Good day, ladies and gentlemen, and welcome to the Stabilis Energy’s Second Quarter Earnings Call. All lines have been placed on a listen-only mode. [Operator Instructions] At this time it is my pleasure to turn the floor over to your host, Jim Reddinger, CEO. Sir, the floor is all yours.

Thank you, Julie, and welcome everyone to the Stabilis Energy’s second quarter 2019 earnings conference call. I'm Jim Reddinger, the President and CEO of Stabilis Energy; and with me is Andy Puhala, our Senior Vice President and Chief Financial Officer. I'd like to open the call by saying it has been a busy few months for Stabilis. In the last 30 days, we closed our Share Exchange Transaction that made us a public company. We commenced trading on the NASDAQ Stock Exchange under the symbol SLNG and we completed a strategic investment from Chart Industries, one of the biggest global suppliers of LNG liquefaction and distribution equipment in the world, which both a) de-leveraged our balance sheet to position the company for future growth; and b) demonstrated Chart’s confidence in the strong growth trajectory of the small-scale LNG market and Stabilis Energy’s role in driving that growth. As you'll hear today, we've been working hard to keep our core business growing as we explore new external growth opportunities. At this time, I'll turn the call over to Andy to discuss our second quarter results. After that, I'll talk a little bit more about our LNG business trends and then we'll open up the call for questions. Andy?

Thanks, Jim. Yesterday, we filed the Form 10-Q for Stabilis for the quarter ended June 30. Due to the Share Exchange Transaction with AETI being completed after the end of the quarter, the Form 10-Q just filed includes only the results of the legacy AETI business and does not include the results for the Stabilis LNG business, subsequent quarterly and annual filings will include the Stabilis results. We realized that this is an unusual situation and wanted to share a brief summary of how our LNG business is doing. We issued a press release yesterday, which can be accessed on our website, www.stabilisenergy.com. For the second quarter, Stabilis reported LNG revenues of $11.1 million, an increase of 28% versus the $8.7 million reported in Q2 of 2018. The increase is primarily due to a substantial improvement in the utilization of our George West liquefaction plant. Utilization of the facility increased to 76% in Q2 compared to only 42% a year-ago, driven primarily by increased oil and gas related demand particularly sand mines and also Mexican exports. EBITDA for the quarter was $1.6 million in Q2 of this year compared to an EBITDA loss of $0.1 million in the same quarter last year. The improved plant utilization along with a favorable geographic mix of customers allowed our revenues to increase significantly faster than operating costs resulting in a strong incremental improvement to EBITDA. As a reminder, EBITDA as a non-GAAP measure and a full reconciliation of EBITDA to net income can be found in our press release. For the six months ended June 30, our revenues were $24.1 million, a 30% increase compared to the first six months of 2018, driven by increases in both the LNG production and distribution sides of the business. EBITDA for the first six months of 2019 was $3.6 million, 109% improvement from the same period in 2018 driven by the factors mentioned earlier. EBITDA for the first six months also includes approximately $0.5 million in non-recurring deal costs related to the AETI transaction. We're pleased with the results so far this year and we look forward to reporting on our financial progress in our Q3 call. With that, I'll turn the call back to Jim for some comments on the market. Jim?

Thanks, Andy. I'd like to finish my prepared remarks with a few comments on the current state of the LNG industry. Our quoting activity and opportunity pipeline is as strong as we've ever seen it, and we are seeing increasing demand from all customer end markets including industrial, pipelines and utilities, energy, mining, remote power applications and Mexican exports. We are continuing to seek customers to convert from diesel, propane and fuel oil to LNG to take advantage of LNG’s lower cost, lower environmental emissions and greater price and supply stability. While LNG’s cost advantage is usually the primary reason our customers choose to use LNG, its lower environmental emissions profile is becoming increasingly important to them as well. Many of our customers will not be able to meet their commitments and obligations to reduce their environmental emissions footprint without a new fueling solution and for many of them LNG meets these needs. As previously discussed, Stabilis sees tremendous growth in the North American LNG market and we are actively seeking opportunities to build new production and distribution assets as well as to buy existing assets where the price and strategic fit makes sense. We see attractive growth opportunities throughout North America and in particular in Mexico and remote parts of Canada where the relative lack of last mile pipeline infrastructure makes distributed natural gas solutions like LNG critical. I look forward to speaking with you in the future when we have other exciting growth developments to announce. And with that I'll open it up for questions. Julie?

Thank you. The floor is now opened for questions. [Operator Instructions] And our first question comes from George Berman with ISS Securities. Go ahead, George.

Good morning. Thank you for taking my call.

Hi, George.

Hello?

Hi, George. Thanks for dialing in.

Hi. You mentioned at the outset that you have completed the share exchange with Chart Industries. Can you specify what exactly you issued there?

The Chart Industries transaction was an exchange of debt-for-equity and the transaction is not complete yet. The share exchange agreement that's completed is the one with American Electric Technologies that was completed in July.

