Excelerate Energy, Inc. (NYSE:EE) Q4 2023 Earnings Call Transcript

Excelerate Energy, Inc. (NYSE:EE) Q4 2023 Earnings Call Transcript February 29, 2024

Excelerate Energy, Inc.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, everyone. My name is Drew, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Excelerate Energy Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Craig Hicks, Vice President, Investor Relations. You may begin your conference.

Craig Hicks: Good morning, everyone. Thank you for joining Excelerate Energy’s fourth quarter and full year 2023 earnings call. Participating on the call today are Steven Kobos, President and Chief Executive Officer; and Dana Armstrong, Executive Vice President and Chief Financial Officer. Also joining the call today is Oliver Simpson, Executive Vice President and Chief Commercial Officer. Our fourth quarter and full year 2023 earnings results press release and presentation were released yesterday afternoon and can be found on our website at ir.excelerateenergy.com. I would like to remind everyone that we will be making forward-looking statements on this call that involve a number of risks and uncertainties. Our actual results may differ materially from those expressed in these forward-looking statements, and we make no obligation to update or revise them.

Today’s remarks will also refer to certain non-GAAP financial measures. We have provided a reconciliation to the most directly comparable GAAP financial measures at the back of the presentation. With that, it is my pleasure to pass the call over to Steven Kobos.

Steven Kobos: Thanks, Craig. Hi, and thank you all for joining us on this call this morning. I look forward to our time together. In recent months, I’ve had conversations with many of you on this call, our analysts, our investors, people around the world who believe in Excelerate’s unique potential, as well as some folks who are just new to the Excelerate story. I’d say there’s a common thread in what we’ve heard from those discussions. That is, there’s some questions about our plans to deploy capital to promote growth. The steps we intend to take to drive near term value creation. And I’d say, most importantly, the alignment of our capital allocation plans with our business strategy. I’d like to take our time this morning to address with all of you those questions and provide additional insight into our near-term strategy.

Look, the most important thing you’ll hear me say today is that in ’24, Excelerate Energy is moving from strategy to action. Let’s get started by talking about who we are as a company and how we plan to grow the business through our corporate strategy. I need to emphasize three things. The strength of our FSRU and Terminals business, our expected near-term growth catalysts and finally, our capital allocation strategy. Excelerate Energy is committed to providing cleaner, more affordable and more reliable energy by delivering LNG and natural gas to hundreds of millions of people around the world. It’s not an exaggeration, it’s who is out there depending upon Excelerate Energy for energy security or simply helping them maintain their quality of life.

How do we do that? Well, we do it as a leading provider of flexible LNG infrastructure and integrated solutions. We are a trusted partner for sovereign governments and major LNG producers around the world. LNG comes up in discussions on two main subjects by providing energy security in the face of disorder around the world and is a critical tool in decarbonization. It’s more than two years since the start of the war in Ukraine and it seems like we have faced an inlet series of geopolitical crisis since then. The need for energy security in a world of increasing or persistent disorder has never been more clear. Excelerate’s infrastructure and the essential services we provide have likewise never been more valuable. We expect this to continue for decades to come and for Excelerate to remain a critical provider of energy security and an ally for decarbonization.

We’re going to continue this legacy of strengthening energy security for customers across our global footprint. As we turn to ’24, our focus as an organization is on optimizing our business to provide superior returns to our shareholders. This includes taking several strategic actions to drive near-term value creation. I would summarize our near-term strategy and divide it into three pillars. The first pillar is investing in our core business portfolio of FSRUs and terminals. These generate recurring positive cash flows and they provide financial flexibility for Excelerate to execute our growth plans. We believe investing in our existing asset portfolio will help ensure that our core business continues to operate at high levels of reliability and contributes to earnings.

The second is comprised of executing on near-term growth catalysts. These near-term growth catalysts include investments in downstream natural gas infrastructure, execution of long-term LNG sales and purchase agreements and evaluation of potential equity investments in the LNG import terminals. The third pillar is maximizing value for shareholders through our capital allocation strategy. We are implementing a $50 million share repurchase program commencing this quarter and we will continue to return capital to shareholders through our regular quarterly dividend. We are committed to all of you to being transparent and will continue to communicate our capital allocation strategy clearly and regularly in the future. I’d like to take a few minutes to highlight some of the strengths of our core business.

The cornerstone of our business model is our core regasification, FSRU and terminal services business. This generates consistently positive cash flow and affords us financial flexibility. As of January 1 of this year, our existing FSRU fleet is fully contracted and it’s poised to deliver $315 million to $335 million of adjusted EBITDA in ’24. Revenue from this business grew approximately 14% year-over-year in ’23 as compared to ’22. Our FSRU contract portfolio of over $4.2 billion of future contracted cash flows has a weighted average remaining term of seven years. We strengthened this portfolio in ’23 by adding more than 15 years of contract length. And over the last two years, 40% of our FSRU fleet has been recontracted at higher day rates, reflective of the increased market value of the asset class.

