Stabilis Solutions, Inc. ($SLNG)

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

Good morning, and welcome to Stabilis Solutions' First 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 first 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, May 7, 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 first quarter results reflect the expected transition following the completion of 2 large multiyear contracts at the end of 2025 that were in our marine and behind-the-meter power generation markets. As anticipated, that created a near-term revenue and earnings headwind in the quarter. At the same time, we continue to see strong demand in the quarter for aerospace and emerging power generation opportunities for additional data center work. While our financial results were soft during the transition period, our commercial activity remains very encouraging. Demand for small-scale LNG and integrated last-mile delivery solutions continue to grow, and our commercial teams are actively engaged with both existing and prospective customers across multiple end markets. Importantly, the contracts already awarded to us, combined with our active pipeline of opportunities, provide us with increasing visibility into improved performance as we move through the balance of 2026. Based on expected contract startups later this year and advanced commercial discussions underway, we expect results to improve meaningfully in the second half of 2026, even before the expected 2027 startup of the large data center contract we announced earlier this year. As a reminder, the data center award is an estimated $200 million minimum 2-year contract to support behind-the-meter power generation for a U.S. data center. While delivery is expected to begin in the first quarter of 2027 and continue through the first quarter of 2029, we view this award as a strong validation of Stabilis' platform and a meaningful step forward in our participation in the rapidly growing distributed power market. The accelerating demand for behind-the-meter power, bridge power, commissioning support, and durable energy infrastructure is creating a clear need for flexible, reliable LNG solutions. This is where Stabilis is especially well positioned. Our value proposition is not simply LNG supply, it is the ability to deliver a complete solution, including sourcing, logistics, storage, regasification, and last-mile reliability in environments where customers need dependable energy infrastructure quickly. A key advantage of our model is that we are not limited solely by capacity of our own liquefaction facilities. Our multisource LNG supply model allows us to serve customers across regions of the United States by combining our own production assets with third-party supply arrangements, logistics capabilities, and mobile infrastructure. This scalability is critical as we pursue larger opportunities in data center, aerospace, marine markets, and industrial applications. Within the aerospace market, demand remains strong. Activity among commercial space customers continues to grow, and we are seeing increased engagement with current customers as launch activity and LNG requirements expand. We continue to believe aerospace represents a long-term growth opportunity for Stabilis, supported by our ability to provide high-purity LNG, reliable delivery, and fit-for-purpose solutions for customers with demanding technical requirements. Turning to our Galveston LNG project. As we announced last month, we elected to terminate an offtake agreement for our proposed Galveston LNG facility. During negotiations with prospective financing partners, we were asked to amend the offtake agreement to facilitate the financing. The customer did not agree to the requested modification, and we elected to terminate the agreement. While this development has delayed the project time line, I want to be clear that we remain committed to pursuing the Galveston LNG project. We are in active discussions with other potential customers to sell the available capacity. We also continue to engage with financial partners who have expressed support for the project. Galveston LNG remains an important component of our long-term value creation strategy, particularly as we look to serve durable multiyear demand in the Port of Galveston and the broader Gulf Coast marine market. At the same time, it's important to emphasize that Galveston project is only one part of our growth strategy. We continue to see significant organic growth opportunities across our existing platform, including distributed power for data centers, fuel for aerospace, and LNG for industrial applications. As we look ahead, we believe the first half of 2026 represents a temporary lull for the business as we move through this transition period and prepare for the ramp-up of new contracts and opportunities beginning in the second half of 2026. The demand environment remains strong, our customer engagement is active, and our awarded contracts provide a foundation for a recovery in the second half of 2026 and substantial growth in 2027. In summary, we remain focused on converting current and future demand into sustainable, profitable growth while maintaining financial discipline and creating long-term value for our shareholders. We believe Stabilis is well positioned across multiple high-growth end markets, and we look forward to updating you on our progress 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 first quarter performance, followed by an update on our balance sheet, cash flow, liquidity, and capital spending. First quarter revenue was $10.4 million, a decrease of approximately 40% compared to the first quarter of 2025. The year-over-year decline was driven primarily by a 41% decrease in LNG gallons sold and lower rental and service revenue, partially offset by a slight increase in the underlying commodity price. At an end market level, there were no revenues from marine customers during the quarter, and revenues from behind-the-meter power generation were not material due to the completion of the large multiyear contracts late last year. This was partially offset by continued growth in our aerospace and other legacy markets where revenues increased 31% and 26%, respectively, compared to the first quarter of 2025. Adjusted EBITDA was negative $0.7 million in the first quarter, compared to a positive $2.1 million in the prior year period. The decrease was primarily attributable to the completion of the 2 large multiyear contracts in our marine and power generation end markets. I would also note that our adjusted EBITDA for the first quarter excludes approximately $1.5 million of vessel charter costs incurred during the period. These costs relate to the lease of a non-Jones Act vessel that we entered into in the fourth quarter of 2025 in anticipation of supporting the logistics requirements of our previously completed marine bunkering contract. We're currently working to fully subcharter this vessel. In the interim, we are leasing it back to the lessor at a reduced cost. Until a subcharter agreement is finalized, which we expect during the second quarter, our cost of revenue will continue to reflect these lease expenses, which we expect to exclude from adjusted EBITDA as an extraordinary item. Turning to cash flow and liquidity. Cash flow from operations was $12.4 million for the quarter. This included $15 million of advance payments from a customer associated with our behind-the-meter data center contract scheduled to begin in Q1 of 2027. These payments are restricted to support equipment purchases and other preparations for that project. Quarter end's total liquidity was $17.2 million, consisting of total cash of $13.7 million, of which $10.6 million is restricted and $3.5 million of availability under our credit agreements. Capital expenditures totaled $5.3 million during the quarter. These expenditures were primarily related to equipment purchases associated with our upcoming large data center project. Looking ahead, we expect to invest an additional $10 million to $12 million in capital for equipment and securing guaranteed supply for this project. We expect these investments to be funded through the advance payments received during the first quarter, as well as additional advance payments we expect to receive over the course of the year. That concludes our prepared remarks. Operator, please open the line for the Q&A session.

