Stabilis Solutions, Inc.
Q4 2020 Earnings Call Transcript

Published: 11 Mar 2021

[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 securities laws. These forward-looking statements are based on the company's beliefs and expectations as of today, March 11, 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.

[Jim Reddinger:]

Thanks, Holly. Good morning, everyone, thanks for joining us on the call. Also with me is Andy Puhala, our Senior Vice President and Chief Financial Officer. We want to welcome everyone to our fourth quarter 2020 and full year 2020 earnings conference call. 2020 was a transformative year here at Stabilis after reporting our highest ever quarterly revenue of $13.8 million in the first quarter. Our business was significantly impacted by the pandemic-driven economic shutdown during the second and third quarters. However, proud to report that in the fourth quarter, we returned to a positive year-over-year trajectory and we expect this momentum to continue into 2021. In the fourth quarter, we produced our highest ever fourth quarter revenue of $13.7 million, which was also our second highest, the quarterly revenue total ever and we produce fourth quarter adjusted EBITDA of $2.3 million. Our strong first and fourth quarters last year, as well as the cost cutting and efficiency measures we implemented throughout the year allowed us to generate a positive operating cash flows and produce adjusted EBITDA of $3.5 million for the year of 2020. Stabilis has not only made it through the pandemic successfully, but we've have also returned to a strong growth trajectory. And just when we thought we had weathered the COVID storm, a real winter storm came along and ravaged the Gulf Coast region last month. As I'm sure you're all aware, extreme winter weather along the Gulf Coast of the U.S. resulted in widespread failures of the electrical grid, not the gas pipeline network. I'm proud to say that throughout this crisis our Stabilis team members responded admirably and we provided millions of gallons of LNG and the associated equipment and services to 10 locations in multiple states. Those location support of heating and power generation for more than 100,000 households. We were able to do this because our LNG solutions could be mobilized quickly and safely to provide clean, reliable energy solutions when existing infrastructure can outperform as required. This event provides a perfect example of the versatility and resiliency of small-scale LNG solutions, and we believe that it could create significant growth opportunities for our business going forward. LNG's ability to provide clean, reliable and dense energy solutions to customers who aren't on a gas pipeline, but who need to supplement gas pipeline are very valuable.

[Andy Puhala:]

Thanks, Jim. As Jim mentioned, we saw a broad increase in overall customer activity following the economic slowdown earlier in the year. We successfully maintained and grew existing customers, while adding several significant new customers driving fourth quarter revenue to grow to $13.7 million, a 52% increase compared to the third quarter of 2020 and a 10% increase compared to the fourth quarter of 2019. For the 12 months ended December 31, total revenue was $41.6 million compared to $47.1 million during 2019. For the fourth quarter, LNG segment revenues totaled $12.1 million, up 57% to the third quarter of 2020 and 60 - and up 16% compared to the fourth quarter of 2019. We deliver 10.4 million gallons of LNG to customers during the quarter and utilization of our George West Texas liquefier averaged 62% compared to 48% in the third quarter and 63% during the prior year period. For the year, LNG segment revenues totaled $36.3 million as compared to $43.7 million during 2019. LNG gallons delivered decreased by 17% and utilization of the George West plant decreased to 55% compared to 70% in 2019. The decline in year-over-year revenue and LNG volumes was due to the pandemic-driven economic shutdown, which heavily impacted the company during the second and third quarters of 2020, but was offset by record revenues during the first and fourth quarters of the year. Adjusted EBITDA for the fourth quarter was $2.3 million or 17% of revenue in line with the fourth quarter of 2019. Net loss for the quarter narrowed to $0.1 million, $0.01 per basic and diluted share compared to a net loss of $0.6 million or $0.03 per basic and diluted share during the fourth quarter of 2019.

[Jim Reddinger:]

Thanks, Andy. We're pleased with our rapid recovery from the negative impact of the economic shutdown and today we're hiring new staff and continue to make targeted investments in equipment and systems to expand our capabilities to meet the growth opportunities we can see in front of us. In terms of new contracts, we recently signed three long-term contracts for LNG sales that in aggregate represent approximately 40% of our capacity at our Texas LNG plant for the next two years. These customers are in the mining and paving industries, they provide a further diversification of our customer base and they provide higher utilization at our plant. These contracts should significantly increased plant utilization maybe to as much as 100% in 2021 and beyond and thereby improving profitability. We expect to have several other similar LNG sales contracts completed in the coming months, which if successful would put us in an even better positioned to optimize our plant and equipment throughput. I would also note that Stabilis have the ability to continue to grow despite high utilization at our own LNG production plant. Stabilis can buy as much as $1.5 million gallons of LNG per day from over 25 different third party supply sources across North America. This gives us the ability to grow sales and service customers in most geographic markets. In addition to our robust sales pipeline, we have a new project pipeline that represents almost $200 million of new revenue opportunities over the next 24 to 48 months. This project pipeline includes several marine bunkering projects as well as other projects that involve long-term contracts for supply of LNG to the electrical power customers. At some of these projects will require the construction of new LNG production facilities, the purchase and operation of transportation storage assets, as well as the purchase and operation of power generation assets for our customers. A significant portion of this opportunities in Mexico, where activity continues to accelerate.