We also plan to grow our fleet through an asset growth plan that includes selective acquisitions and construction of new vessels. Our state-of-the-art new build FSRU with Hyundai Heavy Industries is advancing according to schedule and we look forward to welcoming the vessel to our fleet in June of ’26. I’d like to touch on the safety of our operations, which includes over 700 highly skilled seafarers operating our offshore assets. They are of utmost importance to us. In ’23, we achieved a company safety milestone, which I’ve got to highlight. We had zero injuries that resulted in lost time away from work. We remain dedicated to fostering a robust safety culture and we take pride in the steps we have taken to strengthen our core business in this area.

In short, we’ve got a great base business. With that said, we believe that our current market valuation does not reflect the fundamental earnings power of the company. Excelerate shares are trading at a price that is substantially below the company’s value. We absolutely believe that our shares should be value at a much higher level, given the fair market value of our assets. We’re somewhere in the neighborhood of 47% below the fair market appraised value of our fleet. The high quality of our long-term fixed fee FSRU contracts and our near-term capacity for growth. Right now, we’re trading below our book value of $16.71, this makes no sense. This is why we believe that implementing a share repurchase program at this time is the right thing to do.

The $50 million share repurchase program will commence this quarter and has been approved for a two-year tenure. Now let’s turn to our near-term growth catalyst. As we mentioned in our third quarter call, the sustained tightness of the FSRU market is going to create further opportunities for Excelerate to connect LNG downstream customers. And look, we are well positioned to take advantage of this market tightness. To optimize our market position, we’ve defined a comprehensive organic and inorganic growth roadmap with three key priority areas along the value chain on which we’re focusing. First area of focus involves evaluating and acquiring equity ownership in LNG regasification terminals that are either existing or under construction. We are now in discussions with several potential partners worldwide that meet Excelerate’s requirements with value creation, as well as compliance and we are driving to close deals that have the potential to add accretive returns as early as ’25 for these transactions.

Our second catalyst for growth is the execution of long-term sale and purchase agreements or SPAs. We’re establishing a diversified LNG portfolio to support our long-term SPAs. These contracts provide us with take-or-pay economic uplift, which will enhance returns on our infrastructure. And our third area for growth is focused on strategic investment downstream of natural gas infrastructure. We expect these investments to allow us to secure value-accretive offtake contracts for terminal positions while enhancing the overall value of our LNG supply and infrastructure offerings. Beyond the committed growth CapEx that we’ve disclosed as part of our ’24 guidance, we have an actionable path to deploy significant growth capital through ’26 in support of our growth program.

We’ve shared with you before that securing long-term SPAs with our counter parties is an important part of our strategy. To support this goal, we’ve established a diversified LNG supply portfolio, including long-term supply agreements to support our growth strategy. Over the last year, I want to highlight that we executed three notable SPAs. In February of last year, we signed a 20-year SPA to purchase 0.7 million tons per annum of LNG from Venture Global beginning in ’27. This is going to meet the demand of our customers that have an appetite for Henry Hub volumes. In November, we signed a 15-year SPA to deliver up to a 1 million tons per annum of LNG to Petrobangla beginning in early ’26. These volumes are going to flow through our existing FSRUs in Bangladesh.

And in January of this year, we signed a 15-year SPA to purchase up to 1 million tons of LNG per annum from QatarEnergy to be delivered on an ex-ship basis in Bangladesh beginning in early ’26. I want to emphasize that the execution of the Petrobangla and QatarEnergy SPAs is value accretive to Excelerate. It highlights our ability to secure critical and affordable LNG volumes for our customers and we do this while enhancing returns on our existing infrastructure. With the Petrobangla and QatarEnergy SPAs now in place, we’ve locked in $15 million to $18 million of guaranteed adjusted EBITDA uplift for 15 years beginning in January of ’26. We cannot express enough the significance of having QatarEnergy as a strategic partner. It speaks volumes about how our peers in the industry view Excelerate and we look forward to unlocking further demand in the markets where we operate.

I’ll just quickly recap what we’ve talked about this morning. Excelerate is well positioned to deliver solid future earnings and cash flow growth. We have a healthy balance sheet and a capital allocation strategy focused on investing in growth while returning capital to shareholders through our recently approved share repurchase program and quarterly dividend payments. With that, I’d like to turn the call over to Dana to walk through our full year and fourth quarter ’23 results and our outlook for ’24.