[Operator Instructions] We'll take our first question from Martin Malloy with Johnson Rice.

The first question I had, I just wanted to talk a little bit about the contracts that you're finalizing here, and that could start up in 2Q, but it sounds like they'll definitely impact second half of this year for behind-the-meter power. Could you maybe talk about the size of those contracts? Will those make up for the 2 contracts that were canceled in the fourth quarter last year? And also, with the behind-the-meter power, is this going to be a bridge-type arrangement until a pipeline is hooked up to these facilities? And then is there the opportunity for backup-related contracts later on, backup power?

Marty, good morning and thank you for joining today. And let me try to take on, I think, really 2 questions. I mean, one -- the first being what type of contract is that on the distributed power. And we really talk about that being either commissioning power, bridge power, or more permanent backup related to behind-the-meter applications and distributed power. This is more of a commissioning project, which is normally a 6 to 12 month that we anticipate starting up at the end of the second quarter of this year and running through the end of the year. And we do anticipate with the work we have commitments around being able to replace the contracts that were ended at the end of last year during the back half of the year. So without giving too much forward statements, we anticipate being able to replace that on the P&L. And that's before we get into the contracted demand starting in Q1 of next year, which is meaningful in size as well.

And then just on the Galveston LNG project, it sounds like there's -- you're active with discussions with offtakers to replace the canceled contract. In terms of the opportunity there, is there the possibility that, that previous offtaker would return to sign up for offtake? And also, are you satisfied with the provisions of the other offtake agreement contracts you have that they won't need to be modified for project financing purposes?

That's a great question. I think I'll take the last one first. And so yes, the current offtake agreement we have works well with the project construction time line, et cetera, and doesn't create risk on when construction would finish and when startup would happen. So that contract is in a good position. And going back to the first question, we highly anticipate this customer that we were required to cancel that contract with to come back and do business with us in Galveston once we get further down the road or complete the plant, whether or not they'll be part of the offtake that helps create the financing or they become a spot market client post construction is complete, we don't know yet, but we're actively working with that client. And time lines and with the Iran war and different things happening, just delays and some of the issues around dates and how that would affect financing just created us a need to exit that contract.

