Q4 2023 Stabilis Solutions Inc Earnings Call
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Okay.
Welcome to the Biller solutions fourth quarter and full year 2023 results conference call.
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I would now like to turn the call over to Andy who Holler Chief Financial Officer. Mr. Coote. Please go ahead.
Good morning, and welcome to the Bellus solutions fourth quarter and full year 2023 results conference call I mean, Andy to haul our senior Vice President and CFO stability and joining me today is our president and CEO Westy Ballard.
We issued a press release after the market close yesterday detailing our fourth quarter and full year 2023 operational and financial results.
This release is publicly available in the Investor Relations section of our corporate website, that's the billets stash solutions Dot com.
Before we begin I'd like to remind everyone that today's conference call will contain certain 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 expectations and beliefs as of today March seven 2024.
Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected.
The company undertakes no obligation to provide updates or revisions to the forward looking statements made in today's call.
Additional information concerning factors that could cause those differences is contained in our filings with the SEC and in the press release announcing our results.
Investors are cautioned not to place undue reliance on any forward looking statements.
Further please note that we 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 our earnings press release.
Today's call is being recorded and will be available for replay.
With that I'll hand, the call over to Westy Ballard for his remarks.
Thank you Andy and good morning to everyone joining us on the call.
Let me start by thanking our employees for their many contributions during what amounted to a historic year for stability.
Our success was a collective effort that culminated in our first full year of profitability since becoming a public company.
While our full year profitability was an important milestone for our entire team.
We remain in the early stages of a multiyear value creation story.
You'll see not only are we building a profitable clean fueling solutions platform of scale.
We're at the forefront of emerging blue skies sectors characterized by significant opportunities for sustained asymmetric growth.
And as we look across the competitive landscape here domestically. We believe we are the only company in the small scale LNG universe that has built the infrastructure operational and technical capabilities and customer relationships.
Capable of advancing an increasingly sophisticated growth platform at <unk>.
Further enhances our unique value proposition and competitive moat.
Looking back over the progress we made in 2023, there were several highlights worthy of note, including the following.
Commercially we continue to shift our business model from commodity spot sales towards longer duration take or pay contractual revenue.
We believe this approach ensures further optimization of our asset base and increases the visibility of cash flow generation.
Positioning us to Opportunistically invest in our people systems and infrastructure required to support future growth.
And our marine business, we made measurable strides where we completed a six month LNG bunkering contract in Port Canaveral, Florida.
And conducted multiple LNG bunkering operations for a large container carrier and the port of long Beach, California.
In December we commenced our previously announced multi year Marine Bunkering contract with Carnival Corporation in Galveston, Texas.
Carnival is a pioneering global cruise line committed to the de carbonization of their fleet.
Through the adoption of LNG in alternative fuels and the first cruise line to introduce LNG powered cruise ships and North America.
Our relationship with Carnival is an important use case that further solidifies our position as a premier provider of comprehensive and scalable marine LNG fueling solutions in the market.
Revenue from our marine customers in 2023 represented roughly 14% of total revenue and our outlook for 2024 has marine revenue increasing to roughly one third of total 2020 for revenue.
Beyond Carnival over the last two years, we have engaged in full project development management engineering support personnel supply and operational services to the successful delivery of more than 2000 loads of LNG to fuel container ships cruise ships and offshore supply vessels.
And our team's efforts during that period have been impressive with marine revenue growing at a compounded annual growth rate of 122%.
Looking ahead, our marine strategy will focus on expanding our capabilities directly to the waterfront of high traffic ports across the U S.
In doing so we will continue to optimize our portfolio of owned and third party supply sources infrastructure and logistical assets to provide comprehensive and scaled solutions to current and future customers.
Along those lines operationally, we continue to enhance our logistical capabilities.
The only small scale LNG bunker provider capable of delivering multiple modes of delivery to our bunkering customers, whether that'd be bunker barge to vessel.
To bunker barge or truck to vessel across all three U S coastal markets.
This operational and geographical flexibility affords our current and prospective customers the ability to validate a variety of trade lanes throughout the U S. Knowing they will have a reliable fuel supply what's the villas.
Throughout the year. We're also the beneficiaries excuse me a strong activity across our other diverse end markets, primarily led by aerospace electric utilities mining and oil and gas sectors.
Within the aerospace sector, our high purity methane continues to become the preferred fuel for space rockets, resulting in sales volumes of LNG to aerospace customers of approximately $3 4 million gallons in 2023 or 7% of total volumes for the year.
