Q2 2023 Excelerate Energy Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the extended rates energy first quarter earnings Conference call.

My name is grant and I'll be the operator for today's call. After today's presentation, there will be a question and answer session.

Ask a question you May press star followed by one on tap on keypad to withdraw your question. Please press Star then two.

Now I'd like to turn the conference over to our host Craig Hakes, Vice President of Investor Relations and ESG.

Please go ahead. Good morning, everyone. Thank you for joining us accelerate Energy's second quarter 2023 financial results call.

Participating on the call today are Steven Cobos, President and Chief Executive Officer, and Dana Armstrong Executive Vice President and Chief Financial Officer.

Also joining the call today is Daniel boost dose executive Vice President and Chief Commercial Officer.

Our second quarter 2023 results press release and presentation were released yesterday afternoon.

Be found on our website at IR dot accelerate energy Dot com.

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.

Today's remarks will also refer to certain non-GAAP financial measures.

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

With that.

I'd like to now turn the call over to Steven Cobos, Chief Executive officer of accelerate energy.

Thanks, Craig and thank you to everyone for joining us today for our second quarter 2023 earnings Conference call.

My remarks will touch on our financial performance during the quarter and.

And the outlook for the global LNG market for the remainder of 'twenty three.

In a review of our strategic objectives.

I will then pass call over to Dana who will provide more detail on our financial results for the quarter.

<unk> reported strong financial results in the second quarter with adjusted EBITDA coming in at $89 million and net income close to $30 million.

Our financial results were underpinned by the stable revenues and predictable margins that we see from our Fsrus and terminal services business.

Our consistent earnings performance during periods of volatility in the LNG market underscores the attractiveness of accelerate energy as an investment opportunity.

In addition to delivering strong financial results.

We also have several other notable highlights.

During Q2, we secured additional LNG sales in Bangladesh through spot tenders run by country Bank.

Year to date, we have secured contracts for the sale of four spot LNG cargoes in Bangladesh. These cargoes are in addition to the gas sales activities, we have in Finland earlier this year.

Our ability to secure opportunistic LNG and gas sales, while taking limited price risk provides us with revenue upside potential that complements the stability of our base business.

Yeah.

In Argentina, the <unk> series, providing regasification services at the Bahia Blanca gas Port terminal.

Following the Argentine winter Excelsior will return to the Germany charter in the third quarter of 'twenty three.

Our team continued to demonstrate its technical expertise and commitment to operational excellence during the quarter.

Whether it was repositioning the Fsrus Excelsior from Europe to Bahia Blanca.

Or navigating successfully a severe weather event like Sakhalin mocha in Bangladesh.

Cannot be more proud of the global accelerate team.

To provide some additional context on the scale of our operations as of June 30th.

Sweet represented 29% of global send out capacity for Fsrus based terminals.

Finally on August 3rd accelerate board of directors declared another two and a half some dividend per share to shareholders of record as of August 23.

With that let's turn to a brief update on the global LNG market.

In the first half of 'twenty three mild weather in Europe , and the continued buildup of EU natural gas storage contributed to inventories ending the quarter, 77% full.

Currently these storage is approximately 87% full.

This is roughly three months in advance of the EU mandated target for storage levels to reach 90% of capacity by November one.

In the Asia Pacific region, there was muted demand in the LNG market due to improving nuclear availability in Japan, and Korea and healthy LNG supply.

This contributed to a more liquid market in the second quarter, which allowed south Asian countries to re enter the spot market.

EU in APAC countries are focused on the coming winter quarter.

According to the IEA, a cold European winter could increased natural gas consumption.

By about 30 billion cubic meters or 22 million tons of LNG compared to last year's heating season.

And Asia, China's LNG imports could fluctuate with an uncertainty range of over 10 billion cubic meters were $7 2 million tons through the winter.

The potential return of a colder winter in Europe should continue to drive the need for incremental flexible LNG regasification capacity in the regions.

On the supply front LNG markets are expected to remain tight in the near term.

The global supply and demand balance should improve after 2024, when approximately 200 million tons per annum of incremental LNG capacity begins to come online.

This significant market dynamic is expected to create new opportunities for accelerate to connect LNG to downstream customers primarily in the global South.

U S Gulf Coast liquefaction projects are of particular interest to accelerate.

They represent potential sources of Fob.

Destination free volumes that are an ideal fit for our LNG portfolio.

While we continue to pursue downstream integrated opportunities.