Our next question comes from Bill Dezellem with Tieton Capital.

I actually would like to talk a little bit more about the new data center contract. So if we understood correctly, you said that was a commissioning contract. So that will begin in Q2, basically last through to Q4. Did we hear all of that correctly? And if so, was this a contract that you went direct to the data center? Or did you have an intermediary that you -- that basically is taking care of all the power and they've hired you?

Yes. So this particular project you're asking about is more of a construction commissioning project. And on all of these projects, we work with both the end user and the power provider on both. And so we're normally engaged with both. And there's numerous ones of these projects that are active and engaging on these, I call it, construction commissioning. And those are normally the way we view it, a 6- to 12-month contract, depending on are you just going to commission Phase 1 or which systems are you going to work upon commissioning. But that's what this project is anticipated to be. Different than the one that's starting up in next year, which is more of a bridge power solution, longer in duration. And all of these have the minimum period of time with potential extensions related to what's happening on their time schedule, et cetera.

And is the monthly -- is the magnitude of this contract and that original commissioning, is the monthly revenue similar to what you will have for the monthly revenue from the bridge? Is it simply a shorter period of time because it's just part of the commissioning rather than the long-term bridge? Or is there a difference in the size of these 2 plants that makes the -- or data centers that makes this very different?

Yes. It's a little different. So I would say when you think about the bridge, it's defined on how many megawatts we're providing, and it's consistently provided in consistent load. The commissioning project that we're speaking about that's starting this quarter and going in the back half of this year is a smaller in total megawatt project, and it's lower in gallons related to that, but still meaningful in size. And again, I mean, what we wanted to present is expectation of the recovery, the trough in the first quarter and second quarter, and then how the recovery of the business goes into 2026. And that's really what we're trying to highlight for our shareholders and stakeholders.

That's appreciated, Casey. And let me take the comment that you made that there are many other contracts like this. We all hear of all the data centers ramping up. So there's lots of commissioning taking place. Talk to us about the pipeline of opportunities in the data center arena that you have because we're basically just over the last few months, you've announced 2...

Yes, Bill, let me see if I can give -- I mean, we're certainly super excited about it. So I don't want to like we're optimistic. The demand is -- the pipeline is pretty exciting. I think when you look back about 18 months, everybody was like, well, all the power is going to come in right on time or early, pipelines are going to get put in on time or early. And then what's happened is just natural delays and construction delays and different things have creeped into this giant infrastructure buildout that you all know about and that's all going on. And you think about how that rolls downhill, that first, the power generation and those type of backup power and solutions, and then now we're getting to how do you provide the natural gas needed to do either the commissioning, startup, or bridges. And so what we're really excited about is this commissioning activity because this is where we go in and support the data center commissioning their project, testing all their cooling and all their different things while they're waiting on either the final gas pipeline or the connection to the grid. And the perfect world is connection to the grid with cheap power that never stops. And then secondly, they're going behind the meter with pipeline. So both of those, Stabilis can participate in providing either commissioning or backup or bridge, and that's what we're working around. Obviously, right now, we're seeing more commissioning activity in the first quarter of this year. That's where the activity is at with our customers, with some people talking about the longer-term bridge. But the longer-term bridge is not the perfect solution for the client. So that's a much different cost structure, and they would prefer to get either connected to the grid or their gas pipeline put in. So commissioning is where we really, really provide a lot of value and speed up their to-market strategy. So lots of activity around that. I'd say lots of activity around the 6-month to 12-month type activity. A little bit less activity when we're talking about the longer-term big bridge projects, but we have a number of those we're working on.

Really appreciate that perspective, Casey. And essentially, we've come to this point because there's been all the delays. So essentially one way we could think about these commissioning opportunities is they may be ready to go live, they're done with their testing, and using this one contract as an example, in the fourth quarter. But if the grid or the pipeline is not ready, then your commissioning contract essentially converts to a bridge contract is how it likely would continue. Is that a fair way to think about this?