Entering 2024, we are seeing a significant increase in quoting activity that points to a positive demand inflection within both our marine and aerospace markets.
Given these favorable underlying demand conditions, we expect that by mid 2024, our two owned liquefaction plants will effectively be sold out for the remainder of the year and well into 2025.
So this begs the question now what.
In answering that question, it's important to remind everyone that our proven ability to rapidly source LNG at scale from our extensive supply network to meet ongoing incremental growth in customer demand, while we proactively evaluate a variety of opportunities to expand our assets and operations.
On that note allow me to share a few comments on our capital allocation over the last year and we are focused entering 2024.
In 2023, we deployed more than $7 $8 million toward growth related investments in our marine capabilities by acquiring the critical components for new LNG production train and associated storage and equipment for waterfront expansion.
Even after the significant level of investment in our marine business. We ended the year with more than $11 million of cash and availability under our credit facilities to fund our ongoing operations and a net leverage ratio of 0.6 times 2023 adjusted EBITDA.
Looking ahead, we intend to further optimize our existing asset base and supply chain, while prioritizing scalable investments.
And incremental new capacity and infrastructure.
Capable of supporting demand inflection within our marine aerospace and other diverse end markets both in the U S and abroad.
To accomplish this we are routinely evaluating a variety of prospective sources of capital with heavy emphasis on focus and focus on those partners that know our industry, our company and recognize the significant upside potential in our operating model.
Importantly, our decision to proceed with new infrastructure investments will correspond directly with our demonstrated ability to secure long term ratable offtake agreements that derisk, our investment over a multi year period.
With that I'll turn it over to Andy.
Thank you Westy.
Let's move to a discussion of our fourth quarter and full year performance together with an update on our balance sheet and liquidity exiting 2023.
Our fourth quarter 2023 results reflect 18% sequential revenue growth in the first quarter of profitability since Q1 of 2023 during the fourth quarter, our George West plant returned to full production rates and that combined with several new projects resulted in a strong sequential performance.
During the second and third quarters of 2023 operations that our George West facility were impacted by a series of investments we made to enhance our ability to utilize a wider wider range of feed gas stock.
With this project work, reaching completion in the third quarter, our George West facility operated at 95% of capacity during the fourth fourth quarter and continues to operate at a similar level into the first quarter of 2024.
We generated $1 $3 million of cash from operations in the fourth quarter and $6 $7 million for the full year. This strong cash generation helped us find $10.3 million of total capital investment through the year, while maintaining our strong liquidity position.
At December 31, 2023 stability had total cash and equivalents of $5 $4 million together with $5 $6 million of availability under our credit facilities total debt outstanding as of December 31 was $9 $4 million, resulting in a ratio of net debt to trailing 12.
Month, adjusted EBITDA of 0.6 times.
Given the recent activity in some of our higher growth target end markets. We are actively considering potential avenues for capacity growth.
Our current liquidity position and balance sheet provides us with the optionality to pursue select organic investment as we meet an inflection point in demand for our solutions.
As we look out over the coming years, the exponential growth opportunity for our business may warrant further capital investment beyond what our current balance sheet can support.
For such investment we are actively evaluating multiple pathways for financing, but our top priority in doing so continues to be protecting and maximizing shareholder value.
That concludes our prepared remarks, operator, please open the line for questions.
Yeah.
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Our first question comes from Martin Malloy with Johnson Rice. Please go ahead.
Good morning, congratulations on the strong fourth quarter and all the progress that you've made in 'twenty three.
The first question.
Wanted to follow up on.
Some of the topics you touched on in your prepared remarks.
Gross.
Potential multiyear contracts out there could you maybe.
Help us with what kind of.
Milestones, we should look for.
You would need to have before you pulled the trigger on expanding liquefaction capacity on the contractual side, whether it be marine bunkering or aerospace and then on the aerospace side I guess whats the term out there that people are looking for.
In terms of LNG supply from a contract standpoint.
Yeah. Thanks, Good morning, Marty I think the way to think about this these two buckets one the marine and the other aerospace I'll start obviously with the marine and that.
We are I think we've been pretty clear that that as we think about capital deployment, we're not averse to.
Putting money to work speculatively, we did that in the third quarter. When we bought some of those that first train and the associated equipment for almost $8 million of of expenditure in marine So we're comfortable with that but I think for us to to really deploy scalable dollars, we're going to want to have some more commercial lead on the bone and making sure that we've got.
Level with term and rate ability for some of these marine contracts we're in a.
A variety of discussions across multiple.
