Stabilis Solutions, Inc. Q3 FY2025 Earnings Call

Good morning, everyone, and welcome to the Stabilis Solutions' Third Quarter 2025 Earnings Conference Call. I would now like to turn the conference over to Mr. Andy Puhala, Chief Financial Officer. Mr. Puhala, please go ahead.

Good morning, and welcome to Stabilis Solutions' Third 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 third 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, November 6, 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. We executed according to plan in the third quarter, capitalizing on continued demand for our integrated last-mile LNG solutions across our markets. Third quarter volume increased by more than 20% year-over-year, driven by strong demand across our growing base of marine, aerospace, and power generation customers. We continue to see healthy demand trends across these sectors, supported by increased commercial space flight activity, seasonally strong demand for distributed power, and robust throughput from cruise activity in the late summer months. Commercially, our team remains highly engaged with both new and existing customers, particularly in the aerospace and marine markets. We also see growing opportunity in the power generation as domestic investment in new data center capacity increases the need for on-demand distributed power solutions. As announced in October, we secured the largest customer contract in the company's history, a 10-year marine bunkering contract for LNG, produced at our proposed 350,000 gallon per day LNG facility in Galveston, Texas. Subject to the finalization of project financing, we expect to break ground on the Galveston facility in the first quarter of 2026 and are targeting the facility to come on stream in late 2027. In parallel, we plan to construct a Jones Act compliant LNG bunkering vessel to serve customers in the Port of Galveston, Houston Ship Channel, and surrounding areas, consistent with a focus on building a vertically integrated marine bunkering solution in the local market, and this will serve as a template for what we seek to replicate in additional markets over time. Beyond this initial bunkering customer, who will represent approximately 40% of the planned offtake capacity at the Galveston facility, we're in late-stage negotiations with another marine bunkering customer for an additional 20% of our planned production capacity. We expect to have approximately 75% of the total capacity sold under long-term customer contracts by the time we reach final investment decision in early 2026. In recent months, we've worked closely with our engineering and design partners to secure long lead-time items and develop detailed engineering designs for the LNG facility and the related bunkering vessel. Additionally, we are finalizing contracts for equipment, plant and vessel construction and related items such as pipeline access, putting us on track for the final investment decision in early 2026. Stabilis has engaged a leading investment bank to arrange the financing for this project. We have evaluated a variety of potential financing options and intend to prioritize a structure that maximizes value creation for all shareholders. At this time, we intend to pursue a joint-venture structure, supported by project level debt and equity from third-party investors. Through this structure, we intend to retain operational control of the project, positioning us to realize meaningful economic upside and long-term returns on our investment. We intend to share periodic updates with our shareholders as key project development milestones are achieved. This is a transformational moment in the history of our organization, and we're excited to take this next important step in our company's growth. In the meantime, we'll stay focused on day-to-day execution required to deliver profitable growth. This means continuing to expand commercial contracts across our vertical markets, continuing to improve operational excellence, and staying disciplined around how and where we deploy capital as we seek to maximize value for our shareholders. With that, I'll turn the call over to Andy to review our financial performance in detail.

Thank you, Casey. As customary, I'll begin with a discussion of our third quarter performance, followed by an update on our balance sheet and liquidity. Third quarter revenue increased 15% year-over-year, driven by a 21% increase in LNG gallons sold and higher average commodity prices, partially offset by less favorable customer mix and lower rental and service revenues. At an end market level, revenues increased in our three target growth markets with aerospace revenues increasing by more than 88% compared to the same quarter last year, and power generation and marine revenues increasing by 31% and 32%, respectively. This strong performance was partially offset by the scheduled end of an industrial customer contract that concluded late last year. During the quarter, approximately 73% of total revenue was derived from aerospace, marine, and power generation customers, up from 60% in the prior year quarter, reflecting the continued strength and diversification of demand across these high-growth markets. Adjusted EBITDA was $2.9 million during the quarter compared to $2.6 million last year. Adjusted EBITDA margin was 14.3%, down from 14.6% in the third quarter of last year. The decrease in our adjusted EBITDA margin primarily relates to the roll-off of the high-margin industrial project previously mentioned. Cash from operations totaled $2.4 million for the quarter. Liquidity at quarter end was $15.5 million, consisting of $10.3 million of cash and approximately $5.2 million of availability under our credit facilities. We ended the quarter with $9.5 million of total debt and lease obligations, resulting in a net positive cash position. Overall, our balance sheet remains strong and provides ample flexibility to support our ongoing operations. Capital expenditures totaled $3.9 million, primarily related to early engineering and design work for the Galveston LNG facility and related bunkering vessel. We expect investment to accelerate over the coming quarters as we progress toward construction and a final investment decision in early 2026. Once project FID is made, we expect all project funding requirements to be met through project-level financing. In the interim, we anticipate investing an additional $3 million to $5 million in CapEx on the project. This concludes our prepared remarks. Operator, please open the line for the Q&A session.

We'll go first this morning to Martin Malloy of Johnson Rice.

