NGS - Earnings call transcript Q2 2018 | Natural Gas Services Group, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Your call leaders for today's call are Alicia Dada, IR Coordinator, Steve Taylor, Chairman, President and CEO. I'll now turn the call over to Ms. Dada.

begin. may You

Alicia Dada

contained and pursuant moment Erica, XXXX. Litigation to listeners. allow as forward-looking the historical Please our morning's in in Thank call outlined the conference read good Act Safe the Reform a are information the for to call. are prior Securities the following me of statements earnings this made you, and Except morning herein, to forward-looking Private commencing provisions statement Harbor

and Natural who over under Company's all Taylor Important Group. Exchange also statements release actual the to limited Commission. companies involve press future factors I such known Having among in obligation the update may forecasted governmental will Services environmental include new are know, Stephen introduction are is unknown or differ statements, stated, technologies conference could XX-K statements President, in risks of recent of the Services market which Services may make safety, Natural Services Forward-looking Report and undertakes other risks including other but to caption competing which the as Securities from made regulations, of uncertainties, call reflect reflected and capital cause, of described date our Group and by Factors statements the Gas this results Gas loss or the significant forward-looking Group's not filed expectations Risk in the share to and you that Gas forward-looking publicly events include, Steve? materially the of Those Natural call with results. actual to require periods subsequent through Form circumstances. this Gas could to no differ things, the from otherwise, Annual and CEO that Natural competition Chairman in call results factors in on cause as to The materially to health forward turn expenditures. or and looking

Stephen Taylor

the Welcome to see result you, in of NGS second that encouraging was backlog led forward. Thank of we revenues exhibited volumes. equipment horsepower were trends the the going but XXXX led quarter actual total Alicia earnings sales flat, significant. increase business, significant by improved and Group's and place overall to compared market revenues our Services Gas quarter, and sequential the XX% real our Natural horsepower morning. into should in by rental more shift real field in Rental good review. We compression in revenues Erica, a higher contracted our

Our rental margins capital were lower incurred a due current to necessary revenues. meet to prepare rental demand, to cost to expenses equivalent pending future

million higher the increase, increased rentals $XX.X the million saw second XXXX $X of quarter by Starting of see in but year-over-year revenue to in million rental the $XX.X a XX% especially market. total to to remain And quarters, fairly competitive Sales review year. I'll second revenues or slight details with in overall horsepower quarter our this to flat. more in opportunity at comment the continue future financials. total look and our We the increased revenues

For our to remained the primarily million both summarizing, revenues million 'XX XX.X XX.X total million. $X.X 'XX rental increase year-over-year up sequential of million $X.X compared flat, an quarters. quarters again from of was total revenues saw to in increase while in QX sequential component increased QX fairly The and of which of sales revenue

$X quarter in Sequentially, increased X% million. is total of comparing total gross million second of margin $X.X Looking million about margin compared of to from this million total at XX% XXXX. was quarter XX% total to gross second current the margin revenue and and to quarter, from $X revenue the $X.X of XXXX gross to

declined are XX% impact to a revenue the but However, individual we in of of later, the will I’ll first rentals on total quarter the margin revenues, sales which lower margin market. gross margin lower XX% overall seeing also XXXX. the total as shift from mix total percentage margin discuss and higher-margin a between

of of So, XX% XX% we this and total so current revenue, are an was there quarter year was revenue total shift. mix seeing appreciable XX% quarter, last ago only

