Good day, everyone, and welcome to the Stabilis Solutions' First Quarter 2024 Earnings Conference Call. Now it is my pleasure to turn the floor over to our host, Andy Puhala, Chief Financial Officer. Mr. Puhala, please go ahead.

Good morning, and welcome to Stabilis Solutions' First Quarter 2024 Results Conference Call. I'm Andy Puhala, Senior Vice President and CFO of Stabilis. Joining me today is our President and CEO, Westy Ballard. We issued a press release after the market closed yesterday detailing our first quarter operational and financial results. This release is publicly available in the Investor Relations section of our corporate website at stabilis-solutions.com. Before we begin, I'd like to remind everyone that today's conference call will contain forward-looking statements within the meaning of the Private Securities Reform Act of 1995 and other securities laws. These forward-looking statements are based on the company's expectations and beliefs as of today, May 8, 2024. The 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. We delivered a strong first quarter performance, building on the commercial momentum demonstrated in the latter half of 2023. Net income increased by 36% in the first quarter, supported by an 8% increase in LNG volumes sold when compared to the year-ago period. We generated nearly $4 million in operating cash flow in the first quarter and ended the period with nearly $13 million in cash and availability under our credit agreements, as well as a trailing 12-month net leverage ratio of 0.1x, even after deploying significant capital toward discretionary growth investments over the past several quarters. Over the past 24 months, we've transitioned our business model towards firm, longer-term customer relationships that support higher asset utilization over sustained periods, resulting in more predictable cash flows from operations. More recently, we've announced a transformational marine bunkering supply contract, extended an agreement with a major power generation customer, and continued to expand our presence as a leading fuel supplier to the commercial space launch industry. To that end, our own liquefaction capacity is expected to be fully utilized through 2025, providing us with a high degree of visibility over the next 20 months. However, in addition to our own capacity, we maintain an extensive third-party LNG supply network, which allows us to meet ongoing incremental growth in customer demand while pursuing expansion of our internal liquefaction capacity. With our marine market, the first quarter 2024 was our first full quarter of LNG fueling operations and related services for Carnival Corporation, representing a milestone achievement for Stabilis. This win is also a significant development for the domestic marine fueling market, representing the first-ever LNG bunkering operation in the port of Galveston, Texas. Moving forward, we will continue to enhance our logistical capabilities as the only small-scale LNG bunker provider to the marine industry capable of executing multiple modes of delivery to our bunkering customers. The focus of our efforts will be on rapidly expanding our bunkering operations directly to the waterfront of strategic ports across the continental United States. These efforts will be supported by our robust inland LNG supply and logistics network, which remains a clear competitive advantage for Stabilis for several key reasons. First, combined with our extensive experience in designing, constructing, and operating multiple liquefaction plants, it significantly derisks greenfield expansion activities. Second, it allows us to immediately execute new bunkering contracts as we can provide LNG bunkering fuel today anywhere in the U.S., utilizing our diverse third-party LNG supply network. Third, it affords us the option to supplement waterfront LNG production on a temporary or permanent basis to support incremental demand. Finally, our operational flexibility provides our current and prospective customers the ability to consider a wide variety of trade lanes throughout the U.S., knowing they will have a reliable LNG fuel supply with Stabilis. We remain in advanced discussions with several potential marine customers currently seeking LNG as a lower-cost, cleaner-burning bunker fuel alternative for the growing inventory of LNG-fueled vessels. Given the importance of this initiative to our customers, our history of successfully executing LNG bunkering operations on three U.S. coasts gives these customers tremendous confidence in our ability to deliver an actionable, credible, best-in-class bunkering solution for their long-term needs. Within our commercial and industrial markets, we continue to capitalize on a multiyear investment cycle in infrastructure and electrification as data centers, cloud computing, emerging technologies, and emergency power needs give rise to increased demand for behind-the-meter power generation solutions. At the same time, our nation's aging electric grid lacks the reliability, capacity, and resilience to effectively support this rapid growth in power consumption. As we move closer toward a world where the electrification of everything requires reliable access to both central and remote power sources, Stabilis is uniquely equipped to provide decentralized, on-demand power through our integrated system-based solutions. For example, several weeks ago, we announced a 14-month contract extension, which solidifies our position as a leading clean fuel solutions provider for behind-the-meter energy installations and further enhances our growing position in this space. For context, the power generation sector represents approximately 25% of our total revenue in 2023, and we expect this opportunity to accelerate as domestic energy demand continues to grow over the next decade. Looking ahead, we intend to further optimize our existing asset base and supply chain, while prioritizing investments in incremental capacity, infrastructure, and product offerings capable of supporting increased demand across our entire franchise, which includes our marine, power generation, 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 those partners that know our industry, know our company, and recognize a significant upside potential in our operating model. Decisions to proceed with new infrastructure investments will balance longer-term ratable offtake agreements that derisk our investment over a multiyear period and our comfort in assuming merchant risk to assume timely and critical infrastructure is in place to sufficiently address the rapidly advancing needs of next-generation fuels like LNG. In closing, while you've heard me discuss how Stabilis is uniquely positioned to capitalize on the significant asymmetrical growth opportunity we see within last mile clean fueling solutions across a diverse range of end-markets, it's also important to highlight how we, as our microcap equity, provide an incredibly compelling value proposition for energy transition investors. Today, Stabilis is one of only a handful of profitable, well-capitalized, proven operators in the energy transition market, as demonstrated by our actions over the last 24 months and more recently, as demonstrated by our strong first quarter results, which included a significant increase in available liquidity and a net leverage ratio around zero. We're patient investors building a platform for growth that over the next decade will continue to become the last mile fueling solutions platform of choice for a growing roster of industry-leading high-performance brands. Like you, we are shareholders, and we're committed to driving long-term value creation. We're glad you're on this journey with us and look forward to delivering on our next phase of profitable growth. And with that, I will turn it over to Andy.

