Stabilis Solutions, Inc. Q2 FY2025 Earnings Call

Welcome to the Stabilis Solutions Second Quarter 2025 Earnings Conference Call. I would now like to turn the call over to Andy Puhala, Chief Financial Officer. Mr. Puhala, please proceed.

Good morning, and welcome to Stabilis Solutions Second 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 second 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, August 7, 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. During the second quarter, our teams were sharply focused on operational execution and deepening our customer relationships within our marine, aerospace, and power generation end markets, which, as we've discussed before, are the most promising long-term growth opportunities for the company. Commercial discussions with both new and long-standing customers are progressing well in all 3 end markets. We are working to secure long-term customer commitments needed to grow the business and allow us to make investment decisions on capacity expansion. During the quarter, we saw revenue and EBITDA decrease year-over-year, primarily due to the successful completion of a large, short-duration industrial project last year. However, revenue in the 3 key growth end markets continues to expand, with marine, aerospace, and power generation sector revenues up a combined 15% year-over-year, driven by an 83% increase in aerospace revenues. In the first half of the year, aerospace revenues have more than doubled from the same period in 2024, and we expect growth in this sector to continue. In the marine sector, we continue to perform well on our Gulf Coast bunkering contract with Carnival Cruise Lines. Growth in the sector is dependent on securing additional long-term customer contracts, including contracts that will support our final investment decision for additional liquefaction capacity on the Gulf Coast. We are pleased with our progress on several potential LNG offtake agreements in the marine sector. In our power generation end market, we're seeing increased interest in LNG as a bridge and backup fueling solution to meet the rising electric demand from data centers and other energy-intensive infrastructure. While this opportunity remains in its early stages, the projected long-term growth in electricity demand is creating a broad range of use cases for our LNG solutions. We are actively engaged with multiple customers as they explore reliable, scalable options for distributed power. In conclusion, our strategic vision is clear, and Stabilis has significant long-term growth opportunities ahead. We're building Stabilis into the leading provider of last mile LNG solutions with a focus on becoming the partner of choice for certain key end markets. Our team continues to execute against this vision, demonstrating operational excellence and generating strong commercial momentum along the way. We look forward to updating you in the coming months as we finalize new contract awards. With that, I'll turn the call back over to Andy to review our financial performance in detail.

Thank you, Casey. I'll start with a discussion of our second quarter performance, followed by an update on our balance sheet and liquidity. Our revenues during the second quarter decreased 7% compared to the second quarter of 2024. As Casey mentioned, the decline in revenues year-over-year was primarily the result of the roll-off of a large contract with an industrial customer that occurred last year. This decline was partly offset by an 83% increase in aerospace revenues and a 10% increase in our power generation market. During the second quarter, approximately 77% of our revenues were derived from aerospace, marine, and power generation customers compared to 62% in the second quarter of last year as we continue to focus on these growth sectors. Adjusted EBITDA was $1.5 million during the second quarter compared to $2.1 million in the second quarter of last year. Adjusted EBITDA margin was 8.6%, down from 11.3% in the second quarter of last year. In addition to the roll-off of the short-term customer contract previously mentioned, EBITDA was negatively impacted by a nonrecurring charge of approximately $0.2 million related to our foreign joint venture. Cash generated from operations during the second quarter was $4.5 million. The strong cash generation resulted in a record liquidity position of $16.1 million at quarter end, consisting of $12.2 million of cash and approximately $4 million of availability under our credit facilities. With $8.4 million in debt and lease obligations outstanding, we ended the quarter in a net cash position with no net debt and strong balance sheet flexibility that positions us to strategically deploy capital to support the growth of our business. Our capital expenditures were $0.6 million during the quarter. As discussed on previous calls, as we finalize new customer commitments and related capacity expansion, we expect an acceleration in capital commitments. That concludes our prepared remarks. Operator, please open the line for the Q&A session.

Our first question is coming from Martin Malloy of Johnson Rice.

First question, I wanted to ask about the contractual agreements, particularly the offtake agreements that you mentioned are in progress. It seems like these could be announced in the next couple of months. I wanted to confirm if that understanding is correct, and also to inquire about the scale of these agreements and the industries involved. Will these agreements be large enough and structured in a way that could facilitate project financing?

Yes, Marty, I'll begin. This is Casey, and then I'll let Andy provide more details. We view all three of our growth segments—marine, aerospace, and power generation—as having contracts in progress with multiple customers. We are continuously engaged in signing new customer agreements. The duration of these contracts varies; some last for six months while others can be extended for several years. All three segments feature numerous contracts at different durations. Moving on to how these will enable capital deployment, in aerospace, we are pursuing additional contracts that will support capital expenditures for those agreements. The same applies to power generation and distributed power. Particularly in the marine sector, we're developing a Gulf Coast liquefier to serve the marine market, with several significant offtake agreements that we are finalizing. These will be substantial enough to support final investment decisions and project financing for the related project. Andy may have more insights on this, but I wanted to clarify that each of our three segments is engaged in long-term contracts rather than just short-term work.

Yes, that's right. And just to add to that, I mean, these are multiyear offtake agreements with firm commitments.