Dana Armstrong: Thanks, Steven, and good morning. We are pleased with Excelerate’s stellar financial performance for 2023. For the full year 2023, our net income was $127 million, which is an increase of $47 million or up 59% as compared to the prior year. Adjusted EBITDA for 2023 was $347 million, in line with the high end of our guidance range and up $50 million versus last year, an increase of 17%. Our year-over-year results were primarily driven by new charters in Finland and Germany, higher rates on charters in Brazil, Argentina and the UAE, higher direct margin on gas sales and lower operating lease expense due to the acquisition of the FSRU Sequoia early last year, partially offset by dry dock expenses for the FSRU excellence in the fourth quarter.

For the fourth quarter of 2023, we delivered $20 million of net income and $71 million of adjusted EBITDA. Net income and adjusted EBITDA decreased sequentially from last quarter, primarily due to dry-docking expense related to the FSRU excellence, spot LNG cargo sales during the third quarter that did not reoccur in the fourth quarter and planned vessel repair and maintenance activities in the fourth quarter. As of year-end 2023, our total debt, including finance leases was $768 million and we have $556 million in cash and cash equivalents on hand, $49 million of letters of credit issued and no outstanding borrowings under our revolver. As part of our capital allocation strategy, we intend to use our balance sheet when appropriate to pay down debt.

During the fourth quarter, the company paid down $68 million of debt, including a $55 million discretionary repayment of debt on its term loan. After this debt repayment for year-end 2023, we had roughly $212 million of net debt. Also, as of year-end, we had roughly $300 million of available borrowing capacity on our revolving credit facility. With our healthy balance sheet and the liquidity provided by our revolving credit facility, we are confident in our ability to fund our growth plans and strategic objectives in the near term. Now let’s turn to our financial guidance for this year. In 2024, we expect to see continued strong performance of our existing FSRU and terminal services contracts in Europe, the Middle East, South America and Asia Pacific.

For the full year, we expect adjusted EBITDA to range between $315 million and $335 million. As Steven mentioned, the fixed fee revenues from our FSRUs and terminals create an exceptional foundation for sustainable growth. As part of our financial plan this year, we expect to see an increase in business development expense as compared to last year as we advance on our commercial growth opportunities that Steven referenced earlier. These business development costs, which are estimated about $20 million are included in our guidance range and will be reported within our selling, general and administrative expenses in our income statement. Also included in our full year adjusted EBITDA guidance is the impact of a planned first quarter dry dock for the FSRU summit LNG.

This vessel is our second FSRU that is under a Build-Own-Operate-Transfer or BOOT structure and provide services in Bangladesh. Because this FSRU is under a BOOT structure, the related expenses will not be classified as maintenance CapEx, but instead, the financial impact of the dry dock will be recognized on our income statement in the first quarter of 2024. This is consistent with the impact of the dry dock for the FSRU excellence, which underwent dry dock services in the fourth quarter of 2023. These are the only two vessels in our fleet that are under a BOOT structure, thus all our other vessel drydock costs are capitalized as maintenance CapEx. Maintaining a solid presence for our FSRU fleet will require that our teams continue to place a high priority on operational excellence and safety.

This year, we will increase our maintenance CapEx spend to enhance the performance of our fleet. For the full year, we expect maintenance CapEx to range between $50 million and $60 million. The maintenance CapEx spend anticipated for 2024 will ensure our ability to operate our fleet, with the consistently high levels of reliability that our customers expect. As part of our efforts to increase the transparency and disclosure around our business, we are providing additional guidance on committed growth CapEx, which is defined as capital allocated and committed to specific investments currently in execution for previously approved capital projects. For the full year, committed growth CapEx is expected to range between $70 million to $80 million.

Most of this committed growth CapEx is related to milestone payments on our new build FSRU, which will be delivered in June 2026. We will continue to provide update through our committed growth capital estimates as contracts are executed with counter parties that drive incremental capital needs for 2024. Now let me provide an overview of our share repurchase program. The Board of Directors has authorized a share repurchase program under which the company may repurchase up to $50 million of outstanding Class A common stock through February 2026. This share repurchase program underscores the strength of our business and our ability to enhance shareholder returns while preserving financial flexibility on our balance sheet to support our strategic growth initiatives.

In closing, in 2024 and beyond, our highly contracted business model will continue to be underpinned by our long-term take-or-pay cash flows from our core FSRU and terminal services business. We remain well positioned financially to optimize our core regasification business and to execute on our focused growth strategy. We look forward to advancing our plans to create meaningful value for our shareholders. With that, we’ll open up the call for Q&A.

See also 14 Best Real Estate and Realty Stocks To Buy According to Analysts and 20 Largest Banks in The World by Market Cap.

Q&A Session

Operator: [Operator Instructions] Our first question today comes from Chris Robertson from Deutsche Bank. Your line is now open. Please go ahead.

Unidentified Analyst: Hi, good morning. Thanks for taking our question. This is [Ben Moore] on for Chris Robertson here at Deutsche Bank. On capital returns, can you please discuss why the company decided to institute your share repurchase program as opposed to just having more cash available as dry powder to pursue growth opportunities? Will this hurt the free float?

