Q3 2022 Excelerate Energy Inc Earnings Call

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Thank you for your patience, everyone. The accelerate energy <unk> 2022 earnings call will begin shortly please standby.

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Hello, everyone and welcome to the accelerate energy three key 2022 earnings call. My name is Jay and I'll be coordinating your crude today. During today's presentation. If you would like to ask a question you may do say by pressing star followed by one.

On your telephone keypad, if you change your mind. Please press star followed by two.

I'd now like to turn the call over to Craig <unk>, Vice President Investor Relations. Please go ahead.

Thank you and good morning, everyone yesterday afternoon, we released our third quarter earnings press release, along with the presentation that our president and Chief Executive Officer, Steven Cobos, and our Chief Financial Officer, Dana Armstrong will speak to this morning.

I would like to remind everyone that we will be making forward looking statements on this call and involve a number of risks and uncertainties.

Actual results may differ materially from those expressed in these forward looking statements and we make no obligation to update or revise them.

Also during the call we will discuss several non-GAAP financial measures.

We provided a reconciliation to the most directly comparable GAAP financial measures at the back of the presentation.

And with that it is my pleasure to pass the call over to Steven combos.

Hi, there thanks.

Thanks, Craig and thank you all for joining us this morning.

Celebrate delivered another strong quarter of financial results as we continue to advance our growth strategy and making good progress on our commercial opportunities.

Against the backdrop of the most significant energy market disruption.

<unk>, we've seen the true value of accelerates flexible business model.

<unk> us to adapt our asset portfolio to deliver optimal solutions.

With our customers.

During the quarter, we demonstrated once again, our ability to navigate successfully the complexity of today's global LNG market.

We are expanding our reach in both new and existing markets by pursuing attractive growth opportunities.

Our flexible LNG infrastructure in our short time as a public company, we've rebalanced, our commercial portfolio to address increasing LNG demand and energy security concerns in Europe .

Our fleet flexibility has also allowed us to capture economic upside from elevated Fsrus charter rates, while we continue to position our gas sales business for growth and increased profitability over the long term on.

On this morning's call I'll focus my remarks on our third quarter financial results.

The current state of the global LNG market.

Progress on our commercial opportunities.

Dana will then walk through the details of our quarterly performance and our 2022 financial outlook before we open the call to your questions with that now, let's turn to our results and highlights for the quarter.

Our financial performance during the third quarter was strong we delivered 39 million of adjusted net income and 86 million of adjusted EBITDAR.

Bottom line results during the quarter were driven primarily by another solid contribution from our Regasification business and our GAAP sales business in Brazil.

Commercial fronts the deployment after the SSR your exemplar to Finland remains on track.

Our charter hire for the vessel commenced on October one.

We also signed a five year time charter contract with Germany for the Fsrus Excelsior.

The Finland, and Germany opportunities are great. Examples of how we've been able to redeploy seamlessly our assets to maximize our revenue.

This ability to transition from on higher to technical stopped back on hire again in this manner is unprecedented in our industry.

I'll also highlight that on October <unk>, we executed our shipbuilding contract with Hyundai heavy industries were <unk> for our new state of the art Fsrus, which will be delivered in June 2026.

Next as we approach the end of our first youre selling gas downstream in Brazil. We are pleased that our gas sales business is proving to be as valuable as planned.

We look forward to continuing to sell re gasify, the LNG in Brazil in the future.

We are finalizing agreement with Petrobras to extend our gas sales operations there through the end of 2023, and we are waiting final approvals.

On August 31, the Fsrus exemplar completed seasonal Regasification charter at the Bahia Blanca gas port in Argentina.

During this period, the exemplary gasify 12, LNG cargos and provide energy security to Argentina during the southern Hemisphere winter season.

And this week on November eight we accelerated board of directors declared our second quarterly dividend as a public company.

Now I'd like to share with you some perspectives on the current state of the global LNG market.

Since our last earnings call in August we have continued to see robust demand for flexible LNG infrastructure around the world as countries seek energy security and independence.

And Europe countries are bracing for winter and holiday have succeeded in filling natural gas storage capacity to over 90% of the supply outlook for the 2023 2020 for heating season remains a concern.

The September shutdown of and subsequent damage to the Nordstream, one and two pipelines.

Critical natural gas supplies to Europe , and further intensified supply pressures in real time, we've watched the situation that could have been solved politically evolve into one that now must be fixed with deployment of new infrastructure.

The ongoing curtailment of Russian flows combined with increased natural gas storage injections heading into the winter season. This led to increased LNG imports to Europe .

The resulting increase in competition between OECD in non OECD countries for finite LNG supply has exacerbated an already tight market.