Thank you, Westy. Let's move to a discussion of our first quarter performance, together with an update on our balance sheet and liquidity exiting Q1. We delivered record first quarter net income of $1.5 million or $0.08 per share, driven by strong LNG demand, improved utilization of our owned liquefaction facilities, and improved operating leverage. Our first quarter 2024 results reflect 10% sequential revenue growth and continued improvement in both profitability and free cash flow. The sequential improvement in our overall quality of earnings is a result of the directed shift in our business model towards steady and predictable offtake agreements. We generated $3.9 million of cash from operations in the first quarter, representing a conversion of over 100% of our EBITDA for the quarter. This strong cash generation continued to build our already favorable cash and liquidity position, which we intend to leverage as we invest in growth going forward. As of March 31, 2024, Stabilis had total cash and equivalents of $8.3 million, together with $4.3 million of availability under our credit facilities. Total debt outstanding as of March 31, 2024, was $9.2 million, resulting in a net debt to trailing 12-month adjusted EBITDA of 0.1x. As we continue to approach full capacity utilization, we're evaluating the deployment of internal capital towards high-return investment opportunities to grow capacity within our key end-markets, in addition to larger prospective capital infusions on more transformational growth opportunities. That concludes our prepared remarks. Operator, please open the line for the Q&A session.

The floor is now open for questions. We'll take our first question today from Martin Malloy at Johnson Rice.

The first question, just could you maybe talk about the milestones we should look for that would result in giving FID for additional liquefaction capacity or a marine terminal or infrastructure that would assist in supporting the bunkering?

Yes, sure. So as you know, we're operating and have historically operated on three coasts. Each of those geographies presents different variables that need to be considered as we think about FID and then the ultimate deployment of capital. I think without going through each one of those locations, it's important to recognize the balance, as I mentioned in our comments. We want to try and derisk these investments to the greatest extent possible, but also balancing that with not overthinking commercial offtake and missing that opportunity. Since we've got such a strong liquidity position, we will continue to advance a lot of pre-FID initiatives with the understanding of property, lease or purchase. As I mentioned, we've already acquired another 100,000-gallon train. We acquired that last year. We're spending a lot of time with engineering and pre-deployment designs and the configuration of different plants in different geographies. We are spending a lot of time and energy around building sufficient supply chain and infrastructure along several coasts. It's not one thing that you could point to; it's the narrative that we have about where we're spending our time and energy, not only on the pre-FID work that we're doing but also on the commercial side and these announcements. We think we're going to be able to leverage that Carnival contract beautifully. It's safe to assume that we're in discussions with other would-be offtakers. They think that we are a credible, interesting, and safe operator. So it's not one thing that's going to be a telltale sign for you, Marty; it's a variety of things on the capex side but also on the commercial side.