In the near term, we are focused on strategically investing in the LNG value chain.

This includes developing our diversified portfolio of LNG supply.

Evaluating opportunities to grow our fleet.

And establishing an LNG and gas marketing platform.

In addition to the 20 of your LNG sales and purchase agreement, we announced earlier this year with venture Global we're also considering additional SBA as with other LNG producers.

As we execute our plan to scale the business, having a diversified portfolio of LNG supply.

Allow us to offer more flexible and cost effective products, but existing and new customers.

Accelerate is in a strong position today with our existing fsrus fully utilized and contributing to the business.

That's additional.

Additional infrastructure is needed to drive growth and maintain fleet flexibility.

This remains a top priority for the accelerate team.

Last fall, we announced our Newbuild fsrus with Hyundai heavy industries.

The state of the art Fsrus will be delivered in June 2026, and we look forward to welcoming to our fleet.

We're also looking at conventional LNG carriers for managing our supply volumes and we are evaluating opportunities to acquire new fsrus to support our integrated offerings.

Finally.

We're taking a deliberate approach to increase our marketing presence with the strategic goals of driving incremental margin growth and creating a bridge to some of the longer term actions. We are taking with regards to LNG supply.

We plan to achieve this by pursuing combination of gas sales agreements downstream of our fsrus.

Opportunistic LNG marketing and strategic partnerships with LNG producers.

In summary, putting these important building blocks of our strategy in place, we will enhance our ability to develop and deploy integrated LNG infrastructure at attractive rates of return.

Now, let's turn to Bangladesh for a brief update.

We continue to advance our pirate LNG project, and our SBA with petrol bandwidth.

We've completed negotiations with the government in Bangladesh for term sheet for pirate, which details the broad commercial parameters and framework for the deal.

As is typical in the government of Bangladesh approval system. The term sheet is going through its final round of approvals with various ministries within the government.

We've also completed negotiations with the government for a proposed LNG SBA and are waiting final approval.

Once complete this SBA will complement our portfolio of short term spot LNG sales, which will continue to play an important role in the market.

I'll now turn the call over to Dana who will walk you through the details of our financial results.

Thanks, Steven and good morning, everyone. We are pleased with accelerated performance for the second quarter. This year.

Second quarter adjusted net income was $30 million, which is an increase of 9 million are up 45% as compared to the prior year second quarter.

Compared to the first quarter of this year, our adjusted net income was slightly lower.

Our second quarter, adjusted EBITDA was $89 million at $22 million are up 33% over the prior year second quarter.

$90 million as compared to the first quarter of this year.

The year over year increases in adjusted net income and adjusted EBITDA were primarily driven by higher charter rates for Finland and for Bahia Blanca in Argentina.

Along with our contract extension at a higher rate in the UAE and lower operating lease expense, resulting from the purchase of the Fsrus Sequoia.

The quarterly sequential increase in adjusted EBITDA was driven by full quarter as operations for the Fsrus Excelsior following the completion of its scheduled dry dock in the first quarter of 2023.

Along with lower operating lease expense for this client and two LNG spot cargos into Bangladesh.

Accelerated benefits from having a portfolio of stable long term contracts.

Most of our vessels are committed to long term contracts.

As of June 30th.

Our Fsrus and terminal assets have $3 5 billion of remaining contracted cash flows with a remaining weighted average life at roughly seven years.

We also benefit from the geographic diversity of our customer portfolio.

Presence include the mix of revenue from Europe , Asia Pacific, The Americas, and the Middle East.

And each of these regions, our Fsrus and terminal service Geo strategic pinch point that enhance energy security and support local economy.

Last year, our pivot to Europe , and one in Germany.

That is to further diversify geographically and simultaneously allowed us to strengthen our counterparty credit profile.

Our base business generates healthy and predictable free cash flow stream that enhance our flexibility to pursue growth opportunities.

We bolstered our returns on capital.

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

As of June 30th accelerate hurtful than just $62 million of cash and cash equivalents on hand.

$81 million of letters of credit issued and no outstanding borrowings under our revolver.

Our gross leverage ratio was two six times at the end of second quarter.

Compared to two eight times as of the first quarter.

With our strong balance sheet, we have sufficient capital to execute our growth strategy and we continue to monitor the market for accretive opportunities that align our strategy in the best interest of our shareholders.

With a diverse global footprint accelerate is well positioned to develop and execute projects that will further our ability to generate stable consistent returns.

