospace arena are incredibly exciting end markets for expansion as they gravitate toward cleaner fuel sources that are reliable and cost effective. In evaluating growth opportunities, a key criterion was our ability to leverage our capabilities to expand into new markets that are at the forefront of considerable growth. Not only is our scalable, cost effective execution ready operating model a considerable competitive advantage for us, but also being an incumbent supplier in many markets positions us for further market share growth as neither large scale LNG production nor alternative fuel sources are feasible or economically viable for most of these customer applications. While we are encouraged by the growth in these markets, they are in early stages of what we anticipate will become a significant increase in demand.

Speaker 2

The anatomy of these types of projects consists of a wide array of variables across commercial, operational and financing fronts, so they take time and we recognize that. That notwithstanding, over the past 24 months, we've made tremendous progress along this front as evidenced by our LNG bunkering operations in Port Canaveral, Florida and the Port of Long Beach, California and the award of a multi year LNG bunkering contract to fuel Carnival Corporation's newest LNG fueled cruise ship, the Carnival Jubilee in Galveston, Texas in the Q4 of 2023. And during the Q3, we realized a 3 fold year over year increase in revenues within our marine and aerospace growth markets, which now comprise approximately 40% of total revenues compared to 11% in the Q3 of last year. Within our marine business, Stabilis is the only provider of marine bunkering solutions with experience executing LNG bunkering operations using multiple modes of delivery on all three coasts. Since identifying expansion in the marine market as a key growth strategy, we have spent an enormous amount of time and energy further developing our commercial relationships with the world's largest and most dynamic owners and operators of vessels.

Speaker 2

Throughout these discussions, several consistent themes have arisen as to why we are a highly thought of leader to develop the modern marine bunkering infrastructure in the United States. These themes include our extensive experience supported by our deep bench of regulatory engineering, project management and operational teams ready to execute. We are a low risk and execution ready choice given our existing redundant and reliable supply chain and ability to deliver LNG volumes at scale. And as a NASDAQ listed company, our customers value the transparency and stability we provide as a financial counterparty. This is evidenced by the award of our LNG bunkering contract with Carnival Corporation.

Speaker 2

Our team has done an excellent job in the execution of the Carnival contract and we are excited about leveraging our 1st mover advantage to further scale our LNG marine bunkering supply chain to the waterfront on the Texas Gulf Coast. We are moving quickly along this front and feel that we are competitively advantaged when compared to concept company competitors as we have invested in design, engineering and feasibility assessment, identified a proposed site, purchased the major components of 100,000 gallon per day liquefaction plant and we present a de risked value proposition to prospective customers, not only due to our experience, but by virtue of our ability to leverage our existing operational South Texas and Louisiana liquefaction plants as backstop or supplemental supply points to ensure redundancy and continuity of supply. Beyond the Texas Gulf Coast, we are actively evaluating opportunities to build upon our experience on the East and West Coast, as well as expanding outside of the U. S. To the Caribbean, Central America and South America.

Speaker 2

Our goal is to have a robust and highly optimized portfolio of production and delivery capabilities to service a broad array of exciting growth opportunities for marine bunkering and power generation applications across these markets. And turning to our commercial industrial markets, we see strong structural tailwinds driving incremental power demand. Applications include data centers, the onshoring of manufacturing and vehicle electrification, all of which are expected to increase U. S. Power consumption by at least 55 gigawatts between now and 2,030.

Speaker 2

Of the 55 gigawatts, data centers are anticipated to consume around 40% or 22 gigawatts. So to put that into context, that's equivalent to roughly 23,000,000,000 incremental LNG gallons of demand per year or said differently, nearly 650 additional Stabilis South Texas liquefaction plants. This incremental power demand poses a litany of challenges for utilities to service this incremental demand as addition of new power generation capacity is highly regulated. It will require significant investment that may not be appropriated and will take considerable time to build. Reliability, scalability, cleaner and more sustainable power supply are critical needs for data centers and the constraints are causing data center infrastructure providers and off takers to proactively take control of their own power destinies.

Speaker 2

This dynamic is creating considerable opportunities for new power generation solutions in the market to support this incremental load growth and put Stabilis in a wonderful position to address these needs. So it is our intention to empower data centers to do just that, control their own power destinies. We want to bring energy to where they need it. To do so, we intend to deploy a suite of capabilities across several fronts. We provide front end power strategy development and project management services consisting of our highly trained engineering, technical, operational and project management personnel to assist customers with planning, permitting, licensing, site design, natural gas pipeline sourcing and access.

