Stabilis Solutions, Inc. (SLNG) Earnings Call Transcript

Welcome to the Stabilis Solutions Second Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn our call over to Andy Puhala, Chief Financial Officer. Mr. Puhala, please go ahead.

Good morning, and welcome to Stabilis Solutions Second Quarter 2026 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 certain forward-looking statements within the meaning of the Private Securities Litigation 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 12, 2026. 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 today. Our second quarter results reflect the building momentum we are seeing across the business. As we discussed on our first quarter call, the first quarter was the low point for the year coming immediately after two of our largest multiyear contracts concluded at the end of 2025. Since then, activity has strengthened meaningfully. Aerospace was particularly strong with LNG volumes sold up 79% year-over-year and 87% sequentially. And our non-power generation-related industrial business volumes grew more than 67% year-over-year as well. Turning to the balance of the year. We expect results to build steadily from here. As newly awarded contracts come online and we backfill the demand left by those completed agreements, we anticipate incremental improvements in both the third and fourth quarters. A key contributor is a contract we secured during the quarter to supply behind-the-meter LNG to generate power for the commissioning of an additional U.S. data center. Service is expected to begin in the third quarter. And while we currently estimate a six-month term, it could well extend beyond that. Contracts like this underpin our confidence in a stronger second half with revenue and profitability building through the third and fourth quarters and second half revenues expected to increase by more than 50% compared to the first half of 2026. As of the end of Q2, we have been awarded contracts in two different phases of data center development. First, data center commissioning; and second, providing bridge power during data center operations. Each type of opportunity brings a different profile in terms of length of project and volumes of LNG. We believe there will be significant additional opportunities to participate in these phases as well as opportunities to provide LNG during construction and for use in long-term backup power generation once these data centers are running and connected to a grid or gas pipeline. As important as the second half of the year is, our sites are increasingly set on 2027. Early next year, we expect to begin deliveries under what will be the largest contract our company has ever secured, a behind-the-meter power generation project to provide bridge power for a U.S. data center that extends into early 2029 and is expected to generate approximately $100 million of revenue annually over its two-year term. Preparations are well advanced. As of the end of Q2, we have received $20 million in customer prepayments to fund equipment, mobilization and readiness. The project remains on schedule, and our team is actively investing in equipment and securing LNG supply to ensure a successful launch. Our commercial team also continues to bid on additional data center opportunities beyond this award, driven primarily by this contract, we expect company revenues in 2027 to exceed $100 million. Taken together with the balance of our contracted portfolio, we expect 2027 to be a record year for Stabilis in both revenue and profitability. Let me spend a moment on how we are able to take on projects of this scale. Currently, our power generation contracts are being served largely with third-party provided LNG, which speaks to the core strength of our model. Rather than being constrained by the output of our own liquefaction plant, we can combine our own production, purchase supply, logistics, mobile equipment and our engineering and field service expertise to meet the demand almost anywhere in the country. That flexibility allows us to pursue the largest opportunities without building capacity ahead of them, and it reinforces our position as a leading small-scale LNG provider in the U.S. at a time when data center growth is reshaping domestic energy demand. Our aerospace business is another area where the momentum is unmistakable. Launch activity among our commercial space customers continues to climb and with it, their demand for LNG, which is driving the volume growth I referenced a moment ago. This is a market where our ability to deliver high-purity product reliability and to engineer solutions around each customer's specific technical requirements truly differentiates us. We continue to view aerospace as one of the most durable long-term growth avenues in our portfolio. So far in 2026, we've provided LNG to three leading rocket launch customers and are in discussions to add a fourth later this year. Stepping back, let me be direct about where our growth is coming from. Power generation for data centers and aerospace are the two end markets driving the business today. That is where demand is the strongest and where we are winning new business and where we expect the majority of our growth over the next several years. Our asset-light model and flexible balance sheet allow us to scale into demand without overextending ourselves financially. Let me turn briefly to our Galveston LNG project. We believe our proposed Galveston project is the most shovel-ready, fastest to market, lowest capital cost per gallon small-scale LNG bunkering project anywhere on the Gulf Coast. As we discussed last quarter, the project's time line has been extended, and I want to be candid we are not yet in a position to provide a firm date for a final investment decision. The path forward depends on securing the right commercial offtake and financing structure, and that work remains ongoing. That said, we continue to make meaningful operational progress. In July, the U.S. Coast Guard issued a letter of recommendation on the waterway suitability assessment covering our facility and its associated barge transit routes. This is a meaningful regulatory milestone that validates the safety and navigability of our proposed operations and strengthens our standing as the preferred LNG bunkering option in the Port of Galveston along the Gulf Coast. In parallel, we continue to engage prospective customers and financing partners as we work toward a final investment decision. Marine bunkering remains an important part of our long-term story, particularly for servicing durable multiyear marine demand in the Port of Galveston and the broader Gulf Coast. At the same time, it is only one part of our much larger growth story, and I would not want its time line to overshadow the momentum building elsewhere. Our existing platform is already delivering meaningful organic growth across power generation for data centers, aerospace and other industrial business, and that is where the bulk of our near-term value creation is coming from. In summary, we view 2026 as a pivotal year, one in which the business troughed early, recovers through the second half and sets the stage for what we expect to be a record 2027. We are staying disciplined with our capital, focused on execution and squarely committed to converting today's demand into durable profitable growth for our shareholders. We look forward to keeping you updated in the quarters ahead. With that, I'll turn the call over to Andy for a detailed review of our financial performance.