Next I'll share an update on our capital allocation strategy and our financial outlook.

Our focus for now remains on preserving capital to invest in future growth opportunities.

We are maintaining our prudent and disciplined approach to capital investments.

We also recognized the value of returning capital to shareholders and we'll continue to evaluate our dividend strategy in the context of our strategic objectives.

Total capex for the quarter with 278 million, which included $265 million for display purchase and roughly $5 million as maintenance Capex.

Weighted to various vessel upgrades and related ethylene equipment.

As a reminder, the assets are you excellent is scheduled for planned dry dock activities in the fourth quarter of this year.

Excellent and rebuild.

Operate transfer are infrastructure.

The related expenses will not be classified as maintenance capex instead of dry dock costs for the vessel will be recognized on the income statement.

To be clear the effect of the dry dock on a fourth quarter. EBITDA results is included in our full year financial guidance.

Based on our results to date, we are narrowing our financial guidance for 2023.

We now expect our adjusted EBITDA to range between 325 million to 335 not one.

Maintenance Capex is now expected to range between 20 million and $30 million.

This concludes our remarks with that we'll open up the call for Q&A.

Thank you we will now begin the question session to ask a question you May Press Star then one on tap on Keith hubs.

If you're using a speakerphone please pick up the headset vehicles, so I think I can.

Yeah.

We have our first question comes from Chris Robertson from Deutsche Bank. Your line is now open.

Yeah.

Thank you operator, and good morning, Stephen and Dana. Thank you for taking my questions.

Stephen I think you probably already address this during the prepared remarks, but there was a news article out yesterday in Bangladesh.

Citing that the government has approved the proposal.

For accelerate to supply one to one five MPA of LNG for 15 years, starting in 2026th which which does seem to align with the timeline for the delivery of the new building vessels. So I was wondering if you could just address that article.

Yes.

Yes, Thanks, Chris.

Thanks for picking up on that we saw that two out of the Bangladesh market.

It's consistent with what our team on the ground was telling us.

So.

We mentioned last time that both the prior deal and the supply deal.

For supply deal, we're working the way through the bureaucratic system and we're pleased that it's reached that point.

Obviously.

You'll hear from US you want to read about it in the Bangladesh press when we sign something.

We will press release that when it happens, but we're pleased we're less than a year and a half out from the IPO and we're doing what we told everybody. We're going to do we're going to put molecules through existing markets and existing infrastructure and grow it and I am pleased with this because I mean.

Make no mistake the scale of this is substantial if you were.

Put $1 5 million.

Tons per annum in terms of size.

That SBA deal would be in the top 20 of U S uptake sba's actively providing LNG in 2023.

And if we were going to count companies with signed offtake, sba's greater than or equal to one five MTA.

<unk> already operational U S LNG projects and projects expected to be operational in the future than the number of companies signing spa's buying this much LNG is still less than 30.

So that just tells you the scale of what accelerate can achieve in these markets with our flexible infrastructure. So im glad you picked up on it we're proud of the hard work of <unk>.

Daniel's team, but at the same time, we will be back when we actually have.

Executed definitive.

Okay, Great. Dana This is a very quick question following up on your comments around the excellent stride arcing during <unk> could you clarify just maybe the timeline around that how many days, how long sale time to get to the yard et cetera.

Yes, sure. So excellence Drydock I believe it's going to the yard in southeast Asia. So it's not huge drive time that we're going to be off hire for about 50 days and as I stated in the comments because it's R&D will take those dry dock expenses to our P&L.

Okay great.

I guess last question for me Steven you mentioned looking at.

<unk>.

LNG carriers to support the supply portfolio here on slide seven I was wondering if you could clarify are you looking into.

Charter in on long term charters. Some vessels are you looking to acquire LNG carriers.

Can you explain a bit more.

I mean, Chris at this point, we're still.

Still.

Refining that strategy and what are its going to depend upon where we whether we procure our supply for Bangladesh, the us or use some of our F&B volumes, how we arrange our portfolio, but we are actively considering both alternatives.

Okay, great. Thank you for taking my questions I'll turn it over.

Thanks, Chris.

Thank you Chris.

With our next question comes from Jeremy Tonet from Jpmorgan, Jeremy Your line is now open.

Hi, good morning.

Good morning, Jeremy.

Thanks, just wanted to.

Follow up here with with pyrite and potential.

D here.

Touching alluding to there and just wondering how you think about returns on such a project could you give us more details on guide rails, how to think about potential returns would you compete well on a returns basis further versus other aspects of the business such as.

