Stabilis Solutions, Inc. (NASDAQ:SLNG) Q1 2022 Earnings Conference Call May 5, 2022 10:00 AM ET
Westy Ballard - President and Chief Executive Officer
Andy Puhala - Chief Financial Officer
Conference Call Participants
Matt Dhane - Tieton
Good morning, ladies and gentlemen and welcome to the Stabilis Solutions First Quarter 2022 Earnings Conference Call. Joining us today are Westy Ballard, President and CEO; and Andy Puhala, Chief Financial Officer.
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 security laws. These forward-looking statements are based on the company’s beliefs and expectations as of today, May 5, 2022. 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. 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 call. 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.
At this time, I’d like to turn the call over to Westy Ballard, President and CEO of Stabilis Solutions. Please go ahead, sir.
Good morning and thanks everyone for joining us today. Despite continued market volatility and inflationary headwinds, 2022 is off to a solid start and we are really excited about the many fantastic initiatives underway. I was also glad to see recent affirmation by governing bodies in the U.S. and Europe, acknowledging natural gas as a key component of the bridge to renewable energy. For us, it’s a starting point, not an end state.
As you know, we have been working in parallel paths here, where on one hand we continue to optimize our core franchise to maximize cash flow and returns. And on the other hand, we continue to work diligently to expand our core business into new and rapidly growing sectors, catalysts that I believe will create inflection points for us to deploy considerable amounts of capital with attractive return profiles. I’m really excited about the potential of these future investments, and we’ve made a lot of progress across both fronts.
So let’s start with our current business. Revenue in the quarter was strong across multiple sectors, including distributed power, mining and oil and gas. The diversity of end markets we serve is one of the great attributes of our company as is our robust ability to source LNG molecules from both our own liquefaction plants and from third parties. In doing so, this creates a significant competitive advantage over others and allows for broad sector and geographic coverage. Our Mexico business was also strong in the first quarter, and we also began to see growth from the aerospace industry, one of our key growth drivers. Over the past several months, our commercial team has done a fantastic job of actively engaging with customers on price increases to not only offset realized inflationary pressures, but also ensure we are earning an adequate return on the assets deployed with each customer.
Also in the quarter, we began to see the benefits of our optimization initiatives, resulting in strong quarter-over-quarter incremental margins. Our first quarter financial results show that we are making progress on this front, as both our net results and adjusted EBITDA are improved from the second half of 2021. This improvement comes despite significant inflationary pressures across the board as well as lower results from our Chinese joint venture in Q1, given the current COVID lockdowns in China.
The inflationary pressures have been significant, particularly in areas like transportation and logistics. Our cost control measures have included steps like consolidating offices, streamlining our commercial organization and closely monitoring overtime and job site labor. We still have a lot of work to do here as power, transportation and labor costs continue to rise, and we need to continue to work on strategies to offset these costs. These initiatives are key tactical items for two main reasons. One is to ensure that we have the necessary controls and programs in place to better anticipate changes in market conditions in order to drive core business cash flow, and the other is to ensure a solid foundation to enable us to successfully execute on our growth strategies. This cost control and profitability focus will remain a key priority as we continue to progress throughout the year.
Turning to growth, we feel that Stabilis is an excellent platform to leverage our proven and durable business model to capitalize on large, new-frontier growth opportunities that have the potential to drive considerable long-term value. One of those markets is the space sector. Our main area of focus is the space launch services segment, which acts as the catalyst to launch payloads like satellites, cargo, probes and personnel.
Propellant is one of the more critical resources needed for launching rockets and there continues to be considerable uptake of LNG as the fuel of choice for launch providers. Along those lines, our space LNG deliveries in the first quarter of 2022 alone were equal to 74% of total volumes delivered in all of 2021. Moving forward, we will continue to work hard at developing more of these opportunities with primary providers of launch services and their suppliers. These ongoing commercial discussions are allowing us to gain better insight in how we should think about operational and infrastructure needs to deliver the scale required to support this rapidly growing industry in the future.
Dialogue in the marine bunkering sector has been strong, too. Our talented maritime team has been hard at work and in discussions with a variety of prospective customers. As you may recall, we have executed several memoranda of understanding with key ports along the Gulf Coast, and we are excited about the opportunities. In addition to the commercial side, we have the required licenses and permits in place and most of the equipment ready to go at some of those ports. So I’m optimistic we’ll begin fueling ships along the Gulf Coast by the third quarter. More broadly, we have been in discussions with a variety of prospective customers in the East and West Coast markets, and I’m equally optimistic that we’ll be operating in those markets later this year as well. While large, the U.S. LNG bunkering market is still at the beginning stage of its life cycle, but we are very optimistic about its future and on future calls, I hope to be able to share deeper insights into our progress.
With that, I will turn it over to Andy to discuss the quarter results.
