Stabilis Solutions, Inc. Q1 FY2025 Earnings Call

Good morning and welcome to Stabilis Solutions First Quarter 2025 Results Conference Call. I'm Andy Puhala, Senior Vice President and CFO of Stabilis. And joining me today is our Executive Chairman and Interim President and CEO, Casey Crenshaw. 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, 2025. 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 Casey Crenshaw for his remarks.

Thank you, Andy and good morning to everyone joining us on the call. Our first quarter results reflect the continued execution of our strategy to pursue long-term growth across our core end markets, including marine bunkering, aerospace, and power generation. These markets are supported by significant multiyear demand ranging from rising remote power needs and marine fuel transitions to the growth of the commercial space industry. Revenue and adjusted EBITDA declined this quarter, primarily due to planned downtime with a key marine bunkering customer and the successful completion of a major short-duration industrial project in the third quarter of last year. While these factors affected our near-term results, they do not reflect the underlying momentum in our business. Revenue in our marine and aerospace markets grew by more than 13% year-over-year, driven primarily by increased activity with a major aerospace customer. We continue to advance commercial discussions across all of our end markets, both with new customers and long-standing partners. Our strategy remains focused on expanding our position as the leading small-scale LNG supplier within these high-growth sectors, where access to traditional LNG supply infrastructure is limited. Looking ahead, we're actively positioning the business to scale alongside our customers by making targeted operating expense investments in our commercial, technical, and operations teams to support future growth. These growth-focused costs are fully reflected in our results, yet we continue to generate consistent positive operating cash flow. As we secure additional contracts, we plan to expand our footprint to meet growing demand. In a way the potential expansion of our liquefaction capacity in South Texas and along the Gulf Coast. While no final investment decision has been made, this remains a key part of our long-term growth strategy. In the near term, we expect steady utilization and demand under existing contracts with upside potential as we convert new opportunities into signed agreements. Changes in U.S. trade policy and tariff regimes are not expected to directly impact our business. Approximately 70% of our revenues will come from U.S. based customers utilizing domestically sourced natural gas. From a capital allocation standpoint, we remain focused on maintaining a strong balance sheet and liquidity position. This approach ensures we are well prepared to fund future growth and capitalize on the long-term demand we see ahead. With that, I'll turn the call back over to Andy to review our financial performance in more detail.

Thank you, Casey. I'll start with a discussion of our first quarter performance, followed by an update on our balance sheet and liquidity exiting the quarter. Our revenues during the first quarter decreased 12% compared to the first quarter of 2024 but were modestly higher when compared to the fourth quarter of '24. The decline in revenues on a year-over-year was primarily the result of the roll-off of a large contract with an industrial customer, the temporary impact from a week of planned downtime with a major marine customer, partly offset by a 147% increase in revenues from aerospace customers as we continue to grow our presence in that market. Power generation revenues remained consistent with Q1 of 2024. During the first quarter, approximately 51% of our revenues were derived from marine and aerospace customers compared to 39% in the first quarter of last year. First quarter GAAP net loss was $1.6 million or $0.09 per diluted share compared to net income of $1.5 million or $0.08 per diluted share in the first quarter of 2024. Our GAAP net loss during the quarter reflects a nonrecurring impact of approximately $2.1 million relating to executive transition costs during the quarter. Adjusted EBITDA was $2.1 million during the first quarter compared to $3.1 million in the first quarter of last year. Adjusted EBITDA margin was 11.9%, down from 15.7% in the first quarter of last year. The decrease in our adjusted EBITDA was primarily the result of lower revenues, while our adjusted EBITDA percentage declined due to lower equipment and labor revenues associated with the completion of a customer contract. Cash generated from operations during the first quarter was $1 million, representing a conversion rate of 50% of our adjusted EBITDA. This cash generation continued to support a strong liquidity position of $12.5 million at the end of the first quarter. Capital expenditures declined in the first quarter on a sequential basis due to the timing of capital needs involved in our ongoing efforts to invest in our infrastructure along the Gulf Coast. During the quarter, our CapEx was $0.5 million with about 70% of those expenditures going towards growth initiatives. Our growth investments during the quarter primarily focused on front-end engineering and design studies for our potential Gulf Coast expansion. As Casey noted, the success of our ongoing commercial initiatives will be a critical stepping stone for continued growth investment which will require incremental capital as we make final investment decisions on these key investments. As of March 31, 2025, Stabilis had total cash and equivalents of $9 million, together with $3.5 million of availability under our credit facilities. With $9.1 million of total debt outstanding, we ended the quarter with essentially no net debt and strong balance sheet flexibility. That concludes our prepared remarks. Operator, please open the line for the Q&A session.

