Greetings, and welcome to the Stabilis Solutions Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. And a question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, Andy Puhala, Chief Financial Officer of Stabilis Solutions. You may begin.

Good morning, and welcome to Stabilis Solutions second quarter 2024 results conference call. I'm Andy Puhala, Senior Vice President and CFO of Stabilis. And joining me today is our President and CEO, Westy Ballard. 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 8, 2024. 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 during 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 second quarter performance, thanks to the continuous hard work of our entire team, enabling us to transition our company into one of North America's largest providers of liquefied natural gas fueling, production, storage and last-mile delivery solutions for many of the world's most recognized high-performance brands. Our team has worked hard to optimize our existing operations to focus on longer-term customer relationships that support higher asset utilization, more predictable cash flows, improved liquidity and a healthier leverage profile. During the quarter, our revenue increased by over 44% year-over-year, supported by a 60% improvement in utilization at our flagship plant in Texas when compared to the second quarter of last year. We generated over $5 million in operating cash flow in the second quarter and ended the period with nearly $16 million in cash and availability under our credit agreements and a net cash positive balance sheet. Our strengthening liquidity position provides considerable flexibility to fund our operations and has enabled us to reinvest in our infrastructure to meet rapidly growing demand in our key end markets. Strategically, we remain highly focused on continuing to leverage our proven business model to further the development and delivery of a portfolio of growth opportunities across our marine, commercial and industrial business platforms. Within our marine market, we continue to deliver outstanding performance on our LNG fueling contract with Carnival Corporation, the first of its type in Galveston, which began late in the fourth quarter of 2023 and contributed to the improvement plant utilization rate at our George West liquefaction facility. Our unique supply chain is the only one in the market capable of delivering LNG volumes at scale to large vessels along the Gulf Coast and…

Thank you, Westy. Let's move to a discussion of our second quarter performance, together with an update on our balance sheet and liquidity. In the second quarter of 2024, our revenues grew to $18.6 million, up 44.1% compared to the $12.9 million reported in the second quarter of last year. The growth was driven by strong demand resulting from new long-term customer agreements and improved utilization of our South Texas liquefaction facility due to the resolution of feed gas composition issues, which hindered our production in the second quarter of last year. Net income for the quarter was slightly above breakeven compared to a net loss of $2.2 million in the second quarter of last year. Adjusted EBITDA for the quarter was $2.1 million, an improvement of $2.2 million from the prior year period. The adjusted EBITDA margin of 11.3% reflects improved operating leverage as a result of the higher utilization rates. Each year, the second quarter has historically been the company's slowest quarter primarily due to seasonality associated with the end of winter peaking activity and demobilization in the Northeast. With that in mind, the second quarter of 2024 was the company's first ever second quarter profit and highest ever second quarter adjusted EBITDA, demonstrating the progress being made in the business. Generated $5 million of cash from operations in the second quarter and continued to build on our strong liquidity position, which we intend to leverage as we invest in growth going forward. As of June 30, 2024, Stabilis had total cash and equivalents of $11.5 million, together with $4.4 million of availability under our credit facility. Total debt outstanding as of June 30, 2024, was $8.6 million, resulting in a net positive cash position. During the back half of the year, we expect to increase CapEx as the expansion of our South Texas LNG storage capacity is brought online. However, we expect to maintain our solid liquidity position through 2024. That concludes our prepared remarks. Operator, please open the line for the Q&A session.

Thank you very much. At this time, we will be conducting a question-and-answer session. [Operator Instructions]. Thank you very much. Your first question is coming from Martin Malloy of Johnson Rice. Martin, your line is live.

Good morning and congratulations on all the progress you're making on a couple of different growth platform fronts. I wanted to maybe try to get some additional details about the dedicated waterfront bunkering facility you mentioned and being able to quickly construct that once FID is issued. Could you maybe talk a little bit about the cost financing for that? Is there an any additional contracts that need to be announced in terms of offtake that you think are needed to get this project to the finish line?

Good morning, Marty. Thanks so much. I think breaking the question down in several components, I'll start kind of with the end. And the answer is yes. We certainly don't want to put capital to work with a 100% merchant risk. We certainly believe in not only that market, but a wide array of markets around the U.S. and certainly have an appetite for some merchant risk. But having an anchor or two and not only that, but each market, certainly, we think, makes all the sense in the world, and we would expect to have some commercial activity that's on the books before we truly reach an FID, but not 100%. Where that balance point is to be determined. But we are in advanced discussions with a variety of, we think, very strong interesting counterparts to partner with us to anchor that expansion, certainly in Galveston. But as I mentioned, not just unique to Galveston, but also in other ports in the U.S.