[Operator:]

Your first question for today is coming from Craig Shere. Please announce your affiliation, then pose your question.

[Craig Shere:]

Good morning and congratulations, Craig with Tuohy Brothers. So, could you dig a little deeper into the financial impacts for Stabilis from the February winter storms? Could this first quarter we're in now be another record and are you getting any initial early feedback on commercial opportunities that would ensure generators against our future such supply interruptions?

[Jim Reddinger:]

Sure. The storm was a little bit of a two-fold impact. A lot of our industrial customers were not able to continue operating during the storm because of the lack of supply of electricity and gas. So several of them shut down. On the flip side, we were able to accelerate and expand our LNG supply to residential and essential service customers, allow them to keep their power and heat running.

[Craig Shere:]

I got you. And you commented that even at 100% utilization on your owned existing operating liquefaction, now you have ample supply sources to continue your commercial efforts. Can you discuss the kind of dovetailing potentially of third-party supply and new small scale LNG deployment, if you get enough critical mass in certain areas can third-party supply simply tee up a new plant in 12 months to 18 months?

[Jim Reddinger:]

Yes, I mean, we've always used - we've been - we've got about 40% of our current supply of LNG across the country coming from third-party sources. So we've used it extensively over time and one of our strategies, particularly if you look at some of the things we're doing in Mexico is to use third-party supply to feed markets and to build markets into which we can then build our own liquefaction or supply sources into those markets. So that's been a strategy we've used over time and one will continue to use. Obviously, we're not seeking to build supply on top of other third-party sources where it's available, but it does allow us to move into new markets across North America, the U.S. and Mexico as we need to. So similar strategy what we've pursued in the past and we'll continue to do that now. I would note a couple of other things too, - one is, we measure our capacity utilization at our plant in Texas based on the name plate capacity, which is about 100,000 gallons. Our team is usually able to squeeze 10,000 or 20,000 gallons more out of that. So there is additional - additional supply we believe is going to be available there as well and of course we'll continue to explore opportunities to expand that plant when and where it makes sense.

[Craig Shere:]

Thanks, and last since you brought it up, in Mexico any prospects for FIDs in the next quarter too of new liquefaction?

[Jim Reddinger:]

We don't have anything formal to report now, but I can say that - post-COVID world a lot of project development has gotten back on track and been able to move forward. There was - as you'd expect pretty much a total shutdown of activity last year in the second and third quarters even on these projects, but it really picked back up again in the fourth quarter. So nothing to announce now, but I can tell you that a lot of the work that's going to be required by our customers to move forward on this project is moving forward quickly now.

[Operator:]

Your next question is coming from Bill Dezellem. Please announce your affiliation, then pose your question.

[Bill Dezellem:]

Thank you. Tieton Capital Management and I wanted to start relative to the greater than 50% growth that you've had for Q3. Was that essentially due to several singles and doubles or just small pieces of business or were there some really big - either big wins of new customers or a big rebound of existing customers that had really disappeared when COVID hit?

[Jim Reddinger:]

Yes, Bill, good morning. It was all of the above really. We had a number of our existing customers, particularly those in the industrial and the energy sectors really come back to life in the end of the third and the fourth quarters and that ranged from power generation and process heat applications in the industrial sector and do the same activities in the energy sector. And so when energy prices recovered and the market turned back on, our existing customers really came up strongly. And I'd say throughout that period and really throughout the year in 2020, our pipeline and utility customers continued to move along at a pretty steady pace. They used the downtime to do a lot of repairs and maintenance. So they held steady and on the industrial and energy side. We really saw a rebound in activity in the third and fourth quarter. In addition to that, we did have two new pretty significant customers come on board. One was the consumer of the LNG that we talked about in Northwestern Mexico for power generation project that we believe was one of the largest ever completed in Mexican history for distributed LNG. And the second was a very large power generation project in the U.S., along the Gulf Coast that was serving and continues to serve a community that had some damage to their electrical grid. So it's a little bit of both. Our existing customers came back and then we did have some new activity from customers that we have been developing for some time.

[Bill Dezellem:]

Great, thank you. And then relative to George West utilization, you said that it was 63% in the fourth quarter, what was level exiting the fourth quarter and I'm asking the question in spirit that I'm presuming that the utilization ramped as the quarter progressed. So I'm wondering where you exited? And then how does that 63% utilization compared to where we're at today also?

[Jim Reddinger:]

We haven't, I don't think we've given the monthly utilizations, Bill, but I'd say your assumption that utilization was accelerating through the quarter is correct. And then, we haven't yet announced anything in the first quarter, we'll do that here over the next month and a half or so, but we do continue to see a growth in activity in the fourth - in the first quarter.