That's a good way to think about it. Or the other way to think about it is, let's say, their commissioning is in modular formats, and they may get power connected to one of the modular concepts, and then you would move into the next phase of commissioning, the next center nearby, because it's normally in groups or hubs. So that may be another way to think about it. But we don't think about it -- we're going to talk to you guys about what we know, but we don't expect it to be just a short-term situation where it's just temporary for just now. And then secondly, you're going to have outages and other backup needs to continue with the reliability that they're committing to, and that will provide additional work for LNG long beyond the construction phase and bridge phase.

For those of us who have never brought a data center online, thank you for that additional perspective. It is helpful.

Yes. So just think about them as like modular. They're done in 80 megawatt, 50 megawatt, 100 megawatt building modular, and then they've just got them stacked up around each other. And so we're providing work for units in the system.

And then one question relative to the subchartering of the vessel. What's the time line that you would anticipate that to happen?

Yes. Good question. Thank you for bringing it up. We wanted to take care of covering that. So again, we initially chartered that to support our client in Galveston. We ended up coming up for a number of different reasons with them going on a different solution. We anticipated a very quick subcharter capability with that vessel. That's all -- but the Iran war disrupted rechartering activity and put a delay on it. We anticipate it happening in this quarter. So we're working on numerous subcharter agreements right now, and we anticipate it happening in Q2 for effective date in Q3. And we don't expect the subcharter to be at a big profit. So we expect it to be net neutral is what we want to guide you all to.

[Operator Instructions] We'll go next to Spencer Lehman, a private investor.

Just a couple -- 2 questions, if I may. First, was this Strait of Hormuz situation and oil and LNG getting all backed up. There's a lot of talk about some of these countries coming into the Gulf of America and picking up their oil and LNG. Are you currently in a position to capitalize on that development?

Yes. Spencer, I appreciate the question. It's such a positive, leading question. Thank you for it. We have never seen the macro for our Galveston LNG bunkering to have reliable, consistent supply there for the marine bunkering activity, as being better than it is today. And though the war and the disruption or war or the conflict, or security conflict, whatever we're calling it, has caused some confusion and disruption on the timing of our subcharter of the vessel, and the potential short delays on what the construction would take and how that would work, the macro around it is amazingly strong. And so we're super -- it validates why we need more LNG fit-for-purpose bunkering capacity on the water in the Gulf Coast. And so it just validates what we're doing. And our customers know that. Our commercial team is working heavy and hard on it. I think duration of contract that we need, credit quality of contract, how that matches up with the project financing are the things we're working on right now. Validation that they need the project with the Jones Act vessel in the Houston Ship Channel is not of confusion. And I also think the conflict and the price of LNG also does a couple of different things. It furthers our fit-for-purpose supply that we're doing for aerospace and the value of what all these aerospace customers are doing with the technology of telecommunications and how important all that is in the global conflicts and everything, it just all plays together. And so this conflict further reinforces the need for our aerospace, U.S. presence to be successful. And then lastly, it further reiterates that the price of U.S. natural gas and LNG for behind-the-meter power for AI data center activity is advantaged versus global-priced data centers. So we have an advantage now. And now based on the price of oil globally and LNG globally on a TTF or JMK (sic) [ JKM ] basis, it further makes U.S. data centers more competitive when they're either on grid power, pipeline, or LNG. So it just reiterates the thesis of all 3 of our growth legs of the company. And obviously, we're not reporting a great quarter. I don't want to gloss over that. But if we look at the future of where Stabilis' three growth platforms are, the customers we have, and what we're doing, we're super excited about it and disappointed in our financial performance that we've presented just due to the expected trough that we hopefully communicated with the 2 contracts falling off, but are excited about the back half of the year and really excited about next year and excited about all 3 markets. We anticipate getting -- we are working very hard on our Galveston LNG bunkering project, but we're equally excited about the aerospace and the behind-the-meter work power.

