SLNG Earnings Call Transcriptbeta

Operator: Ladies and gentlemen, before we begin today's call, I'd like to remind everyone that today's conference 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 beliefs and expectations as of today, May 07, 2020. Forward-looking statements are subject to the risks and uncertainties that may cause actual results to differ materially from those projected. The company undertakes no obligation to release updates or revisions to the forward-looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in the company's filings with the SEC and the press release announcing the company's results. Investors are cautioned not to place undue reliance on any forward-looking statement. I'd now like to welcome you all to the Stabilis Energy Q1 earnings conference call. Today's conference is being recorded. And at this time, I am pleased to turn the meeting over to Jim Reddinger, President and CEO of Stabilis Energy. Good morning, Jim.

Jim Reddinger: Thanks much. This is Jim Reddinger President and CEO of Stabilis and with me is Andy Puhala, our Senior Vice President and Chief Financial Officer. I would like to welcome you to the conference call this morning. We come today with some very good news about the company's performance in the first quarter and the cautious outlook for the current quarter. We're pleased to report a strong first quarter in our core LNG business with a record of nearly $12 million LNG gallons delivered in the quarter. We also ended the quarter with historically strong utilization rates on our cryogenic equipment as our other customers used it to transport store and vaporize LNG on numerous project sites across North America. We believe that this strong first quarter performance demonstrates that LNG adoption is increasing as a fuel source across multiple end markets. We saw strong LNG consumption across multiple end markets including industrial, mining, pipelines, utilities and energy. We also saw strong sales across the border in New Mexico. The value proposition of lower cost and lower harmful environmental emissions continue to drive our customers to use LNG in their operations. And I'd like to take a -- this is a moment to recognize our team at Stabilis for both finding these opportunities in the first quarter and for providing our customers with world-class execution on each and every site. We think we have the best small-scale LNG team in the business and we're very appreciative of the great work everyone put in last quarter. So that's the good news about first quarter performance. The cautious outlook stems from a slowdown in general business activity that started impacting our international power delivery business early in the first quarter and our LNG business in April. Our Power Delivery segment which includes our Chinese joint venture and our Brazilian subsidiary was the first to be negatively impacted by the global pandemic. As you all know, China was hit with virus related shutdowns earlier than most countries and this impacted our joint venture's ability to operate its manufacturing facility in the first quarter. Our Brazilian business originally lie in virus related impact but is now experiencing more disruption. Our LNG business started to see reduced customer activity in April, particularly in the energy sector and businesses remained weak since then. We estimate that our April activity levels were significantly below those of the first quarter and we're not clear if or when activity will pick back up in the second quarter. We responded to this by focusing on sales and by cutting costs. On sales we're redoubling our efforts on existing customers as well as reaching out to new customers and market to further diversify our end markets and our cost cuts, we're reducing cost across the business including travel, other general administrative costs and unfortunately headcount compensation. We'll talk more about our new sales efforts and cost cutting measures later in the call. I'll now the call over to Andy for a discussion of our financial results and I'll wrap up the call with additional information on the business. Andy?

Andy Puhala: Thanks Jim. For the first quarter, Stabilis reported revenues of $13.8 million, a sequential increase of 11% versus a $12.5 million reported in Q4 of 2019. LNG segment revenues were $12.5 million compared to $10.4 million in the fourth quarter. The sequential increase is primarily due to a 27% increase in LNG gallons delivered and it quick -- and additional equipment rental revenue resulting from our normal seasonal winter peeking activities for utilities. Our George West facility utilization increased to 74% in the quarter up from 64% in Q4 of last year. Revenue gains due to increases in LNG volumes sold were partially offset by lower natural gas prices. Our strong LNG segment results were partially offset by the power delivery business. Net equity income from our Chinese joint venture was a loss of $0.2 million compared to income of $1.1 million in the previous quarter. As we disclosed in the press release, our Chinese joint venture's manufacturing facility was closed for approximately four weeks during the quarter and was further impacted by supply chain disruptions. Full production has now resumed. However, the impact of the related economic downturn will have on orders at the joint venture for the rest of 2020 is not yet known. Revenues from Brazil were $1.3 million down from $2.1 million in the previous quarter as a result of the pandemic in an unfavorable exchange rate. Our Brazilian operations were impacted late in the quarter and shut for the last few weeks of March. Our Brazilian business is currently operating at reduced activity levels and we expect lower activity levels to continue at least through midyear. We will provide updates as our visibility improves. As a result, adjusted EBITDA for the quarter was $1.5 million down from the $2.2 million in the prior quarter. Net loss for the quarter increased to $1.1 million compared to a net loss $0.6 million in the preceding quarter. Moving to Q1 year-over-year results, the company grew revenues 7% in the first quarter compared to Q1 of 2019. LNG segment revenues decreased by $0.5 million year-over-year due to lower natural gas prices and reduced activity levels with several oil and gas customers. As mentioned previously, the utilization of our George West plant was 74% in Q1 up from 58% in the year ago quarter. Adjusted EBITDA of $1.5 million was down from the $2.3 million reported in the prior year quarter due to the power delivery segment results I previously mentioned. As a reminder, our power delivery segment was acquired as part of the reverse merger with American Electric Technologies in July 2019. So it's results are not included in the prior year Q1 numbers. Net loss increased to $1.1 million from $0.7 million in the year ago quarter. We finished the quarter with $3.2 million in cash and we believe we have adequate cash and access to sources of liquidity to manage the downturn. That being said, we remain highly focused on preserving cash and maintaining a strong balance sheet. I'll now turn the call back to Jim for some additional remarks.