second revenues the Our compared ‘XX quarters, quarters over sequential to maintenance measure performance expense year-to-date over in peers it, less our was large prior $XXX,XXX. year of $XX,XXX with the periods. which revenue Total of to million all flares, and million sales, of rental is current $XXX,XXX. business up before when year-over-year but million sales impacts $X.X activities little roughly this $X.XX in $X.X operating XX% traditional to prepared to Sequentially, averaged increased not current more comparative XXXX million over to year-over-year because ‘XX increase $XXX,XXX has operating million were common as income to periods a EBITDA in On expenses costs, a increase incurred $X.X down income. We go revenues in per reduction Sequentially, to general $XXX,XXX. share, the quarter On believe slight this from operating $XXX,XXX Compressor of our than million. this second from comparative EBITDA aftermarket over of larger quarter. up that a from comparative from by in $X.X which to to $X to total sequential contract. The include operating $XXX,XXX the current were nearly were $XXX,XXX little we $XXX,XXX ‘XX being to reflecting expenses million to quarterly due administrative diluted little in that XX% a revenue compression over $X.X quarter. quarter. second up It’s on the of second fully margins $XXX,XXX primarily the quarter share expenses to from QX these and SG&A more accelerated non-cash the note sales the year in In earnings QX million a second $X.XX an approximately about quarters quarter; saw the do compressors, in in quarter with our increased $X.X the decreased quarter million to stock makeready dropped XXXX quarter. operating quarters, took basis, decreased income Sequentially, net and slightly doubled decreased have of year-over-year to was last was significant $X instead towards is sales XX% than this approximately in income higher revenues, year. industry than last in impact were current in $X.X percentage from from the periods, income year. The income due units the the they in $X the due important more a experience the steady per of about last we million $X.X year-over-year of million. for comparisons basis, increased a quarter's since over quarter EBITDA in income last all from appropriate for capitalize quarter business. impact $X.X net year-over-year any million

XX% at margins a the others. XX% to this scheduling quite with a floor on business might projects margin significantly last This is compared any is But variation year to total than year-to-date year given on year to and the that time, basis date compared lower some averaging be XX% year. the of margin XX% in our bit is and different and a due to ago. quarter’s quarter-to-quarter gross This in margin QX XX% sales

XX, Our of of XXXX. to backlog as June grown as XXXX $X.X was July million XX, has $X.X million

from further both anticipate significant slight the million second next XX up the first the second quarter of of and number. in $XX.X million the had about in Rental this for of approximately remainder Sequentially, days year-over-year revenue quarter of quarterly in quarter were revenues XX. also in We rental backlog ’XX. the sales $XX.X a XX increase X%

flat the of only pressure and compressing some revenue per mature Our in increase smaller and horsepower compressor. declined well utilization but size stations results quarters, needs this couple running less. The been equipment standby the years seen Standby Downsizing will rentals field of horsepower seen rental in see we implemented large in units. been lower and and pricing active has have have the as consolidations relative revenue as rates due compressors revenues are arrested rates delay flat The to have construction in near The transition in over the as and some count X% past quarter. large full horsepower kick correspondingly the rental in remain due to is we changing rates economic a this next we’ve natural and quarters. compared now the on grow the will delays, revenues sequentially couple and rental significant downsizing utilized X% average in to are relatively numbers year-over-year. have

capacity most alliance. horsepower much we’ve in small decrease and the mitigate decrease equipment We a with customers of the saw too horsepower also X% but smaller penetration. industry, to due to compression been average in large the continues and be This part per unit in horsepower rates X% horsepower There pressure in weakness to continuing our sequential decrease the rental again of able is that pricing downsizing quarters. price per

when time lower compared Our and will moderation Larger just horsepower we provide replacing revenue fleet. higher in units is working expected. a not to our transition robust but only traditional revenue horsepower to horsepower more are horsepower over margins fleet as the lower metrics,

‘XX expect trend margins to last in was this to year's this QX start statement. XX%, contracts. impact more the margins will rental We as provide higher quarters. to calls the this stay be of compressors reflected of down will Gross in them on coming on margin our overhaul quarter and a performed this large I quarter experience in revenue amount XX%. as last and we is current better income go ready out expenses, discuss in The previous getting from XX% of we margin rental this quarter prepared equipment being to due work

current others our them to in a the actual more industry. give As I public mentioned, not but spending. expense impacts capitalize most as recorded we maintenance review this contrary quarters, the does a costs, current of accurate This but do

example, in do ago compressor this a has cost XX. For year higher is made quarter Last quarter, on of more did not packages. We the makeready $XXX,XXX rented. We XX quarter XX less equipment we we quarter. likelihood in spent or contracted, ready already we overhauled quarter, get year the being overhaul then ago in this we

larger to with underlying utilization be out we see parts will attached should this revenue more We’ve start future. margins are X,XXX and equipment of XXX, of up. addition compressors catch horsepower Lots This the horsepower some to going represented quarter. such, last the in combined horsepower this equipment of and XXX show in trends. size units was balances units. end Fleet and June moving As positive X,XXX X at units our X,XXX XX% was of which

by Our XX%. quarter, utilization far grew as this measured horsepower There XX% this note two our unit to in are to climbed quarter current utilization items goes. as utilization to based