Great to see all the progress you're making on the Galveston LNG project. My first question, just on the permitting side here. Are there any key permits that we should be watching for, for you all to receive regarding this project?

Well, first of all, thanks for joining, Martin. We appreciate you being on this morning. And yes, it's a good question on the Galveston project. There's a number of different permits that we track and work through. We already have the export license; it is already in our possession for any gallons that need to be exported. So that's kind of already a benefit. But all the normal permits are being worked, and they're already being in process and being worked in our project today. So they're being progressed.

Marty, just to add a little bit to what Casey said, I mean there's a number of permits, as you could imagine, for a facility like this. We've got a detailed list of them all, and we're tracking them and know what we need to do there. The main one is probably our Texas Railroad Commission for the facility and then the Coast Guard for the bunkering operation.

And we're tracking them all and we don't think that, that changes our timeline.

Okay. Terrific. Just for my follow-up question, it's great to see the growth also in the aerospace and the power side. And I was wondering if you could maybe talk about what you're seeing there in terms of end market demand and potential capacity expansion to meet that demand. I think you all have a second LNG train to double capacity George West, some of the long lead time equipment that's there. Any plans for that? That would be great if you could talk about that.

I'll begin and then let Andy provide any additional insights. I completely agree that the marine sector is very promising along with the aerospace and power generation markets right now. We're observing an increase in space activities and launches, with LNG becoming the primary fuel for those operations. Our demand in this area is anticipated to rise in 2026 based on historical trends. We're coordinating on the logistics regarding power generation fuel needs and the timing of the Galveston plant's launch. There is significant demand in the space sector, especially for aerospace rocket launches, along with a strong need for power generation related to backup and distributed power solutions for data centers and grid reliability. Many of these projects involve long-term planning, some extending beyond five years, with discussions about deploying assets in various locations. We're closely monitoring customer demand to identify the optimal locations for the new train and are waiting for confirmations on who will secure contracts to ensure that the necessary capital is backed by offtake agreements. We are continuing our efforts in George West and other sites.

We'll go next now to Bill Dezellem at Tieton Capital.

A couple of questions here to begin with relative to the new marine facility. You referenced here in late-stage discussions with a prospective customer that will represent 20% of the capacity. What industry is that customer in?

With the marine bunkering client, this is a cruise customer.

That leaves an additional 15% to reach your 70% capacity committed prior to or at FID. How is that remaining 15% expected to develop? Is it a single customer representing 15% or multiple customers? What industries do you anticipate they will come from?

Yes, Bill. So let me just touch on it from a macro. I mean those are plus or minus goals of us having 75% of that offtake, firm, 10-year, good credit quality customers because that generates the best structure for Stabilis in the project. We hope to have an even higher utilization at that time, but that's our goal by the first quarter to go FID. And so that customer could be anywhere from more clients related to cruise. It could be clients related to container ships. It could also be a third-party trader that's in the bunkering space. So those are all three options on that. We expect it to be one or two, and it could be north of the projected volume that we put out there in that target of 75%. That's just what we wanted to kind of give you on what our goals were at the timing for FID.

So essentially, that last 20% is a bit more fluid at this point, but you have options that you're working on.

Yes. Look, we're under discussions with multiple customers, and I think with what we have, the first contract and the second one that we're really close on, I think we can move on the project. I think it makes it a better project to have the balance of it taking off and then offtake there. And we're talking to a number of people. We've got advantage. Remember, we've got advantage of natural gas. We're going to have advantaged product on the water with a really well-developed facility and Jones Act vessel, so we've got a cost advantage. And I think when you have a cost advantage and an advantage like that, I think makes the selling part of it easier.

That's helpful, Casey. Did you win additional marine business this quarter, resulting in that increase of over 30 percent, with space up 88 percent and power generation at 30 percent?

Look, we're doing numerous marine clients, not just cruise, but we've got some other areas that we're servicing, offshore supply vessels, et cetera. There was a lot more throughput due to being the late summer months through some of our existing clients. And so kind of a combination of both is to answer your question.

Great. And that's helpful relative to the marine. And how about in space and power generation, those strong growth rates. Were those a function of new contracts?

Power generation was influenced by temperature and our existing contracts. We have some new contracts while others are ending, with several set to expire in the fourth quarter. Additionally, we secured another strong aerospace client, which boosted volumes and opportunities in the third quarter.

And does that client represent a one-time occurrence or is it temporary? Or is it now something that can be expected to happen repeatedly for many quarters ahead?

It's repeatable for many quarters going forward. We work extremely hard with those customers, and all three of these customer groups—marine, aerospace, and distributed power—are very sensitive to their needs. The aerospace sector, in particular, is especially demanding due to the nature of propellant fuel. We expect this to be a long-term relationship with a new client, and we look forward to collaborating with them for an extended period.

Great. And kind of trying to tie that all together, was there any sort of a strategy change to use more third-party gas or is the growth that we saw this quarter in third-party gas really a function of having won these contracts, and longer term, you'll figure out how the most optimal way to serve those clients?