Okay. So what does the debt-for-equity exchange with the Chart Industries depend upon?

It closes in the next month. And the transaction structure has been established and there'll be an exchange of up to $7 million of Chart’s debt with a maximum of 9% of the shares of Stabilis depending on the closing stock price at the time of closing.

Okay. That would bring your total share content to about 15 million shares?

Andy, I don't have the numbers in front of me, but I think that's approximately right, yes.

George, right now we have approximately 14.5 million shares outstanding. So...

Okay. So that would be more?

Yes. Depending on how many shares we ultimately issue that would be north of 15 million.

Yes. The EBITDA numbers that that you showed here this morning in the press release that is solely for the Stabilis Company by itself. It doesn't include any gains or losses from the historic AETI numbers, yes.

That’s correct, George. These are stand-alone Stabilis numbers. The AETI numbers you can see in the 10-Q, AETI is roughly not quite breakeven, but on an EBITDA basis basically breakeven in the quarter.

Now, explain to me, I understand there is a tremendous opportunity with natural gas being flared in exceeding amounts, prices sometimes even turning to negative for E&P producers. What exactly do you offer as a sort of value-add for a let’s say oil producer that has to deal with massive amounts of natural gas that needs to be flared because there's no pipeline capabilities available using, as you mentioned, fuel oil or diesel to power some of the in-field operations. I’m certain that the companies are not going to spend $10 million, $20 million, $30 million for a plant that is then useless after six or 12 months. But where is your opportunity exactly to offer those producers a profitable return – in turning natural gas into liquefied natural gas?

George, on a macro level any use – any incremental use of natural gas helps all the producers with increased uptake and increased pricing of the natural gas. So from a macro perspective, LNG helps them whether it’s exported LNG or small scale LNG by creating new demand for the product. Specifically, if you're looking at producers in basins whether it's in West Texas or South Texas or Pennsylvania, production in those basins reduces the transportation needs to get the gas out of the basin. So again, it helps them with additional demand and pricing pressures that they face. So, from a macro perspective, LNG in general helps the – use the abundant supply of natural gas we have in North America in more places, which helps increase the demand for the gas and ultimately helps them sell more. And in basin we can offer solutions where we're processing the gas in basin, which allows them to – which reduces the needs they have for transportation back out of the basin.

Right. So, right now, I have noticed some companies are even reducing their oil production because they don't know where to go with the natural gas. So you definitely have a possibility there of an advantage. Can you flesh out what that advantage is, if I am Apache or Anadarko or whatever company, and I've got hundreds of millions of cubic feet of natural gas every month that I can't get rid-off of, have to flare, you come along and provide what?

We take that natural gas, we liquefy it and we're able to distribute it to whoever the producers operations are or other operations in the area, so that the gas can be used as an alternative to diesel or propane or other fuel oil. So, as an example, if they're using diesel in an engine for completions operations, we can help them convert that engine to burn natural gas and so instead of burning X gallons of diesel, they'll burn X gallons of natural gas. So they can not only helps them by using the natural gas and reducing their transportation and takeaway problems that can also help them displace other fuels that are more expensive and/or more environmentally harmful with natural gas.

You mentioned that you do a lot of work with frac sand companies. Are they converting their drying or what operations – power operations through natural gas are using their trucking fleets still?

Most of the work we do with frac sand fleets right now in Texas is frac sand drying. So they've got sand mines in remote locations of South and West Texas and we provide them with LNG to fuel their frac sand drying operations.

Which is more competitive than electricity I suppose, if it’s available?

Yes. It all depends on the location of the site and what the layout, the energy needs are, but we're finding that the natural gas is a very competitive fuel solution for those operations. And not just on pricing, but again it provides environmental benefits. And what we're seeing in a lot of process operations as well is the gas is a very predictable, steady burn. So when you're drying frac sand or asphalt or any other process activities, it allows you to have a much more predictable and controllable operation than some other fuels do.

Okay. And do you foresee selling complete plant solutions to the users? Or are you going to be an owner operator of those plants as they're being built?

We are an owner operator of plants. We don't sell the plants to others, but what we do is we look for markets that need natural gas solutions, distributed natural gas solutions and then we build, own and operate production and distribution assets. So we would build, own and operate the LNG liquefier as well as the assets that bring the liquid from the production site to the customer site.

Okay. Can you talk a little bit about your opportunities south of the border?

Yes. We see Mexico as being a tremendous growth opportunity because of the relative lack of pipeline infrastructure compared to the size of the economy and the growth in the economy. And there is a number of pipelines that have been put into Mexico that are major lines that connects U.S. gas production fields to major cities and power production sites, but many of the last mile distribution lines that would take the gas off of those trunk lines to manufacturing sites, to process sites, et cetera haven't been established. So because of that we see great opportunity to bring a distributed natural gas solution into Mexico for many of the same industries we serve in the U.S. The difference there is the pipeline infrastructure is not as robust, so there is a larger – in our opinion a larger set of opportunities when we look at Mexico.