Speaker 2

We will also provide 20 fourseven, 365 production, storage and delivery of LNG to support the Five9s, which is 99.999 percent of reliability for behind the meter power to natural gas generators or turbines, primarily in new build data centers where there is a time lag between data center power demand and when both baseload grid power is available at the data center site. And we will also provide backup and peaking power generation at data center locations as well. To support this, we provide ancillary and critical back end services consisting of continuous methane emissions monitoring, renewable natural gas or RNG and other alternative energy solutions sourcing supported by our highly trained operational and field service technicians to assist customers with mobilizing, commissioning, monitoring and reliably operating on location. We're extremely excited about the potential in this market, which is a natural extension of our considerable power generation resume where we have delivered over 12,000,000 kilowatt hours of dependable natural gas fired power for critical must run applications since our company's inception. In closing, I want to leave you with this message.

Speaker 2

With Stabilis, we've provided shareholders with a business that can capitalize on significant upside, evident across our growing underserved clean fuel markets, while de risking the model through increased mix of high quality contractual revenue and a disciplined approach to capital allocation. Simply put, we've effectively combined the remarkable growth potential of a successful startup without the risk profile of a startup. It's an incredibly exciting time for our business and we're just getting started. With that, I'll turn

Speaker 1

it over to Andy. Thank you, Westy. Let's move to a discussion of our Q3 performance together with an update on our balance sheet and liquidity exiting the Q3. 3rd quarter net income was $1,000,000 or $0.05 per diluted share on revenues of $17,600,000 Our revenues grew 15.1% compared to the prior year period, driven by strong LNG demand and improved utilization of our owned liquefaction facilities. The improved year over year utilization was a result of incremental demand from long term customer agreements and the resolution of the feed gas composition issues which hindered our production at our South Texas LNG plant in the Q3 of last year.

Speaker 1

Adjusted EBITDA of $2,600,000 was a record for the Q3, increasing by $2,100,000 compared to the prior year period. Adjusted EBITDA margin increased to 14.6 percent, up from 3.5% in the Q3 of last year. We generated $2,600,000 of cash from operations in the 3rd quarter and this strong cash generation contributed continued to build on our solid cash and liquidity position, which we intend to leverage as we invest in growth going forward. As of September 30, 2024, Stabilis had total cash and equivalents of $12,400,000 together with $3,200,000 of availability under our credit facilities. Total debt outstanding as of September 30, 2024 was $9,800,000 resulting in a negative in a ratio of net debt to trailing month adjusted EBITDA of negative 0.2 times.

Speaker 1

Through the 1st three quarters, we've invested $3,600,000 in capital expenditures on a cash basis with $1,300,000 incurred in the current quarter. This amount is expected to rise in the Q4 as we complete several payments including those for the expansion of storage capacity at our George West LNG production facility, which we highlighted last quarter. For the full year 2024, we anticipate CapEx to total between $8,000,000 $10,000,000 subject to the timing of specific projects. I'd like to emphasize that ongoing maintenance CapEx for the company remains relatively minimal. On the growth side, an increase in CapEx will reflect positive progress on several of the key initiatives we've outlined in the call and will require additional financing.

Speaker 1

To address this, we're routinely evaluating a variety of prospective sources of capital with heavy emphasis on those partners that know our industry, our company and recognize a significant upside potential in our operating model. That concludes our prepared remarks. Operator, please open the line for the Q and A session.

Operator

Thank you. Our first question comes from Martin Malloy with Johnson Rice. Please go ahead.

Speaker 3

Good morning. Congratulations on the strong quarter and the progress you're making on a number of fronts here.

Speaker 2

First question I wanted

Speaker 3

to ask about was on the marine and the Gulf Coast marine bunkering operation that you project that you discussed in the press release. Could you maybe talk about milestones we might be looking for here to reach FID for this project and any permitting milestones we should be looking for? And then maybe you've purchased a lot of the key items and long lead time items, maybe time from FID to when it might be operational?

Speaker 2

Yes. Good morning, Marty. Thanks so much for the question. As I've mentioned, we are really excited about the Gulf Coast. We think that the macro thesis is incredibly interesting.

Speaker 2

And I think some of the milestones we've already, I think, demonstrated to the market by virtue of buying that first 100,000 gallon train. We've done quite a bit of preliminary feed study analysis around our site location. We have settled on a location that we think is highly actionable. And frankly, we are poised and ready to go and think about capitalizing this. But in doing so, there are a couple of variables that fall into play.