For my next question, I just wanted to talk about providing gas for data centers or industrial manufacturers. We've heard a lot of stories from these companies that they're concerned about getting power in a timely manner and the quantities that they need and also about the reliability of the grid. Could you maybe talk a little bit more about what kind of solutions they're looking for and the role that Stabilis could play?

Yes, they're in a tough spot. As we mentioned, 25% of our business in 2023 was in and around the power generation business. We've got a lot of experience here. The aggregation of a wide variety of solutions is what it's going to take as the vast majority of these cloud and data centers are eager to have as clean an alternative as possible. We think that we can play a meaningful role on the front end as many of these data centers are being installed and trying to think through their supplemental, redundant, and backup power needs. We believe our solutions capabilities can bring not only natural gas but potentially aggregate other clean fuels as a packaged solution. We'll continue to be involved heavily on the front end and assisting them, but also providing fuels that we currently offer or that we will in the future as packaged solutions to supplement their behind-the-meter needs. It's really not so much a primary power concern; it's the peak, supplemental, or backup power that's of great concern to them.

Our next question today will come from the line of Bill Dezellem at Tieton Capital.

So first of all, were both of the plants fully utilized in the first quarter?

By and large, yes. We had high utilization rates on our George West plant, and we had some maintenance items that happened in March, but by and large, fairly highly utilized.

In the spirit of the question, I was trying to understand if using the first quarter as a run rate is a reasonable starting point to your comment in the press release that you're going to be fully utilized through 2025?

Yes, I think that's a good proxy. One thing to remember is that we had some seasonality in our financials in the first quarter. Those will manifest themselves again in Q4. The seasonality can make it a little bit tricky. But I think to your question about our own production capacity, it's not a false assumption for you to think that both plants will be highly utilized. Obviously, our George West is a much larger plant than our Port Allen plant, but we believe utilization should be high throughout the entire year as well as through next year.

And relative to that seasonal business in the Northeast, how much of the first quarter would be attributed to that?

The winter peaking revenue bill for the first quarter was about $0.75 million.

So not a large portion of the quarter.

This year, it wasn't that large, but it's revenue at pretty good margins because a lot of it is standby power. It's a solid business for us. We see that in Q1 and to a lesser extent, Q4.

I want to circle back to the discussion about the data centers that you were having before. I would have thought, and I'm just expressing my ignorance here, that most of these data centers would be in locations that they could tie into natural gas pipeline and not need to use LNG. Am I completely off base with that? Or does it really depend on the plant? Would you provide some perspective around that, please?

It's a mix of both. You've got a wide array of locations where these data centers are plugging into. It's not so much that they're not part of the grid or that they aren't involved in natural gas pipelines; certainly, where there is a large infrastructure of natural gas pipelines. It's when you get outside of the Texas Gulf Coast corridor into Virginia and the Midwest that the availability isn't nearly as robust to have supplemental peak capabilities, not just similar to the Northeast in peak shaving times. As they come off, kind of baseload and they start to migrate towards peak or supplemental power, there's not enough for them to have. So they've got to think of alternative solutions to supplement their contractual requirements for massive redundancy and massive uptime rates. It's a real problem, and we think we can be a real solution for them.

So Westy, to make sure that I'm clear on what you're saying. So if you have a plant in the Midwest that is based off of electricity, it gets hot in the summer, and a great proportion of the time, the electricity and pulling off the grid is just fine. But in those periods where it's extraordinarily hot or conversely, super cold in the winter, and it starts to put pressure on the grid, at that point to maintain their high uptime, they need backup, and that's what you're talking about here?

That's exactly right. It's that peak; it's not baseload or primary power. Those utilities are going to handle that. The supplemental peak and non-baseload power demands is part A. Part B is just looking at the general landscape of power demand, we think over the next five years, the U.S. is short 30 to 40 gigawatts. That's because you're going to have this proliferation of multidimensional hyperscale data centers coming online, and there just isn't enough grid power to suffice that. So those baseloads won't be nearly as high as the preexisting. We're just short power.

Would you please provide more detail on the power generation customer that you extended the contract with?

I can't give you the name, but it's a customer along the Gulf Coast that we've had a relationship with for quite some time now.

Is this a storm repair situation where the utility has not made the repairs as quickly as anticipated, so your customer has a longer contract, and therefore, you have a longer life on this also?

Yes.

Would you please go into more detail in discussing prospective marine bunkering customers and the process that they're going through to make their decision?