Okay. Last question for me. When you merged with the American Electric Technologies, you inherited a joint venture in China, which seems to be very profitable and [indiscernible] operation in Brazil. What are your plans for those two assets?

We plan to continue to own and operate those assets. We think they're both, as you mentioned, attractive assets. And right now, our plans are to keep them in place as is.

Okay. Any opportunity to joint venture your technology with the existing China joint venture?

We don't have anything in the works on that right now, but potentially in the future.

Okay. And then you mentioned Canada. I guess your plants come into play very often in remote locations where there is no readily available power access?

Yes. Same dynamics that we're seeing in Mexico and in certain remote parts of Canada in terms of lack of pipeline and other energy infrastructure to power remote mining, industrial and also communities.

Yes. Can you give me an idea on what kind of investment costs is associated with building a plant from the ground up?

You're looking for the investment amount? I'm sorry.

Yes.

Yes. It all depends on the plant size and the location; what we can say is that our plant in South Texas was constructed and commissioned for approximately $45 million. We think that the prices given supply of equipment in the market have come down somewhat since then, but that's the rough range.

And then you have one plant that you dismantled in Utah that is essentially being stored?

Yes. And we'll answer this one and I think move on. But yes, we’ve got a plant that was in operation in Utah. And we've packaged it to move to a new location and we're exploring, placing it in some of the growth areas that we've talked about in our public filings such as West Texas and certain parts of Mexico.

Okay, thank you.

Thanks, George.

Our next question comes from Matt Dhane with Tieton Capital . Go ahead, Matt.

Great. That’s Matt with Tieton Capital . I was just hoping to get an update on your search for new a liquefaction site. I think you've mentioned West Texas, it sounds like Mexico is also an option. What more can you share with us around how that search is going? Is it something forthcoming in the near future here? Or what can we expect?

Well, we don’t have any specific announcements to make now, but we feel like we've made good progress in both locations that you've talked about, and our goal is to have something up in both locations as soon as we can. So, I wish, I could share more with you, but right now we don't have anything specifically to announce.

Yes. And you mentioned how strong the pipeline of new opportunities was. What's the newest area of the market that you're seeing strong traction in?

In terms of industry end markets?

Yes.

I mean there are really growth opportunities in a number of sectors. We've talked - and a lot of it is geographic dependent. If you look across the border on the Mexican side, there’s a number of opportunities in every sector, just because of a basic lack of distribution of natural gas, we have a pipeline system. So anything from greenhouses, to industrial parks, to manufacturing sites, to mines, to residential and general commercial areas are all attractive down there. If we're talking about Texas and our South Texas plan and a potential West Texas site, there's a number of process industries that George talked about with the frac sand mining. We're seeing a lot of potential growth on the engines used in the oil field. And that's in two ways; one, there is electric engine technology going into completions fleets, which is designed to work purely off of natural gas. And then in addition to Tier 4 engines that are being introduced are all set up by the manufacturer to burn natural gas very efficiently as well. So from that perspective we see lots of opportunities. We look around the country. We see a number of remote power applications again in remote regions where pipeline access is not available. And we always see tremendous opportunity in the pipeline and utilities sector where we can help pipeline supplement surge demand or seasonal demand or we can provide fuel where pipelines are damaged or under repair. So while they're shut down to make repairs, we can provide fuel downstream from those sites. So it's really geographic dependent, but I think the general theme is that LNG is a much more commonly understood and accepted fuel source than it was even five years ago. I think to characterize it five years ago, we were making a lot of phone calls to introduce the product and to introduce the process. And now as we talk about opportunities and pipeline, a lot of those are inbound as operators across the spectrum of industries I just talked about having specked into their operating procedures and their safety procedures. And they're really seeing it as an everyday normal fuel alternative, not one that that needs more research and development to use. So that – to us that's a lot of the changes the market is better aware and better understand the product right now.

Great, great. Final question for me. Mergers and acquisitions, I know that's an important part of your strategy. Anything that you have to share about what you're doing in that arena. How active are you at this point in time? Is this something where in the next group of months don't be surprised if we see a transaction announced or what’s going on there for you folks?

So we've over time had a number of discussions with both producers and distributors of LNG. We see a market that's had a number of private company, private equity, private family office investments and we think that over time there will be opportunities to those investors seek an exit. And we'd like to provide them with a platform to do that and the process to be able to consolidate the business and generates more operating scale. So nothing again to announce right now, but we have been – as we've discussed have been active in discussions. And when we find the right fit and the right valuation, we'll announce it.

Great. Thank you.

[Operator Instructions] And there appears to be no further questions in the queue.

Great. Well, thank you everybody for joining, and we look forward to talking again next quarter.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.