Speaker 2

One of which obviously is the commercial side of the equation and the other is the financing side. And so there's quite a bit of industrial logic to doing something like this on spec. But as you can imagine, a company our size that's quite a bite to take. So, we want to continue to firm that up. And so, milestones would be a little bit more meat on the bone in and around commercial activity.

Speaker 2

But it doesn't mean that we're we've got to have a fully booked backlog. I think that if we can continue to see green shoots, we'll be in the market raising capital with some speculative because the backdrop is there. So, I think those milestones are going to be CapEx, the triggering of larger quantums of CapEx and or announcement of commercial activity or broader commercial activity than the success we've already had with that Carnival contract. I think when you talk about time, sorry, I think the time, it depends. But as you know, we've got a really good relationship with the majority of our vendors.

Speaker 2

And so we think that we've got maybe not favored nation, but highly thought of nation status with many of them. And so I think we think of timeline that could be an 18 to 24 months from the time we say go to the time it gets rolled out. So it's a pretty quick and expeditious rollout. And that's one of the beauties of small scale LNG, the modular aspects and the expedited ability plus the ability for us to have a balance sheet that afforded us the opportunity to buy that first train. So that's all that confluence of activity, I think expedites this, but 18 months to 24 months is probably a good rule of thumb.

Speaker 3

Okay. And then for my second question, I wanted to ask about the data center opportunity. We've heard through other from other sources as well that they are serious about looking at LNG as a fuel supply for power generation and they're focused on time lines. Could you maybe give us a sense of the pace of discussions that you're having? And is it possible that you could get an offtake agreement from a credit worthy counterparty for a number of years that would give you the justification to maybe expand liquefaction capacity even further or would you be sourcing from 3rd party sources?

Speaker 2

Yes. No. So thanks. The paradigm has changed and as you alluded to, it's changed quickly. Really over the last 18 months to 20 months, you've seen a massive shift and notoriety of this AI and data center and cloud computing infrastructure or the need for such infrastructure.

Speaker 2

And we think that, yes, there are opportunities for us really in several phases. The first of which is for us to have term contracts to bridge that gap between when the data center has been constructed and when the primary baseload grid can show up to their location. That can be 6, 9, 12, 18, 2, 3 year. It's hard to speculate, but there'll be some term and ratability of that. And then that then amorphs into providing backup through what historically has been diesel generators, but really we think moving forward it's going to be natural gas and generation and turbine capability.

Speaker 2

And so our volume of discussions even over the last 90 days has grown considerably. We are in the process of trying to enter non disclosure agreements with many prospective customers to better understand their footprint and what their goals are and locations, so we can better and more thoughtfully think about where we need to build our infrastructure service that. And so to answer your question, we might have a first wave where we source from third parties or we source from our George West plant or we double or triple or expand our George West plant. But I think it is very likely or possible that we'll build additional infrastructure in around the U. S.

Speaker 2

To adequately support a bit of a hub and spoke model where we'll have liquefaction capacity, storage capacity and then also distribute some of that smaller storage capacity at a cluster of data centers. And so it's an unbelievably exciting opportunity for natural gas and the natural gas paradigm to be a participant in the whole technological revolution that's before us. They are also very, very sensitive to emissions. And so diesel is clearly not something that they are highly confident in using moving forward. And they certainly they meaning the co lay and off takers co location excuse me and off takers are certainly aware of the challenges and costs around some of the more alternative solutions.

Speaker 2

And so natural gas falls right in the sweet spot at scale. And as I mentioned, if you've got 22 gigs just by the end of the decade that's coming online and if we get even just a small fraction of that market share, it's an unbelievably exciting opportunity for Stabilis.

Speaker 3

Great. Thank you. I'll turn it back.

Speaker 2

Great. Thanks, Marty.

Operator

We'll go now to Barry Hames with Sage Asset Management. Please go ahead. Your line is open.

Speaker 2

Thanks so much. One quick housekeeping question. How many gallons did you produce in the quarter? And could you remind us what the annual capacity is? That's the first question.

Speaker 1

Yes. So Barry, good morning. Thanks for the question. We don't disclose publicly gallons sold and that's really for competitive reasons because most of our competitors are private. Our utilization, I can tell you in the quarter was pretty good.