Sure. If you think about really the addressable market from our perspective, it's really large, ratable offtake. That's kind of the sweet spot for us. When you think about that, it's those large cruise ships, large container ships, large car carriers, and large voluminous buyers, but also those that are as sticky as possible. We like the cruise industry because there's ratability; every five, six, or seven days, they're coming back to port and refueling because they're on and offloading. The cargo carriers are pretty predictable in their ports of call as are the container ships. Every market is going to be a little different. The Gulf Coast will have a heavier influence of tankers, while the West Coast has that big trade lane coming from Asia. The port of Long Beach, L.A. is one of the largest, busiest, most heavily trafficked ports in the U.S. The East Coast also has its own interesting demand needs. As these vessels start to come online more throughout the latter part of this year and into next year, the real inflection point will hit, and these procurement teams will be in desperate need of finding a U.S. domestic solution for liquefied natural gas. We believe we have the credibility, capability, and know-how to do greenfield infrastructural construction, commissioning, and operation of liquefied natural gas plants. We are having discussions with many prospective customers who recognize that, along with the cruise, cargo, car carrier, and large ships.

What are the key factors they are looking for? And what slows them down in their decision-making?

The first one or two are obvious: availability and creating availability at scale. An interesting dynamic here is that a lot of these procurement teams, who have vessels traversing the planet, may not be as in tune with the lack of liquefied natural gas infrastructure to support bunkering operations in the U.S. They have had to think differently about trade lanes and their contractual obligations. Many would love to simply have a gas station on every corner with the option to refuel. That's just not the case in the U.S. We're excited and bullish on the prospects of getting some ratability and firmness to some of these contracts. It's not going to happen with all of them, but discussions are ongoing. As I mentioned earlier, we're going to balance that with some merchant risk based on the tidal wave of demand that we see from ships needing fuel. That's the current state of play.

Next question comes from Barry Haimes at Sage Asset Management.

First question is the Carnival contract, which I think you said started in the first quarter. For the balance of the year, is it a similar run rate? Does it ramp? Could you just describe how the volumes might look across the year for them?

Yes, I think it's pretty range-bound for the balance of the year and certainly through next year.

The extra 100,000 gallons of capacity, when does that equipment actually get delivered? To get a feel for the timing.

One unique attribute of that is its mobile, flexible, and modular. We want to be thoughtful about doing that. Pinpointing a timeline is difficult, but our predisposition is to have that on the waterfront or at least have decisions made in the next quarter about where that's going to go in the waterfront in order to build out a first train for LNG capacity for bunkering operations, likely the Gulf Coast. Over the next few months, we would like to have a firm appreciation of where that's going to go. Once that happens, we will articulate that to you all.

When you say likely Gulf Coast, when you talked about the applications, cruise ships, I always think Miami and the container ships, Long Beach. Since you're in the Gulf Coast, why wouldn't you more likely look to one of the other coasts?

No, we are looking at a variety of coasts. A couple of dynamics in the Gulf Coast are really important: first, it’s our backyard; second, we think we can leverage the contract we have now in Galveston. It's a suboptimal supply chain right now because we're taking LNG from an inland supply source hours and trucking it to the water and bunkering the vessel. Moving that to the water is a much more scalable, efficient operation. There's pent-up demand, not only in incremental cruise ships coming into the Galveston market but also for container and car carriers. We see it as an elegant location to deploy that first train, and there should and will be follow-on trains thereafter. But we reserve the right to put it inland if an aerospace customer comes with highly attractive needs or if data center needs drive real earnings and high returns on capital. Our first inclination is to leverage our success in Galveston and expand that capability because there is a tidal wave of demand in the Gulf Coast, West Coast, and East Coast.

My final question is maybe just an update on space. I know it's lumpy, but could you describe how that went in the first quarter and what your outlook is for the year compared to last year?

Yes. I'll just say qualitatively, space is a really good business of ours. It's a great margin business for us, and we're excited to be the participant we are in that market. That market is growing. Quantitatively, Andy, do you want to shed some light on that?

It's about 6% of our revenue in the first quarter. As we've talked about in some of our releases, we expect that to continue to grow and become a more significant part of our business.

Back to Mr. Ballard for his closing remarks.

Thanks, everybody, for joining us, and we look forward to seeing you on the road in short order.

This does conclude today's teleconference, and we thank you all for your participation. You may now disconnect your lines.