Ship owners and operators and if you'll just look at that tidal wave of demand.
2023, and now into 2024, we've got over 500 ships.
As addressable market and that's up to two fold from just two years ago and 15 times from six years ago. So this market has got a massive massive.
Demand and so we're being thoughtful in these discussions and so we'd like to have some more certainty right ability before we start announcing and the.
<unk>.
And so look for that but we're not afraid to also do some on spec as we demonstrated in Q3 of last year I think on the space side. Those contracts vary I think that as we think about those contracts they can be not dissimilar to marine they can be anywhere from.
Six months to two years to five years and certainly.
We're working diligently to have those as as as ratable and long term as the economics and operations makes sense. So that's.
That's really really how you should think about the the aerospace side of it.
Okay and then.
For my follow up question.
Just wanted to ask about operations at George West I know you've made some investments in 'twenty three.
They kind of pre treat.
The inlet gas.
It looks like from the fourth quarter results and thank you Sir.
The utilization is doing very well and everything but could you just maybe talk about how those investments are playing out in the utilization.
Sure Yeah. So so.
If you go back and look at kind of mid year last year, we're in the kind of the 40% 50% utilization that was some of the disruption that happened. We we spent a lot of money, but around $1 million to go ahead, and rectify that and we wanted to be thoughtful in our approach and I'm proud to say that as well in a rearview mirror. It doesn't mean that we're not you know other things won't happen, we don't foresee.
Anything that have or will happen and.
And so I think the way to think about that is very high kind of mid 90% utilization rate now that'll that'll ebb and flow based upon.
Hum.
Predetermined downtime for maintenance and and the like but that plant has in fourth quarter and continues through certainly the first part of 2024.
Operates in that mid to high 90% range. It's it's it's firing on all cylinders and we're really excited about that.
That's great I'll turn it back thank you very much thanks Marty.
Thank you. Our next question comes from Barry Haimes with Sage asset management. Please go ahead.
Thanks, very much for taking my questions.
First of all I wanted to clarify the money spent on growth capital.
Was that all marine Bunkering equipment or was some of that long lead time on that.
Long lead time items for the new train that you've talked about in the past.
So it's one of it's it's a little of both it was it was the it was another 100000 gallon the critical components to another 100000 gallon train.
It's small scale world, it's modular and so we could theoretically put it anywhere right now we have.
Sightlines on move it to the water for Marine Bunkering doesn't have too, but right now that's the intention.
But also part of that $7 8 million was marine bunkering associated equipment with some pumping skids and some other some other hard items are that further facilitate the bunkering of ships and so you could look at it as all marine Bunkering or maybe that train if an opportunity comes up since it's a very modular system, we can move it elsewhere for aerospace or the like.
Does that answer your question.
Yes, Sir.
Following up.
What would be the timing of the new train coming coming on.
Yes, the timing is going to be predicated upon kind of the earlier question that we've talked about with Marty Malloy and that's really just the cadence of of contracts as you think about really two big drivers for this company the aerospace industry as well as the marine industry. Those are those are kind of nascent blue sky markets and sectors and so they are in their infancy stages of growing and so.
Understandably those sales cycles take just a little bit longer to build out.
Within a new market and so we've had considerable success.
Along the Marine front end based upon frankly with the work we've done in Florida, as well as California in.
Now the Gulf of Mexico, We think that pace of play in marine picks up we think the pace of play in space picks up trying to put definitions around that if that's in the next two months or six months or nine months, it's hard to say, but if you just look at that and marine the total number of ships. That's 500 ships now three years ago 200 chips in five years ago.
31 ships and so we think that just the inertia in.
In play now is going to inure to our benefit, but it's hard to put an actual timeline on that but we're aggressively pedaling rapidly in 2024 with a lot of lot of discussions around those topics.
Right and then so once you have contract coverage and you make the decision to go forward.
How long would it take to.
You know building in.
Finish up that train just yeah in months or we're talking about roughly yes.
Contracts on and we disclose that it's anywhere between 12. This 18 months. It just depends on the critical components for that first train it would probably take US I don't know 14 15 months from the time, we say go.
If if we're starting in and had to order new components that might take 18 to 24 months.
But the beauty of it is it's unlike the world scale. This can be a very quick shot in the arm.
I think another way to think about this is we've got a critical vendor. That's also a large shareholder of our company and Thats chart industries. There are logical provider of a lot of our our capex and so I think.
We would we would like to get in and think that we've got some favorite nation relationships. There is well over anybody else and so it could be as I mentioned 15, 16, 18 24 months it all depends on the scale and location.