Okay. And then I just wanted to delve a little bit more into the commercial industrial area and backup power generation and I guess data centers or factories that are being restored to the U.S., could you maybe talk a little bit about how you see Stabilis playing a role in that market and timing of maybe any contracts there?

Yes. So we are unbelievably excited about this aspect of our platform, certainly love the Marine business, but also this emergency power, primary power as well as primary and backup power for data centers is a real, really materially large opportunity for us. And so I think the way that we can play this is certainly on the primary power gen. We're doing that now. We've been doing that for several years, but also primary baseload for data centers in areas where it's going to take a long time, if at all, ever for them to get connected to grid, we think we can build infrastructure to become a primary power generation source for them. But also, we think we can be back up redundant power and displacement of diesel as well as some of the challenges around intermittency in solar and wind. And so we think natural gas is the clear, clear leader to be primary as well as redundant power for emergency as well as data centers. We announced a 14-month contract extension in the emergency response as a primary power generation source. We are in multiple discussions with data center developers, hyperscale as well as cloud computing firms where the decisions are going to sometimes be made for build-out of 30, 40, 50, 100 meg, 500 meg data center locations. And we think that we can be a real player in the primary load as well as backup load in some of these facilities as well. It's exciting. And I think what's really exciting is this is not something that we haven't done in the past. It's a natural extension of what we've been doing since our company's inception in 2013, '14. And so it's just another sector that we're leveraging our capabilities into utilizing liquefied natural gas. We also think there are areas for us to galvanize not just LNG, but some RNG and other sources to bring to bear for a comprehensive primary and backup power solutions for this data center universe.

Great. Thank you. I'll turn it back.

Thanks, Marty.

Thank you very much. Your next question is coming from Barry Haimes of Sage Asset Management. Barry, your line is live.

Thanks so much and congrats on the good quarter. Just following-up on the backup and primary care discussion for data centers. Why LNG versus natural gas? I mean would this be data centers that don't have access to pipeline gas? So that's one question. And then my second question is, could you talk about when the new George West capacity is scheduled to come online? Thanks so much.

Yes. Sure. Thanks so much. So data centers certainly are fairly agnostic. They certainly all consistently want to burn the cleanest, most abundant safe, secure fuel that they can. And certainly, that speaks loudly for natural gas. Whether it's natural gas or LNG, they're interchangeable. But to answer your question is, oftentimes, these data centers are not going to have access to pipeline gas. And if they do, it will be for years. In some instances, they will. So if there are areas we think there are numerous where the data centers don't have access to natural gas, we can run multiple hub-and-spoke operations where we can build the infrastructure and then spoke those out at scale to clusters of data centers around the U.S. There'll be other instances where we can be thoughtful in assisting their efforts and getting into the pipeline infrastructure. But that's not as simple. There are certain markets where there's an abundancy of pipeline infrastructure, certainly in along the Gulf Coast and some up in the Marcellus, Northeast. But there are a lot of areas where they just don't have access to grid, they don't have access to natural gas pipelines, and this is real. This is large and it's growing. And we think we can not only help with the pipeline aspect but also areas of LNG where they don't have access to pipelines. I think that was the first question. The other question was around...

George West.

George West facility. We've already started installing half of that capacity, and I'm proud to say, Sunday, it was up and running. And for the second half of that capacity expansion storage, we expect to bring that online either later on this year or the beginning of next year. But half of that is already up and running as of the weekend.

So that will, in effect, add to your capacity even in the current quarter then?

That's correct. Storage capacity, not production storage.

Storage. Okay. Got it. Okay. Thanks so much.

Yep.

Thank you very much. [Operator Instructions]. We have another question coming in from Marty Malloy, who's from Johnson Rice. Martin, your line is live.

All right. I'm back. There haven't been any questions about aerospace and yet there's an war article in the Wall Street Journal just about the frequency of flights of rockets being sent up. Can you maybe talk about the opportunities that you're seeing there? What kind of contracts do you think are available out there that you might pursue and timing, et cetera?

