Stabilis Solutions, Inc. (SLNG) on Q1 2021 Results - Earnings Call Transcript
Operator: 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.
Jim Reddinger: 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 on 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 three of our five 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 six to 18 months. In addition to hitting record revenues, I'm also pleased to announce that the first quarter of 2021 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.
Andy Puhala: Thank you, Jim. As Jim mentioned in his opening remarks for the first quarter ended March 31, 2021, Stabilis reported its 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 U.S. 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 one time, 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, a14% improvement sequentially, and a 78% improvement over the first quarter of 2020, was our best EBITDA performance. These improvements in 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.
Jim Reddinger: 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 called enlightened energy solutions. These are solutions that meet their customer's 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 the 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've 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 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're well positioned to continue to take advantage of opportunities across multiple sectors for LNG and hydrogen fueling solutions.
Operator: Your first question is coming from Craig Shere,
Craig Shere: Good morning. Congratulations again on the strong quarter, two quarters in row.
Jim Reddinger: Thanks man.
Craig Shere: 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?
Jim Reddinger: 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.
Craig Shere: Understood. And on the potential for a lower cost George West brownfield expansion, do you have to have material, new offtake commitments in the hand for that? Or is it simply an issue of circling up the capital funding for this low cost project?
Jim Reddinger: We would certainly, would like to have visibility on how the new assets would be used as we invest in them. So 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.
Craig Shere: Do you think such commercial opportunities would be a potentially on the table this year?
Jim Reddinger: We were 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 materialized.
Craig Shere: Thank you.
Jim Reddinger: Thanks Craig.
Operator: Your next question is coming from Bill Dezellem, . Your line is live.
Bill Dezellem: Good morning.
Jim Reddinger: Good morning Bill.
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, but 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.
Jim Reddinger: 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 two of us. And Phase 1 of the plan is to get them 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.
Bill Dezellem: 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?
Jim Reddinger: 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 the 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 in 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.
Bill Dezellem: Great. And Jim, one more question on this path before I moved to another one, since I've not ever run the logistics for a shipping company, 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 a taking on or off cargo?
Jim Reddinger: 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.
Bill Dezellem: 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?
Jim Reddinger: No, we aren't, you know Bill, we haven't given guidance or we don't give guidance going forward. I think 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 2020, and the first quarter of 2021, we think it'll be positive momentum from past years into the second quarter of this year.
Bill Dezellem: 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 in the beginning of that hockey stick phase because you have your fixed cost, and essentially, you have the incremental gross margin that falls to the bottom line. And if I calculated it correctly, in the Q1 versus Q2, 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?
Jim Reddinger: Yes, I'd say two 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, or however you want to refer to it, but the base assets we have in the business that's configured now, the profitability of 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.
Bill Dezellem: And Jim, what has been the driver of the underlying base business becoming more profitable? Could you talk and expand on that please?
Jim Reddinger: Sure. I think fundamentally from a macro perspective, as we talked 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 three 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.
Bill Dezellem: Congratulations on a great quarter. And thanks for taking all the questions.
Jim Reddinger: Thanks man, appreciate the questions.
Operator: . Your next question is coming from Craig Shere,
Craig Shere: Just a follow-up. You mentioned in your current 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 that 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 annually at the dock?
Jim Reddinger: Yes, I'd say a couple of things, Craig. One is, there's clearly infrastructure of the 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 attach them to 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 two 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 as we see in the first quarter with a record EBITDA quarter, even with some of the noise in there from the winter storm worry, 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.
Craig Shere: Great. Thank you.
Operator: There are no further questions in the queue at this time. I will now turn the floor back to our hosts.
Jim Reddinger: 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.
Operator: 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.