Thanks, Westy, and good morning, everyone. For the first quarter of 2022, Stabilis reported revenues of $23 million, down slightly from the record Q4 2021 revenues of $23.7 million, but 30% higher than the year ago quarter. Revenues from our LNG segment were $20.3 million, down 3% from the fourth quarter of 2021, but 26% higher than the year ago quarter. Sequentially, gallons of LNG delivered were down 8% from the fourth quarter, and additionally, lower commodity prices accounted for approximately $300,000 of decreased revenue. This was partially offset by seasonal increase in equipment rental and labor revenue related to winter peaking projects.
Revenues from our Power Delivery segment were $2.8 million, down 3% from the fourth quarter of 2021, but 79% higher than the year ago quarter. Our power delivery results were also aided by a favorable exchange rate in the first quarter of this year. Net loss for the quarter was $0.4 million compared to $2.3 million in the fourth quarter of 2021 and a net profit of $0.2 million in the year ago quarter. Adjusted EBITDA for the quarter was $2 million compared to $0.7 million in the fourth quarter of 2021 and $2.7 million in the year ago quarter. There were no adjustments to EBITDA in the current quarter.
In the quarter, we generated positive cash flows from operating activities of $2.2 million, and we ended the quarter with $2.5 million of cash and $2 million of available capacity under our bank agreement with AmeriState Bank. The combination of our anticipated 2022 operating cash flows, cash on hand and capacity under our bank agreement should provide us adequate liquidity to execute our near-term growth plans.
Finally, I wanted to address our recently filed registration statements. Those of you that follow our SEC filings will have noticed that we recently filed registration statements on Form S-1 and S-3. The SEC declared both registration statements effective on April 26. The S-1 was filed to fulfill our contractual obligations with certain shareholders pursuant to registration rights agreements with these shareholders related to shares issued in prior transactions. The S-3 is a shelf registration statement that provides us additional flexibility with our capital structure and is another tool to enable us to raise capital quickly and discretely for any of our strategic growth initiatives.
With that, moderator, let’s open the call for questions.
Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Okay. Your first question is coming from Matt Dhane. Matt, you may ask your question.
Hi, this is Matt Dhane from Tieton Capital Management. I was curious, so you discussed that obviously your commercial team is engaging customers and implementing price increases. Curious where you are at in that process, is there a significant additional work to be done here, whether it’s implementing price increases or just changing in pricing mechanisms?
Yes, Matt. Good morning. Thanks. I think it’s both really. I think we are routinely looking at how our commercial construct is plumbed and that changes based upon customer needs, location, geography, but I think also we are continuing to be very vigilant and proactive in getting ahead of anticipated inflationary cost increase throughout the year. And so I think we will be thoughtful around engaging customers in that realm too. One of the things you don’t want to do is constantly go back to your customers and kind of routinely ask for price increases. And so we want to try and have that balance of understanding their needs, but also making sure that we are generating sufficient margin off of the inflationary pressures.
Okay. That’s helpful. And then the second question I have is the aerospace demand that you discussed the ramp there. Where are you at in that ramp? Is this really basically they are substituting LNG for prior fuels or is this an increase in launch activity driving this substantial uptake?
It’s both. If you go back in time and think really kind of the genesis of just space exploration and you think historically that was done really through NASA and other governing bodies around the world, a lot of that was RP-1, kerosene and hydrogen. And over the last several years, you have seen a real shift in uptake from that to a fuel mix of methane/oxygen. And it’s got greater energy density. It’s got many attributes that hydrogen/kerosene don’t have, especially since a lot of these guys are looking to be more cost effective and in doing so, they are doing reusable rockets, which methane provides many attributes that hydrogen and kerosene do not provide, not the least of which coking. And so yes, you are starting to see a big uptake away from hydrogen and kerosene. It doesn’t mean it would go away, but people are starting to more readily and openly adopt the methane as a fuel choice. But also, you have seen a significant proliferation in private capitalization of space exploration. You have got a lot of very wealthy, well-known names out there who have started space exploration companies. And on top of that, you see recent SPAC activity over the last 18 months of kind of rocket fuel companies. And so, the volume of launches are increasing, but that’s not just launches. There is considerable uplift in the R&D testing that requires fuel in order to make sure these rockets are ready to launch. So it’s both. I think you will see an uptick of people gravitating more towards the methane as fuel, but also just the sheer volume of testing and launches have and will continue to increase as well.
Great. Thank you.
[Operator Instructions] Sirs, there appear to be no further questions in the queue. Do you have any closing comments you would like to finish with?
Great. Well, thanks again everybody for joining us this morning and we look forward to seeing you on the road. Take care.
Thank you, ladies and gentlemen. This does conclude today’s conference call. You may disconnect your lines at this time. Have a wonderful day.