[Bill Dezellem:]

And I assume that comment is just kind of neutralizing for the Arctic blast that the first quarter was on an upward trajectory from the fourth quarter?

[Jim Reddinger:]

Yes, The Arctic blast was unique and during that particular week we were do - we did have lower revenues because of the force majeure on the gas pipelines and because of the spikes in electricity prices, our plant was down for a week as were all plants in Texas during that week. On the flip side, after the plant - I'm sorry, the plant was able to turn back on. We were able to bring a plant utilization well above at/or above 100% and so we think that the spike in activity after the storm is like I said to Craig earlier is worst case is going to be a push, I think with the loss revenue and opportunities we have during the storm.

[Operator:]

Your next question is coming from Barry Haimes. Please announce your affiliation, then pose your question.

[Barry Haimes:]

Sage Asset Management. Thanks for taking my question. First question is, if I look at the variable margin in the fourth quarter on an adjusted EBITDA basis, it looks like, it is about 42%,if you look at the change in EBITDA versus the change in the sales, is that representative of what we should expect as volumes ramp up in the future or was there something different in the fourth quarter, that's the first question? I had a couple.

[Jim Reddinger:]

Andy, do you want take a swipe at that?

[Andy Puhala:]

Yes, I'd be happy to Barry. So, there is a couple of things going on in the fourth quarter that impacted the EBITDA. One was we had a very strong quarter from our Chinese joint venture. So that contributed to that strong EBITDA performance, so that's something that we don't give guidance on that joint venture, but that was stronger than normal for that joint venture. So that would be something to potentially normalize going forward.

[Barry Haimes:]

Okay. So just on a - if we just were to say on incremental volume going through your plant in Texas, what's the normal contribution margin? Is there a normal range we should think in terms of?

[Andy Puhala:]

If you look historically, EBITDA margins for us have been kind of mid-teens, lower to mid teens and we think that as we grow the business, we have the opportunity to grow that into the high teens in the near term.

[Barry Haimes:]

Okay, great. Thank you.

[Jim Reddinger:]

I'd add to that Barry, that if you look at our utilization in the fourth quarter, which was in the 60-ish percent area, as that moves up, you'll have significantly more fall-through from the plant. So the plant margins to your question should increase as volumes increase.

[Barry Haimes:]

Okay, thanks. And then wanted to make sure I understood correctly, the three new contracts that you alluded to, you talked about would utilize 40% of your capacity. So if I heard that right, that would take you pretty much the full utilization, did I hear that right? And when do those contract start, just get a rough feel of when we'll see the revenues?

[Jim Reddinger:]

Sure. It's not quite full utilization because some of them - some of those volumes were already built into the 60% that we talked about in the fourth quarter. All those contracts are starting currently. So we've got some - we still have some room in the system. We are working on a few other contracts that should take us up higher. And what we generally do is when we get to that full utilization level at our plant in Texas, there are several other facilities in the market that we can buy from and so we'll start to drawdown from those facilities, so we can continue to service all those customers, but keep the high utilization of the plant as well.

[Barry Haimes:]

All right. And then you alluded to the fact that perhaps at some point you could expand that plant, any preliminary thoughts on what the capital cost would be for how much increase in capacity, if you were to pursue something like that and how long it might take to do that project?

[Jim Reddinger:]

Sure. I mean the original facility, we've built there in South Texas was about $45 million for 100,000 gallons. When we built that facility, you obviously put in your gas pipeline connections, your electrical connections, you do your civil work and a whole host of other things that should make the second train that get incrementally less expensive. I don't have a price for you right now on that, but we do think there is some pretty significant capital efficiencies in adding the second production train on there.

[Barry Haimes:]

Okay. Would it be a similar size in terms of gallons if you did it or will be different?

[Jim Reddinger:]

We haven't made any decisions on that, most likely it would be a similar size - the next step up in the standard plant design that we used is 250,000 gallons a day. So that's probably more - more expansion than we do initially, but what we're willing to see - we would do this in response to customer demand and so we put a larger one if we could, but right now I'd say it's probably - the next step is probably another 100,000 gallon train.

[Barry Haimes:]

Got it. Okay, thanks. And then last question, in terms of getting a NASDAQ listing, where does that stand, what do you need to do to be able to get to that listing?

[Jim Reddinger:]

So we've talked about the NASDAQ listing extensively last year and told people on the call that we are going to continue to pursue that and we're still in that situation where we continue to pursue it. It's a factor of - there's a number of factors for the NASDAQ listing. I haven't looked at them today, but I think in general we've been in the zone of being eligible for NASDAQ listing based on the quantitative standards over the past month or two and so as we said before, when we're in the range for quantitative standards, we're going to go pursue the listing again. And so we haven't made any formal announcement about it, but based on what we said last year, we will continue to try to make that happen as soon as we can.

[Operator:]

There are no further questions in queue.

[Jim Reddinger:]

Great. Well, thanks everyone and we look forward to speaking to you next quarter.

[Operator:]

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