That sort of segues into my second question to Andy. I think you're still in charge of IR. And with all that's happening now, and just coincidentally, by the way, the data center stuff was all over Fox Business this morning, and it's just such a hot item. And just wondering whether this is time when maybe we get on the radar a little bit with your story. Any plans for it? I mean, you've really become an AI company, and not that I want you to overhype it, but any plans for maybe getting the story out?

Well, we're starting this morning. I'll let Andy clean up the call. We're starting this morning by talking about what's contracted and what we're doing on the commissioning bridge and different versions of the behind-the-meter power story. But we've got really 3 growth stories. We've got the marine, which is really exciting. You've got the aerospace, and you've got this behind-the-meter. And we think it is important what you bring up is that it is 3 exciting growth platforms where we're delivering LNG and has advantaged U.S. LNG into the market. So I'll stop there and let Andy answer the question directly, Spencer. But we are communicating what we're doing, and we're hopeful that over time, as we see the growth that we're anticipating for next year already and we've announced, and then we see the marine project come online, which we anticipate to be able to get that to a point -- and again, that will take a while to get construction done, the barge built, but get it to an FID position, then we believe people will be able to do math around what that means and understand the value like we see the future value of our platform. But we can't force people to believe in it to the same level that we do. We can only communicate what we're up to. So I'll stop there. Andy, I'm sure, is working on the IR stuff.

Yes. Well, thanks for the question, Spencer. To add to what Casey said, philosophically, we believe that our #1 priority is to is to demonstrate this in the results of the business and grow the business, grow the top line, grow the profitability, and then the stock price starts to take care of itself. And so that's number one. And number two is we do intend to get out there and do more in terms of telling the story as we get more things -- more exciting things to start talking about. So I appreciate the comment, and we do think it's important both to deliver the results and also to make sure we're doing a good job of communicating it.

And just corporate governance, we file some stuff and have the company in a position to do things around that. So we're still doing all the normal work around that, Spencer.

We'll take our next question from Bill Dezellem from Tieton Capital.

I'd actually like to follow up on the data center commissioning. Is this the same data center as the one that you were doing the bridge with?

No. It's a completely different project, different region and different project.

And will this commissioning use George West's capacity or third parties?

We can always do both. So it's always the benefit of having your own supply for backup and reliability to make sure you can do it. This project is not anticipating using that offtake as the primary source, neither of these are. And a lot of our own offtake is being drawn into both industrial projects and aerospace. So I'd say that's how we think about the mix right now.

I think the great thing about both of these data center projects, Bill, is that they're not using George West molecules, so it doesn't absorb all our capacity. So really, it allows us to grow the top line and continue to grow the business without having to wait on internal production -- expansion of internal production capacity. So it's great for that reason as well.

And will the same third-party power provider, is it the same one that has contracted you for the commissioning as contracted you for the bridge power with the other data center?

We work with numerous power providers and numerous data centers, end-user owners. And so I think due to confidentiality and competitive information, we'd like to not share that level of detail.

I'll switch to an entirely different question. You've mentioned the aerospace and industrial activity and the strength there. With that in mind, what is your current guesstimate on when George West volumes will be completely used again?

We're going to have some room on George West. We're anticipating getting closer to not 100% utilization, but a consistent offtake that we were anticipating in the third and fourth quarter of this year, being back to those reasonable utilization numbers. We just were significantly off as those 2 projects ended. There were heavy offtakers of both of our production facilities. We're seeing a steady increase on those pull-throughs and that usage, and we expect that to happen in the third and fourth quarter of this year. Not fully utilized, but at a number that's seen in the past. We look at the revenue and earnings profile of the current operation, and that is pre the addition of the new contract for next year.

And that contract will or will not be using George West molecules?

Right now, it does not need to. It will be addition.

This concludes the Q&A portion of today's call. I would now like to turn the floor over to Andy Puhala for closing remarks.

Thank you, everyone, for joining the call today. We appreciate the interest in the company and the continued support, and we look forward to updating you on our developments as we have them and talking to you guys again next quarter. So thank you all very much.

Thank you. This concludes today's Stabilis Solutions First Quarter 2026 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.