Speaker 1

It was close to 90% at George West and in the high 70s at Port Allen. And the capacity there is 100,000 gallons a day for our George West plant and about 25,000 gallons a day for our Port Allen plant.

Speaker 2

So call it 45,000,000 gallons a year from our own production, but that doesn't count third party molecules that we also source through our commercial activities in our logistics department, which is about 30 supply points around the U. S. Got it. And then second question, if I could do a follow-up on the data center opportunity. Could you sort of describe what your sweet spot is versus I would think it would be relatively easier for the data center guys to if they're going to get power from natural gas to get it off the pipeline, if there's pipeline availability.

Speaker 2

But there may be places where there isn't. So I'm sort of trying to understand where you guys where your solution would fit, what your sweet spot would be? No, you're right on. It's just early indications by those that growing list of customers that we have started to have engagement with. In some instances, as much as half of their rollout, which might be several gigs over the next 5 years are not on natural gas pipelines.

Speaker 2

So the quantum is material. And so we are still in fairly early stages of trying to fully quantify that, but also it's one thing to just rapidly response to a location, but really I think our perspective is rather than try and shoot from the hip, we want to better understand their entire portfolio. So we can be thoughtful and ensuring that they've got reliable cost effective bridge and redundant power generation for their needs. And so we're in the throes of doing that. But as I mentioned, it could be as much as half of these locations that these co location and off takers are rolling out don't have natural gas pipeline access at all.

Speaker 2

And also I'll say that even if they did on the backup and peaking side, natural gas pipeline sometimes can be challenged in many states. Look at Texas alone. Alone. Oftentimes, especially in the winter months, there's intermittency in those natural gas pipelines. And sometimes they're either providing maintenance or unclogging those pipelines.

Speaker 2

Sometimes they've got to discontinue use commercially because you've had disruptions in the pipelines. And so having a backup from LNG or a third party source has got a lot of storage that we can deploy that's not dependent upon pipeline or that can weather a pipeline discussion, that's also fair game. So I wouldn't say it's entirely just a universe of prospects that aren't on natural gas pipelines. That certainly is a large part of the universe, but there's also a universe of those that are on pipelines that also want to have that redundancy. This 99.999 or the 5 nines is real.

Speaker 2

And it's something that they are very sensitive to about maintaining the ongoing flow of power and data generation out of these centers. Great. Thanks so much. Lots of good luck. Yes.

Speaker 2

Thanks. Thank you.

Operator

We'll turn now to Matt Dain with Tieton Capital Management. Please go ahead. Your line is open.

Speaker 2

Thank you. I wanted to

Speaker 1

ask about the aerospace market. And I was curious how it has developed relative to your expectations? And then secondarily also, is this is the aerospace market an industry where we should expect long term contracts to play a role over time?

Speaker 2

So I'll answer that. The first question is actually it has. It's playing out really along the lines of how we've expected. And what I mean by that is we expected a little bit of lumpiness and volatility. There's certainly a main participant in that market right now who's got the lion's share of market share.

Speaker 2

And as you can imagine, there are regulatory inputs and other variables that come into play when it comes to launching and R and D for rockets. And so I'd say it's where we anticipated. We are fortunate to have a little bit of readability and contractual coverage in our aerospace business. That's a new phenomenon that really occurred a few months ago. So we're excited about that.

Speaker 2

We think we can build upon that. And we think that over the ensuing years that not all roads will go through one company, there'll be others, which there are now, but those others will enhance their capabilities and continue to need LNG to not only support their research and development activities, but also their launch activity, maybe not the voluminous amount per rocket launch that another provider does, but certainly a cluster of launches that if you aggregate can be a very exciting opportunity for us as well. And so as you know, we're a market leader and we've got a track record of safe and reliable fuel supplying to these high performance rocket boosters and we expect to continue to maintain and protect that market position as this market continue to evolve over the ensuing years.

Speaker 1

Great. Thank you, Leslie.

Speaker 2

Thank you. That

Operator

will conclude the Q and A portion of today's call. I would now like to turn the floor over to Mr. Ballard for his closing remarks.

Speaker 2

You, everybody. We're excited about today, but certainly tomorrow and we look forward to talking to you down the road.

Operator

Thank you. This concludes today's Stabilis Solutions 3rd quarter 2024 earnings conference call. Please disconnect your line at this time and have a wonderful day.

Powered by Quartr
Earnings Conference Call
Stabilis Solutions Q3 2024
00:00 / 00:00