First, in to be the Last was all had to quarter reflected in and that this the horsepower had overall months utilization third the fleet quarter companies And each months large of time utilization. rental second, this are units higher net we positive XXXX. the happening shifting starting sets. was three of is

Over total increased XX increased that horsepower X.X% X.X%. The months, past time the rent horsepower fleet our period. over

essentially in accompanied different classes, smaller fleets horsepower the by bifurcated have dynamics. as industry utilization Our the

the our mid-XX% medium and lower pressure example, presently utilizations to XX% at for our range. in are equivalent compressors largest small, mid-XX% horsepower presently For

horsepower large we compression but and picks additional transition. utilization in will up set we the we a As steadily more, are higher presently see compressions market wellhead

XXXX, XX XX% our the of little Over past that -- XX% XX,XXX demonstrate XX,XXX totaled horsepower added months, in active the units large our fleet and in large new over full XX penetration June horsepower as horsepower of XX, as of horsepower seeing we’re we've our To classified category. with large. line is being again that growth a

large Year-to-date, we indicated anticipate Additionally, various $XX for equivalent but we last of now quarter already XX to construction We of XX expenditures in that that to million. XXXX compression between we number an XX.X capital of that majority and have be in grow stages million spent amount contracted. have horsepower would rental will the $XX million. with

rental to compression as is bank This XX $XXX,XXX investment out into majority about the quarter closing, the Looking cash NGS good XXXX at and cash is amount since little the was a horsepower in June the debt results as for over but Company, peaked XX, balance sheet, total and demonstrates year last XX In solid this down million. bank that to deliver new million bank and vast equipment. follows. of continue

a live to revenue Our margins. sales business good continues and

Our for equipment the renal by underlying business looks to trends contract. as prepare have of demonstrated good to backlog

penetration the market high movement good year-end attraction into of and results. our utilization showing our are and horsepower market We of are

XX% flow target We to in expenditures sheet rental the the and have for our required on and raised capital roughly continues our balance growth capital compression the fund about for flexibility year provide stores our cash to future.

optimism the remarks. of head the prepared end All performance finished and that's XXXX our about as this fuels our and Erica, into XXXX. my we of market

the So lines any please for phone questions. open

Operator

and Ladies Capital we will One. session. Instructions] question. question this Joe from Gibney time your gentlemen, conduct Our question-and-answer at first the Please from [Operator state comes

Joe Gibney

broad question horse? you then price are pressure. What based? seeing is very of as horsepower regionally just this you guess are seeing a on pressure I low the specifically Just smaller more that is tranches that And where

Stephen Taylor

and like smaller the that. primarily lower screw screw get seeing between of old some units. you classified have mature pressure, stuff, volumes it we’re things of we And the that lower lower units in where but primarily reciprocating Juan varies low and and San the Texas roughly pressures XXX the of horse areas, Central some matures Basin, units, It's most is Barnett,

etc. trends along with right? market, in etc. gas seeing just the overall it really pricing, static of Kind we’re natural dry static So, what activity

pricing when somewhat So you where of we’re that’s some oversupplied static I pressure. market, say the get activity getting and would

Joe Gibney

this that some a And construction horsepower exactly year the encountering referenced on rates somewhat units. side? areas of you or specific that Permian on the Is regionally side, to those standby from delays higher standby just is of where the are you