Thank you, Casey. I'll begin with a discussion of our second quarter performance, followed by an update on our balance sheet, cash flow, liquidity and capital spending. Second quarter revenue was $11.9 million, a decrease of approximately 31% compared to the second quarter of 2025. As we mentioned in last quarter's call, the year-over-year decline was driven primarily by the completion of large marine and power generation contracts in the fourth quarter of 2025. This was partially offset by continued growth in our aerospace market, where revenue increased 71% compared to the second quarter of 2025, along with continued growth in our other industrial revenues. Adjusted EBITDA was $0.1 million in the second quarter compared to $1.5 million in the prior year period. I would also note that our adjusted EBITDA for the second quarter excludes approximately $2.9 million of vessel charter costs incurred during the period. These costs relate to the lease of an LNG bunkering vessel that we entered into in the fourth quarter of 2025 in anticipation of supporting the logistics requirements of a marine bunkering customer. This charter was terminated late in the second quarter, and we have excluded these costs from adjusted EBITDA as an extraordinary item as this cost is not reflective of the earnings of the underlying go-forward business. With the charter now terminated, we do not expect any further P&L impact from this vessel beyond what we've reported in the second quarter. Turning to cash flow and liquidity. Cash flow from operations was $7.1 million for the quarter. This included $5 million of advanced payments for our behind-the-meter data center contract scheduled to begin in Q1 of '27. These payments are restricted to support equipment purchases and other preparations for that project. At quarter end, total liquidity was $18.9 million, including unrestricted cash of $4.5 million and $5 million of borrowing capacity under our revolving credit agreement. Capital expenditures totaled $2.3 million during the quarter. These expenditures were primarily related to equipment and infrastructure purchases associated with the upcoming data center contract as well as engineering and design work for the proposed Galveston LNG facility. Looking ahead, we expect to continue investing capital to secure equipment and guaranteed supply for our data center projects. We expect these investments to be funded through the advanced payments received from customers. Before we close, let me offer some context on the earnings profile that accompanies the 2027 revenue picture Casey described. We're not providing 2027 guidance today as you think about the business at that scale. First, our corporate infrastructure and fixed cost base are largely in place, and we do not expect them to grow proportionately with revenue as these contracts come online. Second, our asset-light approach allows us to serve this growth largely with third-party LNG, which limits the incremental capital required to support it. The third, our contracts are designed to pass through commodity price risk. Taken together, we would expect a materially larger revenue base in 2027 to translate into meaningful growth in adjusted EBITDA dollars and expansion in our adjusted EBITDA margin to the high teens as project execution accelerates. That concludes our prepared remarks. Operator, please open the line for the Q&A session.

[Operator Instructions] Our first question is from Martin Malloy, Johnson Rice.