Great. Thanks, that's helpful and then I just wanted to others on different topics.
You talked about the movement to contract from spot.
Can you give us a rough feel for what that ratio was contracted spot 23 versus 22, and then if you have any sense for for this year. Thanks.
Sure. So I think that when you think about our assets 2022 was predominantly if not holistically spot.
2023, the vast majority of that was spot or short term think six months or shorter type contracts I think as we go into 2024 and end of 2025, thank kind of.
18 months to four year type contracts.
And that and that would be for like what percent of the contract what percent of your volumes in 2004, do you think would be under that.
A contract like that versus continued spot business yeah. Yeah. So the variability is around our assets versus third party third party as a variable.
So I'll just speak with our own balance sheet assets in our own plants.
I would say that that our goal is to have 100% of our assets under some sort of term ratable contracts, whether that's one to four year type contracts versus in 2020% to 100% of that revenue was all spot and the vast majority of it in 2023 was all spot. So what we're doing is we're pivoting from a spot in <unk>.
Just an unpredictable market and we're pivoting to consistent better visibility better backlog at better planning better planning, because we got better visibility sightlines on cash flow and also better margins.
Great and then on the <unk>.
Volumes this year.
How much <unk>.
Production volume and how many gallons do you think you missed out on because of the issues that George West. So theoretically you would get those volumes back this year.
Yeah.
Barry.
Publicly we've discussed it in terms of EBITDA and we think that the EBITDA impact of that was about $3 $2 million, which crossed both Q2 and Q3. So that's how we're kind of thinking about it.
Got it and then last question.
Are there is there anything happening with the export license that you guys got just a little update on whether you know that's kind of sitting on the shelf or whether there's some plans to utilize that thanks.
Yes, there are absolutely plans to utilize that and.
The good news is it's a 28 year license of the Bad news is there's some some short term deliverables that we need to be thoughtful around.
I also think it.
It's hard to contemplate the export right now just given where natural gas prices are in Europe and Asia.
But we don't think that's a long term systemic and we think that this is a very exciting tool for us to use and quick fashion should those markets.
Very quickly and so we are we are constantly in discussions with offtake internationally.
That that can flip the switch pretty pretty quickly but.
But it's it's a it's a really interesting tool and we intend to leverage and utilize that.
Not only for.
Demand in power generation and alike industrially in Europe, but also we think that there are opportunities for us to put that.
On vessels and utilizing U S gas exploiting that to European markets and Bunkering shifts there as well. So it's got a lot of a lot of your utilization utility for us.
Great. Thanks, so much for for.
For all.
All the info and congrats on a great quarter. Thank you great. Thank you.
Thank you. Our next question comes from Bill <unk> with Titan Capital. Please go ahead.
Thank you in your opening remarks, you referenced the long Beach Marine Bunkering project would you please detail the circumstances at that for us.
Well, that's a that's a relationship that we are providing engineering.
<unk> management and pumping services to a third party, who is then fueling a vessel.
That's been going on for a couple of years, we also.
Did that for another container ship.
Containership company very similar construct.
Where where we were providing engineering and management and service personnel to pump.
Sure.
LNG into a a container ship on behalf of a third party.
And that third party is the is the shipping company itself or is there a.
And.
Our contractor between the two of you.
Yes, so specific to long beach, there was a contract between us that that their responsibility was to source the gas.
And provide that to the containership.
And we were providing the pumping services project management logistics supply chain of picking up their gas and delivering it to their customer.
That's that construct that's I wouldn't look at that as being the business model across all the markets, we're expanding too.
But.
That is specific instance, that's that was the construct.
And.
Lastly, you tell us about the expertise that you bring to the equation that in that case the <unk>.
Gas provider themselves.
I was not able to do or why they were not able to do that.
Yes, I mean, a lot a lot of people really kind of stick to their knitting and I think we've positioned ourselves as a turnkey provider of starting with the molecule and it could be our own molecule or we can source that for somebody or somebody else can source it on their own we're fairly agnostic.
But we have the technical expertise the rolling stock in many instances we have the the engineering the commercial capability, we've got really kind of the the entire.
Infrastructure to provide the permitting the licenses really all some of that qualitative stuff as well and some of the administrative stuff. We've got we've got a full capability of investment that we've made operationally.
And with our people and systems to deliver a turnkey solution from production all the way to last mile delivery, whether it's.
In our industrial business aerospace business or marine business.