CT terminals our Fsrus just.

Wanted to get more color on how you think about that.

Okay. Thank you Jeremy you touched on a couple of points because the announcement was referring both to the SBA and we are also pleased that the term sheet for pirate itself is being executed now the scope of pirate.

<unk> the infrastructure component is still being refined which is going to impact the ultimate returns on that but.

To turn this over both to Dana and Daniel boost us our chief commercial officer here in terms of how.

How we are guiding I don't know clearly what we've conveyed to date, but we do have a shifting scope on the infrastructure component.

Just one of you all can.

Jeremy out on how we're thinking about it at this point or at least what we wanted to communicate to the market at this point.

Good morning, Jeremy.

To have you here.

Our view on returns is consistent to what we have.

<unk> been talking about from the IPO.

C increased returns to more integrated the project is.

So we do believe that we're going to have higher returns when you're integrating supply.

Infrastructure under Fsrus.

We still see a three to five times EBITDA multiples on integrated projects.

Empire is a real example power on our SBA debt.

The news today.

We put together our contracts.

In a way that we can keep building on the opportunities we keep growing on the market. So my recommendation in terms of being the returns is to see that business as a whole.

Rather than a single integrated contract, but this is a good example, we started with one terminal.

We added a second project with our Fsrus and summit now where I think the supply.

We're going to start developing power alumina supply to Tyra. So when you see the integration, thus where you see the three to five times EBITDA multiples that were unexpected.

Got it and maybe just following up a little bit on that point, there and I know you look at the project.

Holistically as you describe it the three to five times, but just wondering how much of the economics would be predicated on integrating into kind of the power markets down downstream just curious.

On.

The core info part versus.

Further downstream markets, where there is maybe not quite as much.

Certainty to the.

Market.

We are not considering the added value of power projects at this moment. So all the metrics that we are commenting and on the integration of LNG supply fsrus on infrastructure.

Okay got it that's very helpful. I'll leave it there thanks.

Thank you.

We have our next question comes from Michael <unk> from Wells Fargo. Michael Your line is now.

Thank you good morning, everyone.

Wanted to ask.

Tcf prices have been quite a bit lately on some supply disruptions.

Can you just remind us in terms of your ability to potentially capitalize on wider spreads and how much ability do you have and what's your desire to pursue additional spot opportunities.

Good morning, Michael Thanks for joining us.

We speak to our spots.

As being opportunistic.

If anything what I hope people heard this morning is just a reminder, for those who havent been on this journey with US just how stable and reliable our base returns are.

How theyre not tied to commodity exposure so when we.

That means we're not going to be sitting there floating a cargo.

Going long on it we try to work in what we can.

That may that May set a ceiling on just how much you can get but it still leaves quite enough room.

To work with well being that consistent earner with predictable upside that we've talked about so I think the best way to answer your question as to just speak to our culture and our philosophy on that point.

Okay Fair enough I appreciate that and then just wanted to make sure I understand in terms of the full year numbers. So Q2 pretty strong first half of the year.

Racking above 50% of your full year guidance. So is the planned dry dock. The main reasons you didn't raise guidance here or there are some other factors to consider in the second half of the year.

Yes, Michael I'll, let.

Dana handle that because you touched on this sets up pretty well in the yes thats correct.

Michael So we have obviously you saw on our release that we had two quarters in Q2, we will have an NFC cargoes in Q3 as a result.

<unk> about our Q3 performance, we're not guiding on quarters.

Q4 is where we'll have a little bit of softness just because the drydock.

Because of the excellent impact it'll be there'll be an off hire impact, but then they'll also be an expense impact because we are not able to capitalize those costs you will see that impact in the fourth quarter and Thats why we are keeping our guidance, where we had it previously or narrowed it but you Nancy.

Perfect. Thank you.

Okay.

Thank you.

As a reminder, ladies and gentlemen, if you would like to ask any further question. Please press star followed by one on tap on key patent count.

Thanks.

Yeah.

We have no further questions from the line.

Okay.

Yes.

Alright, well. Thank you operator, thank you again to everyone who joined US on today's call. If you have any questions. Please feel free to reach out to Craig Hicks, our VP of Investor Relations. Thank you all very much.

Thank you.

Ladies and gentlemen. This concludes today's conference call. Thank you all for attending you may now disconnect your lines have a great day.

Yeah.

[music].

Great day.

Uh huh.