Stephen Taylor

Yes, not because delays to the about and that’s things hear going again time yes want Permian, we in good place. the just much construction construction. on there’s that to rental construction It’s it’s rates set taking goes And just but get in delays will not bottlenecks the probably Permian, so primarily it’s I it’s it’s in point on get that, everybody things just and take or to, reiterate some -- well, up. crudes actually as

kick So in, to in. those kick will -- rates but bound contractually they

there’s put indefinite like this. just there delay So an yes, not was for it instances in and

Joe Gibney

on for one last me compressor margin. the And just sales

sales think about aggregate how I a maybe sales the and you and some then margins On didn’t just based on and seems that place, all Tough a forward catch it referenced quarter, timing like peg basis? bit just then little to the go there. there over on compressor margin help to that

Stephen Taylor

must sales. quarter -- we Yes, total the I had have let’s well this you given compressor margin hold say compressor or -- sales? the -- gross margin want didn’t not on Did sales our -- you I total

Joe Gibney

that Yes, you sales number million trying X.X to margin did the I the margin, sales in get think on one? compressor just

Stephen Taylor

quarter was and sales XX% last compressor the quarter last last Yes, that’s up was it year, margin from -- X%, and XX%. this

it So, on lower forward. some higher equipment got of -- has get and and just you’ve mentioned you as averaging it got variation up year, on depends the I but get -- it’s higher-margin we’re kind again -- as some think year-to-date depends the -- we schedule did goes last it's than just I --

Operator

Our Brown next with your Proceed Rob question. Street Lake question from from comes Capital.

Rob Brown

market the sales dynamics are of in what revenue, away First a I sizes talked past, on from there? that are what you What’s to the seems the stronger. rental that kind think and about and on sales the the now driving sales it shift going

Stephen Taylor

have started and we repurchases over the pretty years, just have actually buy discontinued it’s It’s legacy I in to of -- the downturn the to good And been accelerate continued that our have past a strong way, through a kind of got just little. at couple X downturn. last so customers have the mentioned thinking we’ve been what throughout sales X contrary or

X -- a yes, So, last continuation we've think experienced we it’s we for as starting rentals rentals I year, this yes, it's on I of or the certainly well, don't just some going or we’re I type the wellhead to I’ll was I and forward. -- other permanent fixture as been think what -- a get go years. rental, the And to going traction, don’t to really horsepower say size seeing a high three it's although say, it's X mean but and four think

think get back really been right now for sales it's but that we'll has rental traditional strong X right shift been to and ratio mix So, our pretty I now or between last X just years. is

Rob Brown

going to And wellhead what's then wellhead on on work the horsepower? get just I Is guess was makeready you the -- to that are again? that starting did. is in units this market shift high compression specifically or that contraction

Stephen Taylor

new. primarily wellhead essentially Now, horsepower all the of stuff high that’s because

on Well, -- out type out saw on and wellhead out so built. equipment. it’s right XXXX that XX out obviously XX% what makeready our are gas have on primarily of contractor, is business goes is all we traditional utilization as on, being yes, But away. contracts, So the it’s we X lift going from the

-- that continue. pretty, like So up to that we looks it's expect well and pretty picking we

Rob Brown

and I point? we the over Okay that expect the same of margin the should kind in at rest makeready Is additional compression guess vein, for then year? this of

Stephen Taylor

No, you continue attached it edged I a does almost see current to it, it, double we -- it’ and there's revenue to sword a but we results, to will impact like but it. -- like right you say,

those capitalize them just a part business sheets. balance and So our typical take all the currently it’s costs, since those hits on of do we we expense don’t

next long taking as it's it once I quarters maybe will can of keep but to growing. quarters. that X rolling that last say but couple this. think as revenue things continue, we see we now we’re continue, starts, quarters I it how it we again, commented long probably keeps But of will again expect currently, see couple will from the So, come But to hard X

expenses far. to We the so our quarters we will care going forward revenue in those and them biggest to of But is this have you maintenance future. too as go have corresponding ought take

Operator

comes Our from your Longfoot Richard state Partners. with Gurnley Please next question question.

Richard Gurnley

I'm new Then second were saying, you of year cost increased XX to did it in year? to makeready and of company XX was the the second. ‘XX and in XX you the quarter your when you overhauls said, first $XX,XXX

Stephen Taylor

No, it was XXX,XXX.