No one else really has that no one else has that capability nor they have invested in that capability nor are they have demonstrated the desire to invest in that capability.
Great. Thank you.
And in your opening remarks, you also referenced having both plants essentially sold out.
And you mentioned your timeframe and I missed I missed what that timeframe wise would you please repeat that.
Yes, so excuse me based upon the kind of the lens and we're looking through we think that that it stands to reason that by mid point this year and well into 2025, our plants will be effectively sold out bill.
And today, 95% capacity at George West do you consider that sold out or.
Or do you still see more you really wanted to get up to a 100% or more and more.
I want to get up to 100% of more and I think I'm optimistic that we're going to get there.
Okay, great. Thank you and so when you take both accounts.
Both plants and put them together.
What would be current youth.
Utilization be running at say in the fourth quarter.
Yes, if you take if you take George West at kind of the mid to high <unk> and Andy Port Allen was kind of in the kind of mid 80 mid eighty's.
The low low on a just kind of a weighted average is probably the low to low mid 90%.
Great. That's a that's helpful and.
Port Allen does it have much volatility in its utilization, we just don't talk about it much or is it similar to George West It has its level and it's kind of holding there now.
<unk>, it's got very low volatility.
And we've got a very strong counterparty customer that absorbs the vast majority of that that production.
Great. Thank you and.
And congratulations on a good quarter. Thanks.
Thanks Bill.
Thank you as a reminder to ask a question. Please press star one.
I'll take our next question from Spencer Layman. Please go ahead.
Good morning.
Just a couple of quick questions.
Current administration in Washington seems to be pretty.
Antagonistic towards fossil fuels and specifically LNG now with the foreign exports, how do you see that impacting you domestically and maybe you know in the future or are you worried about that.
Yeah.
I'm not overly concerned about it because if you think about it just in general.
Low natural gas prices.
Really are our friend and if you think about the competitive landscape certainly that there may be other operating companies out there, but the real competition for me are oil prices for diesel.
Or or propane or.
Our other kind of maybe types of natural gas and so we don't think it has a dramatic impact not the least of which we've already got our permitting and licenses for export. So we're already grandfathered and it might actually work to our benefit to the extent that others arent successful, but also that's really a world scale.
Phenomenon and when you think world scale Youre thinking maybe in a half to 2 million gallons of production a day and so <unk> and <unk> and all these new kind of Greenfield projects that are coming on for export that's going to I think more dramatically impact them, then really in the small scale world, where we participate which is.
Fill at a rocket ship for space exploration or marine Bunkering for a large ocean vessels and crew ships.
Okay that sounds good and then the second question on hydrogen I mean, a lot of talk.
Lately and it's starting to heat up and I guess youre looking for some kind of guarantee supply.
It's a big issue comes in and are you still are you guys still pretty excited about that.
<unk> of hydrogen.
I think we're excited about a variety of things I don't know since I joined the company and I know that there was some some thoughts around hydrogen that predates me I don't know that im as bullish on it I'm not overly bearish, but I think that there are other other transitional fuels that are scalable clean.
And readily available and secure and cost effective.
The thing about hydrogen if it's not green, it's not green.
If it is going to be blue or Gray then.
Youre better off utilizing a <unk>.
Our resource such as clean natural gas and so I think the scalability and practice ability around green hydrogen is pretty far in the future. So I'm, not I guess hydrogen or methanol or ammonia or any of it and we will be thoughtful around not just LNG, but other fuels as marriage fuels.
<unk> and our product solutions offerings, but I think hydrogen is is one that's a little bit harder for me to get my head around at this point in time kind of given the visibility that I see got you. Okay, but you are ready to go with it if something breaks out.
I think I think its absolutely something we would consider to the extent that there is scalability and green hydrogen and that or methanol or RMG and other kind of alternative clean fuels or LNG is not an end state for us at the beginning.
And so all of those other fuels would be fair game, but there's got to be I think they've got to be clean they've got to be green and they've got to add incremental value not only on the ESG side, but.
But also on the on the scalability as well as cost side.
Okay got it great and you guys are doing a great job.
Good luck.
Thank you so much.
Yeah.
Thank you. This concludes the Q&A portion of today's call I would now like to turn the floor over to Mr. Ballard for his closing remarks.
Thank you operator as well as all of those of you that joined us.
For your time and interest in our company you have any further questions.
Please contact our IR team and we look forward to seeing you on the road take care.
Thank you. This concludes today's to build solutions fourth quarter and full year 2023 results Conference call. Please disconnect. Your line at this time and have a wonderful day.
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