I'm going to start and then let Andy finish. This quarter, we achieved high utilization in both of our company-owned facilities. The answer is yes to everything mentioned. We prioritize optimizing our operations, but factors like logistics and quality specifications also play a role depending on the client type and location. Stabilis has been operating since 2012 and acquired Prometheus, which has been in business for over 20 years. Throughout our company's history, we've sourced gas from Encana and relied on third-party suppliers. This strategy helps us build demand and determine where we can establish our own facilities. Our operations team worked diligently to optimize both our current manufacturing supply and third-party supply this quarter, and we take pride in that effort. It's an ongoing process, and they performed well this quarter. Andy, do you have anything to add?

No, I think you covered it. We try to prioritize our own molecules, and our utilization was good this quarter. We use third-party molecules to adjust based on customer demand and location. That's pretty much it.

We'll go next now to Spencer Lehman, private investor.

Great news in the last few weeks. I have a couple of questions regarding the stock share structure. I have been with you for many years, and it's always been an intriguing little company due to the 80% insider control and its thin nature. This situation has both advantages and disadvantages. Whenever this topic has arisen previously, there has been a suggestion that someday you might consider a secondary offering to raise some funds. I'm curious if this new project in Galveston could be the catalyst for that kind of development since it would also provide a great opportunity to finance the project.

Thank you for joining the call, Spencer. We value your long-term commitment to the company and your continued investment. I appreciate your thoughtful questions and challenges regarding our ongoing initiatives. As a public company, our goal is to pursue growth, which involves either returning capital to shareholders through dividends or seeking additional capital to fund that growth. We believe that the current structure allows us to proceed with this project without significantly diluting or altering the existing shareholder base of Stabilis. Once we reach a final investment decision on the project, we will have the opportunity to communicate our growth plans and activities to the market and shareholders. At that point, we will leverage all available resources to enhance our company while fulfilling our mission of providing clean LNG solutions. We are seeing strong momentum in three dynamic markets we've been developing over the past 13 to 20 years. While we recognize the potential for adjustments in our capital structure, we are currently focused on serving our customers and maximizing revenue and earnings from our ongoing projects. Once we have more clarity in these areas, we will engage with our team and advisors to ensure we are optimizing returns for all shareholders. I realize this is a lengthy response, but I wanted to address your question thoroughly.

Yes. I definitely appreciate the concept of minimal or no dilution, particularly at much higher prices. It could serve as a method for raising funds, but not at this moment. I have a quick question, though. After the announcement, I noticed a large block of 100,000 shares at $5 that appeared a few days later. I've been tracking this stock for a while, and I found that unusual. I'm curious if you have any insight into what that's about, as it's been a consistent presence and has decreased slightly to 94,000 shares. Do you have any information on this?

Spencer, we don't know who that block is, who's offering that.

Yes, there could be an institution or a fund involved. The price does seem to have a bit of a cap currently, but I'm just curious about it. Anyway, I hope everything works out, and I appreciate you keeping us informed.

We appreciate your long-term support, Spencer. We're also committed to the long-term value of the company. We believe that over time, the company will be recognized for its future potential, and there may be some changes among shareholders during this time. Everyone has their own reasons for their investment decisions. We have strong confidence in the company’s prospects and are currently holding our shares. As Andy mentioned, I remain very optimistic about the company's future and its outlook for value. I firmly believe that our projects, growth, and customer expansion will enhance that value in the long run, and that’s our primary focus.

And just a quick second part of that is you don't mention data centers too much, but is that included when you say power generation? Is that what you're...

Absolutely. We call about distributed power, what we're talking about is the increased demand on the grid and on how power is distributed to projects. And where the LNG is really working is when they want the power closer to the project or they can't get grid, they can't get pipe, and LNG comes into bridge that natural gas power solution. So data centers or computing demand on power are driving a lot of the increased needs. And secondly, I just think the reshoring and the increased manufacturing in the United States is also adding some increased demand and draw on the grid. The grid has been really stable for a long time. It's not shown a ton of increase, but we think it is coming. And from what we're seeing, distributed power is a good solution on both timing and cost for these projects.

Okay. Yes, I think energy is a great place to be right now, so good.

We like it.

And gentlemen, it appears we have no further questions this morning. Mr. Puhala, I would like to turn the conference back to you for any closing comments.

Well, thanks, Boe, for everyone who joined us today. I appreciate your time and your support of the company. We look forward to giving you updates on some of these exciting projects in the future. If you have any questions in the interim, please feel free to reach out to me or our Investor Relations contact number, and we'll be happy to talk to you. Thanks a lot, everybody. This concludes our call. You can now disconnect.

Thank you.

Thank you, Mr. Puhala. Thank you, Mr. Crenshaw. Again, ladies and gentlemen, this will conclude the Stabilis Solutions' third quarter earnings conference. Again, thanks so much for joining us, everyone, and we wish you all a great day. Bye.