Jim Reddinger: Thanks Andy. As I discussed earlier, our North American LNG business was not exactly impacted during the first quarter, but we're now seeing a slowdown particularly with our upstream oil and gas customers. As such, we've refocused our sales team on opportunities to further diversify our business. Recent sales activity in Mexico has been encouraging and we're gaining traction in the Mexican market. A new customer we discussed on our last earnings call took delivery of approximately 90,000 gallons during the month of April and they continue to ramp up operations this month. We continue to have a number of promising opportunities in Mexico particularly in the mining sector and we're optimistic that we will turn some verbal commitment into additional contract awards in the near future. In the US market, we recently signed a new 12-month contract to provide 100,000 gallons per month to an industrial customer for power generation. We've also seen success in the pipeline maintenance and outage projects with recent contract wins along the Gulf Coast. On cost cutting, we've eliminated all nonessential costs including travel, entertainment and other nonessential overhead expenses. We've obtained cost concessions for many of our key LNG, transportation and other major vendors and in the US, we've also reduced our headcount by approximately 15% and employee compensation by approximately 20%. In addition, we've deferred payment on cash bonuses and other payments until we get better visibility on the broader economic outlook. I want to reemphasize in my final comment that our long-term strategy is unchanged. We seek to become the preeminent small-scale LNG provider in North America by providing superior value and service to our customers. We believe with small scale LNG we'll continue to become an increasingly important and growing piece of North America's energy solution. In the short term, we're focused on increasing and diversifying sales, controlling costs and maintaining liquidity and a healthy balance sheet. With that, I'll open the call to questions. Take it away Jim.

Operator: [Operator instructions] Gentlemen, first we'll hear from Bill Donohue [ph] at Teton Capital.

Unidentified Analyst: Thank you. I am actually going to beg for three questions, rather than one and a follow-up if I may, but first of all, how does the virus impact your Mexico permitting activity or plans?

Jim Reddinger: Good morning, Bill. On the sales side and the product development side in Mexico, we pushed ahead full speed and as I mentioned on the call, we had good success with new customers which we hope to continue here in the next few weeks. On the permitting side, many of the government offices have been closed for the last few weeks and should remain closed or are expected to remain close over the next few weeks. I know they put out some new guidance the last night or this morning that we need to study. So there could be a slowdown in permitting based on when those offices open.

Unidentified Analyst: And so essentially for every year original timeline was, is it a fair interpretation that you would anticipate that to be pushed out given that the permitting offices and the government offices are closed.

Jim Reddinger: We just don’t know yet Bill. We'll let you know as soon as we have more information because just don't know where we were in the queue and what the delay is going to -- but what kind of delays are going to come out. So apologies but we'll have to hold off until we have more information.

Unidentified Analyst: And then question number two oilfield, what percent of your business did the oil field, your LNG business the oilfield represent in the first quarter of this year, the first quarter of last year and the fourth quarter of 2019?

Jim Reddinger: That's a very specific question Bill. Let us pull that data together and if we can get it to you by the end of this call we'll pull it together and get it to you later. I don’t all three periods in front of me right now.

Unidentified Analyst: Okay. No problem. Thanks Jim. And then lastly you have an increase in volumes at George West while the third-party volumes declined and so the question is was that an intentional switch to put more volume through the George West plant or is that simply a geographic function of where the -- where the demand was in the two quarters?

Jim Reddinger: It wasn’t intentional. There were two main factors in that or three main factors. One is the business at George West in the first quarter was historically strong. So business at George West was higher. Second was although we were deployed on more projects in the Northeast this year for winter peeking, the weather was warm and so there wasn't as much cash flow. So we had good success on rental revenue, staff deployment and we did have gas flow on the Northeast, but compared to the year earlier, it wasn't as strong given the warmer weather. And then the third difference is we had a couple I'd say test pilot projects last year in the first quarter on e-fracks in the energy sector that consumed a lot of fuel that when you look at the year-over-year comparison, we didn’t have the same of tests this year and so third-party fuel lines were lower for that reason as well.

Operator: [Operator instructions] And we have no signals from the phone audience. Mr. Reddinger and Mr. Puhala, I'll turn it back to you for any additional or closing remarks.

Jim Reddinger: Thanks for being on the call today everyone and if there's any other data to follow-up on, we'll be sure to get back to you. Thank you.

Operator: Ladies and gentlemen, this does conclude today's update. We thank you all for joining. You may now disconnect your lines and we hope that you enjoy the rest of your day.