Our first question comes from Martin Malloy with Johnson Rice.

First question I just wanted to ask about is on the contracting side. And on the last call, you mentioned that you had moved that additional liquefaction train down to George West area, I believe. Just if you could give any more color in terms of where you are in terms of timing of being able to get commercial contracts that would support the deployment of that additional train?

You bet, Martin. This is Casey. We are actively working on a couple of different commercial contracts. And when they are finalized and documented, we believe that will bring increased committed contracted demand. We're hoping to be able to provide clarity on that in the second and third quarters of this year. Our expectations have not changed despite some timing pushes and other factors that have arisen.

Okay, great. And just in terms of power generation, that's been an area that's garnered some more time on your earnings calls in recent quarters. Can you maybe talk about the types of customer inquiries are you seeing? Is this for data center reshoring, of manufacturing, standby emergency type power or baseload power?

Yes. Martin, this is Casey. I'll take this one and start and then let Andy follow up. But it's really all of the above. So we define this category as distributed power, so kind of behind-the-meter power. We are working on multiple AI opportunities, as well as digital mining opportunities; there's also behind-the-meter or microgrid opportunities in the oil and gas sector. These projects can vary significantly in duration, ranging from 6 months to 5 years depending on whether they are short-term, bridge projects or longer-term solutions. We are working on a diverse range of opportunities in this space, emphasizing the increased need for power and the lack of access to last-mile connections.

We will now take our next question from Tate Sullivan with Maxim Group.

Can you talk about your bunker ship bunkering operation in terms of mentioning the downtime? Is it when cruise ships themselves are down for operation or the bunkering fueling infrastructure? If you can provide more detail on that?

The way I would explain this is that there’s typically 1 week out of 52 where cruise operators perform maintenance on their vessels. So this was just a planned non-sailing week, which resulted in a reduction in a bunkering event during the quarter. It's normal for us to expect at least one week of planned maintenance outage each year.

Yes, it helps. There are various factors to consider regarding demand indications for small-scale LNG services. Are there specific elements you focus on, such as permit applications or pipeline connections, that indicate potential increased demand for your services in the U.S.?

Instead of looking at the overall U.S. market, we focus more on the three areas we've mentioned: aerospace, marine bunkering, and distributed power markets. We observe increased bidding and and customer inquiries specifically in those areas. As we deploy capital, we are indeed seeing intensified commercial activity across all three sectors.

And then, specifically for the space industry, I know you may be limited in what you can say. SpaceX has announced more plans, more launches of its larger rockets or applications to do so in Texas. Is that a good example of an indication of rising demand for yourself? Or is that more pertinent for other larger scale?

The normalization and fact that commercial aerospace activity is increasing on a macro basis is encouraging. We see many different players in this space planning more launches, and LNG as the primary propellant for those rockets is a key driver for our optimism. We have two facilities that are currently engaged in the industry, supporting both launches and engine testing. While the total size compared to distributed power and marine bunkering may never fully match, we are excited about our role in this growing sector.

Hey Tate, this is Andy. Let me just add a little bit to that. In terms of the indicators, you're exactly right. We look at launch schedules and testing schedules and what we're hearing from our customers, as well as media reports. On the marine side, we are monitoring the deliveries of dual-fuel or LNG-powered vessels entering the market, alongside what our customers are reporting regarding their plans, such as developments for Galveston and LNG vessels. It’s these types of indicators that help us in forecasting coming demand.

And this does conclude the Q&A portion of today's call. I would now like to turn the floor back to Andy Puhala for any closing remarks.

Thank you, David. For all who joined us today, thanks for your time and continued interest in the company. If you want to talk more or have questions, please contact me at our Investor Relations number. And thanks for joining and we look forward to speaking with you all next quarter. This concludes our call. You can now disconnect. Thank you, everyone.

Thank you. This does conclude today's Stabilis Solutions first quarter 2025 earnings conference call. Please disconnect your line at this time and have a wonderful day.