Okay. For my follow-up question, I would like to know about the timing of the announcement of these contracts. I understand there is equipment at George West that could potentially double capacity, or at another location. Long lead time equipment has already been purchased. Could you clarify the potential agreements that would address LNG needs beyond that? Can you discuss when we can expect additional liquefaction capacity to be available? In the meantime, will you be sourcing LNG from other suppliers?

Yes, let me begin by emphasizing the three key markets we are focused on: marine, aerospace, and power generation. In terms of power generation, especially around data centers and AI, there is significant activity across the United States. It's important to note that Stabilis not only produces its own LNG but also has supply agreements with over 30 other liquefiers throughout the country. The distributed power generation market will influence whether we expand our liquefaction capacity or utilize our existing fleet of last mile LNG equipment and vaporization systems, which are already available to us. If a project is near one of our liquefiers, we will use our own LNG; otherwise, we will rely on our third-party offtake agreements. In aerospace, while the situation is somewhat similar, the quality of the liquid requires sourcing from specific locations, which means much of it will come from our facilities. For marine applications, larger facilities will be needed for work on water barges, necessitating new capacity. The fastest way to deploy new capacity would likely be at our George West facility, where we already have the infrastructure and long lead equipment in place. Additionally, we are working on our Gulf Coast liquefier; currently, we are investing in engineering and pre-feed work to ready that for deployment, though it will take longer than our George West site.

Our next question is from Tate Sullivan of Maxim Group.

Casey, thanks for the comments on the Gulf Coast liquefier. And does completing that, is that the key variable to finalize some of the contracts you mentioned in the marine sector? Or are there other variables to finalize in those contracts such as port infrastructure?

Yes. First of all, Tate, thank you for being on the call today, and we appreciate your question. I need to clarify a bit, as I may not have communicated it clearly. The contracts are the initial part that will anchor the project financing. We are actively engaged in marine bunkering projects daily in the Gulf Coast, particularly with one of our valued cruise customers, using a truck-to-ship and truck-to-barge process. The contracts we are developing will support the establishment of a new facility, which we refer to as being on the water, allowing us to produce the LNG necessary for those contracts without needing to truck it in. Essentially, we are waiting for these contracts to be long enough in duration and tenure to secure project financing, enabling us to make the final investment decision to proceed.

Okay. And for those marine contracts, can you share, is it still mostly with cruise ship customers or the other types of shipping customer discussions?

We are having numerous discussions with multiple end markets around the marine space. So if it's okay, Tate, we prefer to not share the details of all the different customer work we're doing around there. But we're definitely deep into the cruise space as we're currently delivering into that market today.

We'll take our next question from Spencer Lehman.

The overall macro picture for LNG is very promising, especially following the recent announcement that Europe plans to spend $750 billion on purchases. The energy landscape looks great, particularly for LNG, and there is a significant demand for energy in the country, fueled by a lot of hype around data centers. The administration is also backing this sector, placing you in a favorable position. However, the stocks of smaller companies may not be well noticed. I'm interested in what you are currently doing or could do to better communicate your story.

Thank you for your question, Spencer. This is Casey. I'll start and then Andy will provide additional insights. As a significant shareholder of the company, I share your sentiments. Since we founded Stabilis in 2012, we have over a decade of meaningful experience in LNG, delivering substantial products to many customers. We have a fantastic team across operations, business development, engineering, and support, and we're active every day. Our growth markets present opportunities for dramatic increases in revenue and earnings. From my perspective, Stabilis represents a positive cash flow-generating LNG platform that is engaged in expanding its presence in three dynamic markets. It's an exciting time to be involved. In the long term, as we secure more contracts and develop the company, I am confident other investors will recognize our potential and want to join us. Stabilis is a thriving business with significant growth options in these markets. I am proud to be a shareholder and believe that, over time, others will see the value as we realize our strategic vision. Now, I'll pass it to Andy for more details regarding your question.

Thank you, Spencer. I want to emphasize our eagerness to engage with the market and share what we are doing at Stabilis. The key for us is securing some contracts so we can present something exciting to discuss with the marketplace. As Casey mentioned, we believe we are making progress on several transformative projects. This will allow us to provide specific details for everyone to consider and understand what it means for Stabilis. Without that information, it can be challenging to generate the same level of excitement we feel about these opportunities. However, we are genuinely enthusiastic. We try not to get too caught up in the quarterly details because we see this as a long-term growth story, and we remain very optimistic about it.

Casey, that was very encouraging and enlightening. And my only problem is I'm going to be 90 here in a few months. I'm running out of time. So don't wait too long.

We are actively investing in the business and the growth areas to achieve a significant transformational deal. Looking ahead to where Stabilis will be in the next 3, 5, and 10 years is truly exciting. Being involved in the LNG manufacturing and distribution and being part of that gas value chain is promising, and Stabilis serves as an excellent platform for that. Additionally, I believe that at 90 years old, you are still quite young, and we anticipate many more years with you as a shareholder.

This does conclude the question-and-answer portion of today's call. I would now like to turn the floor over to Andy Puhala for closing remarks.

Thanks, Leo, and thank you for all that joined us today. We appreciate your time and continued interest and support for the company. If you have any additional questions or simply want to learn more about what we're building at Stabilis, please contact me at our investor relations number. This concludes our call, and thank you all very much.

Thank you. This concludes today's Stabilis Solutions Second Quarter 2025 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.