Congratulations on another data center contract. My first question, I wanted to ask about the data center contracts. Could you maybe talk about the revenue and profitability profile and any differences between the contracts for different phases with the data center, whether it be commissioning, bridge and then backup? And I guess, specifically on backup, how would a potential backup contract be structured? Would it be a reoccurring type revenue stream for making equipment and capacity available? Or any commentary you have there would be helpful.

Yes. Well, Marty, thank you for joining today. Thank you for your call and your question. Let me start with the kind of way we view the data center projects. We really see it as a construction as being one type of revenue profile, commissioning, bridge and then the last would be that long-term backup that you asked details on. Right now that we mentioned commissioning and bridge, we also have booked a construction project during the first part of Q3. And each of those three that we're actively working on, again, construction, commissioning or bridge have much different revenue profiles and duration of term associated with them. The construction projects often can be 24 months in duration. They are much lower in total and use a similar equipment that we would use on smaller behind-the-meter power applications. Commissioning is normally 50 to 75 megawatts. Power is normally a six-month kind of phase where they're commissioning the operations before they either get their pipe connection or their grid connection. So normally six months, but they may have different blocks after that they need commissioning on. And then Bridge power is really when they want to be first mover and in a market and could be anywhere from a year to four years or five years, depending on what they're connecting are. The Bridge Power project we're working on is a two-year committed project. Long-term backup is where they would provide equipment and infrastructure and a supply contract to provide like almost like a peaker plant where you would provide LNG on site, if there was issues related to the pipeline outages or connection to the grid outages, it would turn on just like your diesel backup or something like that would be in a different application. So we do not have a long-term backup contract to date. We are having discussions around how to do that and how to work on that with different operators, but we do not have one yet to explain the exact economics of how that would work. The other three, we are active on.

Great. And for a follow-up question, I just wanted to ask about the aerospace. Obviously, very strong growth there. and great to hear you're going to get a fourth customer. We haven't really seen any longer-term contracts in that area. Could you maybe talk about the opportunities, if there are any, to perhaps go after or sign some longer-term contracts with the activity picking up like it is?

Yes, it's a great question, and we're really excited about this end market. One of our larger customers kind of has a long-term strategy where they like to do all things themselves. They've stated that. But the need and the demand is just a lot and the duration to have their own capacity is years out. So we're really excited about all the clients, all the different rocket customers are at different stages of development. So some are much further behind the leader, but all of them are making great progress and all of them intend to use LNG. So it's a great kind of end market that we feel like we're a leader in. And we're hopeful over the next year or so to get some more duration term and visibility. We've been working on it consistently trying to get it, trying to do fit-for-purpose facilities and infrastructure. We've been not able to get that yet, but have really close relationships with the clients and have visibility for the next 18 months of demand, but don't have a whole lot beyond kind of 18 months.

Marty, this is Andy. Let me just add a little bit to what Casey said. I mean we have long-term relationships with multiple rocket launch companies, as we mentioned. There has been a tendency for them not to commit to long-term fixed volumes historically, and that's probably had a lot to do with the fact that there has been ample supply in the small-scale domestic LNG market. But as these data centers come online and that existing supply tightens, we may be able to see some change in some of the behavior there to where they're willing to lock up some longer term -- make some longer-term commitments to guarantee that they actually have access to that supply.

Yes. And just to further add to that, not only has it been easy for them -- for us to provide it, they've had inconsistent cadence in launches. There's a lot of engineering happening. If you're watching the space -- sorry, the market around the space launch business, you have a lot of R&D still happening. So you don't have a consistent launch cadence by any of the space operators fully yet on the big LNG methane using rockets. That is improving each month. And so we think over time, they'll be able to know what their launch cadence is going to be and want to be more thoughtful about how to lock in supply.

[Operator Instructions] Our next question comes from Matt Dhane, Tieton Capital.

I did want to ask the six-month LNG commissioning agreement for the data center customer that's beginning here. Has that already begun here in the third quarter? Or would you expect it to begin -- when would you expect that to begin?

Yes. So we've executed the contract, as we discussed, and the equipment is being readied and being deployed like right now with anticipated liquids being delivered, I believe, next month. So this month, August. So it's happening right now.