Steven Kobos: Ben, thanks for joining us. Appreciate that. You touched on a couple of good points. First thing, quite the share repo now. I think I touched on it in the remarks, it’s really driven by the share price, it’s a great investment. We think it’s a great opportunity. And no, we think we’re sitting in such a good position in terms of do we have sufficient dry powder to after the targets in front of us? We absolutely do. If we thought we were endangering that in any way, we would not have done this, but we think we can do both and we think this is the most prudent way to return capital to shareholders right now because of the share price. Moving forward, obviously, we continue to look and evaluate our dividend. But first and foremost in our mind is the ability to pursue growth. And does that answer your question?

Unidentified Analyst: Great. Thanks. Yes, it does. Maybe as a follow-up, looking at the current LNG and downstream power landscape. Where do you think the global market is in terms of short-term versus longer-term infrastructure investment opportunity contracting?

Steven Kobos: I mean, obviously, we’re quite bullish long stream, long term into downstream opportunities. In terms of power, we are interested in our assets, I mean it’s early days for us there. I think I pointed out some of the areas that we’re focused on in the near term. The near-term targets, it’s a mix of LNG import terminals either existing or under developments and downstream natural gas infrastructure and also vessels, of course. So, I think probably within your question is also where we think folks are going in terms of purchasing LNG. And you can tell, we think on that, that there is continued and increasing demand for long-term folks moving for the affordability and predictability of long-term LNG, which matches nicely with their need for the downstream infrastructure. So we think the purchasing pattern in the global South and in elsewhere shows the continued viability of this downstream asset class.

Unidentified Analyst: Okay. Great. Thanks. I’ll hop out and maybe come back for additional questions if there is room. Thank you.

Operator: Our next question comes from Bobby Brooks from Northland Capital Markets. Your line is now open. Please go ahead.

Bobby Brooks: Hi, good morning, guys. Thank you for taking my question. So the QatarEnergy and Petrobangla deals were a great example of how you guys can uplift your EBITDA through existing assets. But I also understand the dynamic that you’re going to procure LNG in the manner the customers want and that’s not always necessarily through long-term contracts. So my question is, if your current customer base, how many of them do you feel would be interested in similar deals to the QatarEnergy or I should more so say that Petrobangla deal that you guys did? And then maybe if you could size how much demand in terms of – maybe in terms of MPTA, those customers would be looking to secure like I would assume the amount, say, Bangladesh once would vary from what Finland might want.

Steven Kobos: I think just based upon those relative populations, you’re absolutely right, Bobby. I’ll probably hand this over to my colleague, Oliver Simpson. I will say, first and foremost, though, the thing that’s a great proof point about Bangladesh is, that’s just an infrastructure contract we have. And even though we only have an infrastructure in Bangladesh, it didn’t stop us from being engaged with the customer, figuring out what their need was, their need was to rapidly increase the amount of long-term priced – favorably priced LNG that they needed. We made an upgrade, enhanced the send-out capacity of our existing infrastructure. And as a consequence, we were able to secure that. So I think I would say just looking at all the markets, I’ll start first with our existing markets.

We’re always going to be engaged and seeing what the customer needs. In past, we’ve talked about how some markets are far more variable in their needs. Some are seasonal, but we’re always going to be a team to what they need. But Oliver, you want to speak to how we see the markets. I just focused on a particular market outside of rest of the world.

Oliver Simpson: Sure. Thanks. Thanks, Steven. Thanks, Bobby. Yes, I think, first, just on the QatarEnergy, Petrobangla, I mean we’re extremely proud of that relationship, as Steven mentioned. I think today, Qatar, maybe 10% of its annual production is regasified through accelerated FSRUs globally. So I think this new relationship with them showcases our ability to deliver these incremental returns on our infrastructure, but also our ability to work with these top producers. I mean I think if you look at those volumes, the 1 million tons is about 20% of the regas capacity of an FSRU in Bangladesh. So we’re talking 10% to 15% of Bangladesh’s demand. So I think that shows when we take that to other markets, 1 million tons is a very modest amount in any of the markets that we work.

So I think we’ll keep looking for opportunities of those size in some of the new markets. But as Steven mentioned, different markets will have different needs and we’re focused on delivering to the customers what they want in terms of LNG supply to meet their needs and ensure they have the right products.

Bobby Brooks: Got it. Thank you. And then – so I understand that on the inorganic M&A opportunities, it’s – you guys – you can’t really frame that until the deal is signed, but I think it might be beneficial to talk about some key lessons learned in 2023 in pursuit of that inorganic M&A. And maybe more specifically, could you give any examples of M&A opportunities you ultimately passed on and what drove that decision to step away from it?