While CTF gas pricing has come down since the peak it is expected to remain at elevated levels relative to history.

This means that any additional supply disruptions for colder than expected weather could cause significant short term spikes the combination of European onshore storage levels being your capacity increased LNG imports and mild fall weather have resulted in a buildup of latent LNG vessels.

Round Europe .

LNG tankers off the coast of Europe are awaiting opportunities to off load cargoes at fully utilized regasification facilities is.

This highlights the need for Fsrus and Regasification infrastructure.

The increased demand for Fsrus and LNG in Europe is also influencing energy policy globally. Some countries, particularly those in southeast Asia have chosen to reduce LNG consumption in the near term is it.

Direct result of elevated pricing and the spot market. However, because LNG remains an important part of their future energy mix. They are continuing to seek long term affordable LNG supply to meet their energy needs.

We are confident that these countries with the support and backing from international organizations will be able to achieve this objective.

And while affordability and security of supply remained at the forefront in Europe .

<unk> carbonization remains a priority now more than ever it is clear that natural gas will continue to play an important role in the energy transition serving as a complementary backstop to balance the intermittency of renewable energy.

We believe that Fsrus are the most important asset class to support Europe's efforts to achieve energy security and transition to renewable energy sources without the risk of having stranded infrastructure over the long term.

Now I'd like to take a moment to provide you with some important commercial updates.

As I mentioned on our last call. We reached an agreement with the government of Finland for the simpler to provide up to 5 billion cubic meters per year of re gasify LNG capacity through a new regasification terminal in southern Finland.

This flexible LNG terminal will bolster the energy security of Finland, while also serving more broadly the needs of the Baltic Sea region.

Although the simpler is currently undergoing customer request when organization upgrades during at this technical stopped in Spain, our charter hire with gastric Finland commenced on October one.

Gas grid, Finland by the way has done an exceptional job developing the terminal facility and the exemplar should begin regasification operations at the port of into Finland and December 2022.

We're also moving forward with our plans to sell re gasify LNG downstream of the terminal.

We've established a gas marketing entity in Finland opened a new office near Helsinki, and our commercial team is actively pursuing near term gas sale opportunities.

Next we have our agreement with Germany.

We've executed a definitive agreement with the German government to charter the Fsrus Excelsior five years. This is our second fsrus deployments Europe since the invasion of Ukraine by Russia.

Demonstrating the ability of our business and our fleet to pivot quickly to capture new commercial opportunities.

Excelsior will complete its charter in Israel at the end of this year and will go directly to its scheduled dry dock under the terms of the agreement with the German government the sell through will commence its charter hire in the first quarter of 2023.

The vessel is expected to provide regasification service since in Germany's planned LNG import terminal, which is being developed at the port of Williams happened by tree energy solutions E on and on sheet.

Now, let's turn to southern Europe , we believe that there is a tremendous opportunity to sell re gasify to LNG to customers in southern Europe downstream of our plan for a terminal.

Last quarter, we expanded the scope of our Albania project to include potential gas sales to countries linked to Europe , southern gas corridor, including Italy, Greece, Bulgaria and Turkey.

Since then the energy conflict between Europe , and Russia has worsen the damage to the Nord stream pipelines has made the southern corridor as an entre point for LNG deliveries, even more critical for Europe .

And our plan for terminal is even more valuable since it will add incremental capacity and alternative supply in the event of further disruptions.

In recent weeks, we've engaged with third parties for the engineering design for both the 300 megawatt power plants and the LNG terminal in Florida.

While we are advancing the Florida LNG terminal towards <unk> we.

We are also evaluating other downstream opportunities that would allow us to connect to existing natural gas pipelines in the region.

We're excited about our prospects and we will provide more detail on these opportunities as they progress.

Now, let's turn to Bangladesh.

LNG remains critical to the country's economy, our two fsrus terminals currently deliver approximately 20% Bangladesh is natural gas supply.

The government shares our view that long term LNG supply will be a central part of its energy mix moving forward and the country's advancing plans to sign new long term LNG supply agreements to guarantee for affordable and predictable LNG pricing as discussed last quarter wrapped.

Economic growth in southwest Bangladesh is expected to drive increased energy demand in the region and greater need for re gasify LNG as a fuel source.

We have recently completed our negotiations with Petro bandwidth for an LNG sale and purchase agreement or SBA and are now waiting formal approvals. We've also continued to advance the development of our planned prior LNG terminal. We are currently negotiating term sheets for pilot with petrol Bangla ahead of signing the deal.

Affinitive agreements and we are in conversations with potential strategic partners for all phases of the project.