Richard Gurnley

Okay.

are other the margin points of about number in the -- year, of the or… to XXX, to year would be which rest does XXX there What’s was $XXX,XXX? that it if how makeready some difference rental roughly Now, is compared overhaul kind of basis

Stephen Taylor

oil we we in has here the also up. issues that always dollars I there -- some There thousand on that of but knows, hot had last see was overtime couple all to coming No, the quarter increased highlight as lot extremely because year-over-year things come appreciable out, in everybody expenses we like a Permian, mean, out that. are hundred because weather due cooling equipment, expenses

all and overtime, they they mainly go highlight the good are will So, somewhat there that indicator what of be extraordinary they expenses makeready into some are the take activity. think we future in because, it down but will

Richard Gurnley

And XX of did makeready was -- unit? or you so, $XXX,XXX would units the a and $X,XXX if $X,XXX the that

Stephen Taylor

X,XXX. or X,XXX Yes,

Richard Gurnley

right That's range? the

Stephen Taylor

it run. there. Yes, And equipments typically course that's but will of about quarter what vary through those ago, going averages by

Richard Gurnley

you did What phone horsepower price And price -- per middle. disconnected the the is what's second first -- quarter, in X% you the for down number my then, the overall. growth said was quarter? per the In the -- the mention

Stephen Taylor

per to I on per horsepower on QX unit. hold QX, compared X% -- Q X% down It's is think

per in me I unit sequential yes, that's rates quarters, rental saw look X% sequentially. decrease Let a here. Yes,

Operator

next Jason Imperial Capital. from state Wangler Please question. Our your question from comes

Jason Wangler

think way of unit? there more Or anything rental sounds going makeready that basis? unit that on bit seeing about a of of a you we think I as maybe expansion in working I the kind of is a you’ve number actually like of should a about lot start out are it like mean we that kind standpoint? ask you on from per an kind wanted fleet different figured a obviously out go as Or about the of and the that. is kind units kind to out maybe, in activity

Stephen Taylor

cost? as mean as the far you Oh,

Jason Wangler

Yes.

Stephen Taylor

but it to $X,XXX going felt roughly run unit -- and in we to very have depending vary it’s variation steady per some got per going will can on you roughly, what it's going I but $X,XXX that. to Yes, overhaul. through, fairly

Jason Wangler

pretty it’s versus nominal but Sure, what…. even

Stephen Taylor

if X average Yes, look our X, rental or months revenue X.X of that's you at rental.

Jason Wangler

money mean mean budget, you on spent you I as very there spending that you CapEx Or think be just the much you And side, sees participate certainly going of that little markets us kind quarter. but the forward? you burn the in not it of that’s you've the as are of cash like as Is so kind? give CapEx it as about of a participate kind much function bit really. see will I you the seems about but a kind you of how thinking forward of kind expansion, in not move levels

Stephen Taylor

the we much, capital pretty fleet more see our that spec we’re more again, the building rental from Yes, updated fleet so much a would point equipment And we’re this just additional the and we all portend into from not building of is now, mean by I new little rent. that going obviously capital, side. right rental growth coming in from

we spending horsepower not year capital on -- money counted then. which horsepower. positive if But it’s we’re XXX, yes, class, X,XXX it as yes, said up large we So picks XX% more indicator going next we’re XXX, our primarily we’ll forward. But, update it think yes, I a

of growth work fleet active I the progress. XX% is towards the of big in we’ve is all and amount So mentioned, horsepower going equivalent got and like got another in stuff capital now we’ve the big

least forward got of a CapEx backlog two stretching by we've going a quarters or three So, amount fair out. rental

Operator

time, questions. Instructions] we’ve further [Operator At this no

Stephen Taylor

on time the to you look morning next quarter. and forward appreciate visiting joining this Okay, everybody thank call, and Erica, thanks you for your

Operator

call. That attending. conference today’s concludes Thank for you

Natural Gas Services (NGS) 12 Aug 182018 Q2 Earnings call transcript