Yes. So we think the opportunity is very exciting as you can probably tell, not only in my narrative, but around some of the disclosure that we've had. There are certain aspects of our aerospace relationships that are highly confidential and just really aren't appropriate for us to comment on. But I'll say this. We are aware of the dynamics in play, I understand and have read those articles that you've read in the Journal and other kind of financial magazines and newspapers. And we feel that we are the market leader, and we think we can continue to be the market leader. Most of the roads in aerospace go through a very small handful of private contractors now, but we think there are meaningful ways for us to grow this business, not only as a fuel supplier but potential partner if some of them want to be more vertically integrated in their supply chain. So I think there's a very un-trailing approach that we can take to this in a wide variety of outcomes. And I think that there are a lot more launches at scale that are in the works and certainly, our kind of real-time discussions would substantiate that.

Great. And then maybe just one follow-up question. Just on the marine side. Could you maybe talk a little bit about the competitive environment? Who would you compete against in terms of these marine bunkering contracts? Are there large international players? I guess, if you could just give us some more color about that.

Yes. So the market is very different in every geography. And so it's really more dependent upon where you enter the market and where you think opportunities. Certainly, if you want to be a U.S. provider, and you've got U.S. gas that's delivering in U.S. locations. You've got some Jones Act last mile requirements that certainly need to be considered. If you are importing gas from external sources into certain U.S. ports, that's not as relevant. It's really kind of a small universe of providers and everybody has their own kind of unique capabilities, some of which that we would compete with really don't have the full supply chain and last mile delivery capabilities they just want to build liquefaction and have people provide for their own logistics. We have a couple of other I don't know, competitors, but others that are in this market that would do last mile delivery, no liquefaction like we do, and frankly, would buy from us. Are they competitors? I don't know, I guess, to some extent, but if they're buying from us and then doing last mile to certain industries, okay, that's fine with us as well. And so it's hard to put your hands around just one competitor. I'll say this. We're one of the largest, if not the largest turnkey supplier for certainly inland liquefied natural gas distribution, but I'd say rapidly becoming one of the largest providers on the waterfront in certain markets. Certainly, and we expect to continue to enhance that position as well.

Great. Thank you. That's very helpful.

Great. Marty, thank you.

Thank you very much. Your next question is coming from Barry Haimes of Sage Asset Management. Barry, your line is live.

Thanks. Back just one or two others. Just following-up on the space, does that product carry premium pricing and margins? Or is it similar to your other end markets?

Well, without getting full into each contract, I will say that molecular requirement in terms of purity is much higher than that of other end markets that we serve. And so the requirement for that is a little bit different. And so I'll let you kind of read between the lines there, that they require a higher specification and higher purity and higher MMBTu energy density than that of some of the other end markets that we serve.

Got it. Fair enough. And sort of back on George West, you mentioned the storage capacity, but I think you guys were also considering incremental production capacity. Is that right? And if so, where does that stand?

We are always considering a wide variety of expansionary opportunities. George West certainly is one of them. The reason we wanted to put that storage there is because it gives you some redundancy flexibility and optionality for us to not only continue to enhance and bolster our supply chain as well as our contract with Carnival on the water, but it also allows us to have redundancy and capability for other kind of inland other sectors that are coming into Texas. If we see a larger title wave of demand in that South Texas market, we will move quickly to double and even triple potentially the production capacity at George West. So as those green shoots present themselves look for us to do that. But right now, we thought it was a more prudent decision to more than double our storage because it just gives us flexibility and optionality around a wide variety of sector development on the water and off.

Right. So as I recall, you had ordered some long lead time equipment in terms of production. So you haven't yet decided where you're going to put that.

We've already not only ordered it. But we acquired it. It's already in our possession. And the likely location for that is really on the waterfront in Galveston. I reserve the right to change my mind if other sectors, whether it's aerospace or data centers, move at a more rapid pace, which they're moving quickly. But we think the prudent location for that is to be really the first mover in the first dedicated LNG bunkering port in Galveston and that surrounding area. So the likely spot for that train, and that's what we're talking about FID over the next couple of months is on the waterfront for LNG bunkering.

Got it. Thanks so much. Appreciate it.

Yep. You bet.

Okay. Thank you very much. We appear to have reached the end of our question-and-answer session. I will now hand back over to Westy for closing remarks.

Thank you. As I mentioned, everyone, thank you to all for joining us on the call, and we look forward to seeing you on the road in the near future.

Thank you very much. This does conclude today's conference. You may now disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.