Turning to our last update on the commercial front in October we executed a shipbuilding contract with <unk> for a new build fsrus, which will be delivered in June 2006.

This decision to expand our fleet reflects the confidence we have in our long term trajectory and the opportunity set ahead of accelerate.

The new Fsrus will have storage capacity of 170000 cubic meters of LNG and a maximum of Regasification capacity of 1 billion standard cubic feet per day stay.

Our state of the art Fsrus will be equipped with <unk> proprietary LNG Regasification system dual fuel engines best in class containment system, and boil off gas management and other innovative technologies, which will drive improved performance and efficiency, while lowering emissions.

On delivery this newbuild fsrus will enhance the capabilities of our existing fleet and support the execution of our integrated growth projects with that ill now turn the call over to Dana Thanks, Steven and good morning, everyone. Overall, we're pleased to have delivered another quarter of great financial lease.

For the third quarter, we reported adjusted net income $39 million, an increase of $18 million or almost double our second quarter adjusted net income.

Adjusted EBITDA was 86 million up 11 million or up about 15% versus last quarter.

The sequential quarterly increase was driven by lower fuel cost and lower repair and maintenance expense.

Higher margins from our <unk> block seasonal charter in Argentina.

This was partially offset by higher SG&A due to an increase in consulting marketing and business development related costs.

In comparison to the third quarter of last year, our adjusted EBITDA was up $21 million, an increase of about 32%.

EBITDAR was up about $21 million, an increase of about 32% a year.

Year over year increase was driven mostly by our gas guzzling breakdown, partially offset by an increase in SG&A related to our transition to public company structure.

Our track record of delivering strong financial performance.

As a result of the high quality agreements, we negotiate with our customers. We're proud to say that with the recently announced and lending in Germany toddlers we've enhanced.

The quality of our portfolio even further.

Now, let's turn to liquidity and balance sheet.

For the nine months ended September 30th accelerate had $346 million of cash and cash equivalents.

As of the end of the third quarter, we had letters of credit issued at 49, and no outstanding borrowings and directory hundred $15 million revolving credit facility.

Gross leverage ratio with plenty of times at the end of the quarter compared to two seven times at the end of last quarter.

On a net debt basis our.

Our leverage ratio was one two times.

We continue to maintain a strong balance sheet and healthy liquidity position the combination of our cash on hand, and our available borrowing capacity provides us with sufficient flexibility to fund our ongoing operations dividend payments and capex needs in the near term.

Our capex spend for 2022 have been lower than previous expectation, primarily due to the sequencing at the Finland, and Germany opportunity both of which required minimal capex.

Other projects in our pipeline.

As Steven mentioned earlier, our board of Directors approved our second quarterly dividend as a public company the dividend payment, which is equal to or any hudson's per share. Our kinston on an annualized basis will be paid on December 14, 2020 teen holders of record as of November 22020.

Based on our results to date, we are increasing our financial guidance for 2020.

The decision to increase our guidance is driven primarily by solid performance in the third quarter in combination with lower anticipated 2000, and cost and slightly higher and then margins in the fourth quarter as compared to our previous guidance range.

For the full year 2020, we now expect adjusted EBITDA to range between $264 million.

<unk> 4 million and adjusted EBITDA is expected to range between $300 million interchangeably.

Yeah.

As we look ahead, we're confident in our commercial lending.

And we believe the opportunities we are advancing will create a solid foundation for 2023.

We expect to provide 2023 guidance in first quarter of next year.

With that we'll now open up the call for Q&A.

Thank you we will now start today's Q&A session, if you'd like to ask a question. Please press star followed by one on your telephone keypad now.

Sandra lines. Please press star followed by Okay. Our first question today comes from Michael Blum from Wells Fargo. Your line is now open.

Thanks, Good morning, everyone.

I wanted to just ask first about the quarter.

I guess my question is how sustainable are these lower costs going forward and if you could talk specifically to what drove the higher margins at Bahia Blanca.

Thanks, Michael Stephen Good to hear from you.

Ed.

Thanks for joining us. This morning, we are really excited about how we're operating the fleet. We're excited about the work that our operations team does and how focused they are on efficiencies day in day out Theres no doubt about it.

We do manage this fleet ourselves, we don't rely on a third party and we think that it's making a difference.

But Dana do you want to dive into some of the yes. There are no problem, So hi, Michael.

The biggest drivers of the sequential quarter over quarter and prefer improvement with a couple of things.

The repair and maintenance is lower this quarter compared to the second quarter, we do expect that to go up a bit in the fourth quarter. So that's included in our guidance, obviously, but we do see some lumpiness in our repair and maintenance.

<unk> expense for our vessels and it really just depends on what specific projects, we have going on on a quarter to quarter basis as far as your question about the higher margins at the heel blocker that was really just the result of the timing. So we had two full months of Bahia Blanca in the second sorry in the third quarter and I think we had a month and a half in the second quarter.

That drove the margin increase in Bahia Blanca.

Got it thanks for that.

Okay guys. Thank you.

Just had one other question cash for now.

So as you continue to sign these contracts in Europe does this delay or reduce your ability to complete deals in some of these developing countries that <unk> been working on how do you sort of balance those two different markets. Thanks.

Michael and I appreciate you've always had a focus on Asia.

Picks up.

Our strategy is both and but the reality is we have focused extensively on Europe I mentioned on the call. We formed a gas marketing subsidiary in Finland, and we're doing all kinds of things across Europe .

Same time I, just got back last week from a trip to Bangladesh, we are eyeing.

This assay both and strategy.

Europe is an immediate need and then immediate opportunities. So we have been sequencing on a priority basis because.

They are priority opportunities.

But again, we are still advancing longer term and frankly as the.

The other projects in our pipeline I think that sequencing this year's work to our benefit because.

Many of the emerging markets, we're seeing that by the time you can come forward with these projects they expect a more harmonized global LNG market.

So I think it's actually the.

The strategy, we embarked upon has been beneficial for our shareholders now and in the longer term.

Got it thanks for that appreciate it.

Just curious if you would like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind. Please press star followed by <unk>.

Our next question today comes from Craig Shere from.

Your line is now open.

Hi.

Congratulations on the good quarter and thanks for taking the questions.

So I guess I'm trying to understand.

On Michael's question about.

The.

Ongoing run rate for some costs it sounded like Dana his opening comments.

Development cost project development.

Investment in costs are sustainably down.

Versus some of the maintenance quarterly Lumpiness.

Is that correct.

Yeah, our business development costs are lower than our expectations, they're pretty flattish quarter over quarter, but we didn't extend to the level of what we had anticipated and that's just a result of some of these projects pushing out as we're prioritizing some line in Germany. Some of our spending for Pyran Albania is pushed out.

Ed.

Gotcha so.

To the degree.

We deferred some of these emerging market opportunities that.

Stephen was referring to a couple of years.

The.

Work Youre doing in Europe doesn't have the same development expense. So we should have some comparable improvement versus what we thought maybe.

Two or three quarters ago into 'twenty three trials.

Craig by the way, it's good to hear you on one of our calls and thanks for joining.

I appreciate it always glad to have Tuohy brothers around.

I don't want to act like it's any big shifts that we're talking about the royalty as we've discussed many times youre continuing to see pricing on long term LNG you've seen some indications just recently.

Doesn't look like it's been affected by the war.

In any meaningful manner.

And without getting too much into the weeds now youre seeing youre seeing.

IMS and others assisting some of these entities.

APAC and elsewhere Reentering in fact, the short term LNG spot market, we would see some of that up in 2023.

Want to suggest that we're looking at a long term.

Shifting and those APAC markets I think Dana use the phrase sequencing and that's what we really think about this as a sequencing.

If there is any sort of shift it's just in terms of how we can advance on all fronts.

But our focus has very definitely done for the past few months to get bodies on the ground in Europe to former gas marketing entities in Europe , and do that sort of thing so.

It might have some adjustment in 'twenty three spend but I don't want to suggest that there is any.

Losses.

Loss of supports our enthusiasm for APAC absolutely not.

Great.

And just a little net I apologize.

Maybe I got it wrong, but.

Did I see correctly that the year to date nine months.

Cash flow reported investment in PP&E was lower than in the first half.

Yeah. It does.

Sorry, It was 60.

Im sorry, I don't have the numbers in front of me right now, but no it wasn't lower.

Yeah.

And then we can take it offline just trying to understand we had.

Yes, sorry.

Yes, the second quarter included the $25 million for the Excelsior purchase.

That would have that would have been the difference there.

That was reported as <unk>, we bought the two vessels, we won't take sell CME excellence with higher proceeds.

And the excellent as reported as financing because that was at lease, but Dx healthcare wasn't PP&E. So that was the driver okay, yes that makes sense.

Got you. Thank you.

Yeah.

Thank you there are no further questions at this time, so I'll hand, you back over to Steven.

Steven <unk> for closing remarks.

Well. Thank you again to everyone, who joined us on today's call.

I hope as you can see we are pleased with the progress we've made to date look forward to providing you with additional updates in the coming months until then.

Questions. Please feel free to reach out to Craig Hicks, our VP of Investor relations and with that thank you very much.

That concludes today's accelerate LNG three cohorts at 2022 earnings call. You May now disconnect your line.