NGS - Earnings call transcript Q3 2018 | Natural Gas Services Group, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group Third Quarter Earnings Call. [Operator Instructions] Your call leaders for today’s call are Larry Lawrence, Chief Financial Officer and Vice President; Steve Taylor, Chairman, President and CEO. I’ll now turn the call over to Mr. Lawrence.

You may began.

Larry Lawrence

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

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

Steve Taylor

quarter trends Rental revenue quarter And quarter, contracted to since themselves Review. capital XXXX the which rental Group’s million, revenues demand. reported This of the to X% upcoming The first and in same this equipment Gas we the posted In Thank in and horsepower the revenues quarter our And compression to we positive, the XXXX. horsepower market, rental of XXXX. morning. present continue placed in into active $XX welcome to Natural XXXX horsepower more to results. remained Quarter increased $XX led third in the rental should you, Larry, to field, high additional Third sequentially lead third the backlog compared quarters. and quarter increase the in Erica, reaching our X% Earnings Services continues company growth morning growth fourth of and good rental solid when shift higher Comparatively, quarter by market. million Opportunities allocate plus in continue grow. meet to the we

of have service indicated strengthen. past some of oil some representations, peers the other market, both other specialties, the unlike our on several earnings As and days, field to calls continues compression in the

likely continue will will quarters we our grow the in to need other which resource enter and continue new The to and especially indication to Our the contribute as place, production, year. growth in operations, come. backlog compression growth West lift XXXX customers from unconventional and gas finish that Texas suggest and should for

XXXX, increase we in well bottlenecks the increasing million the provide our sales ended of the in coming for XXXX. can horsepower third units second revenues XX% months. XX, flare cost margin adjusted September backlog primarily as September a attributed we Texas, total NGS from as X% the percentage of XX, of In of of anticipate a Selling, in of decreased units our falling decreased XX, in XX% addition, in as percentage of XXXX. of from increase detail margin I’ll trim from decreased and adjusted quarter a in revenue increase which toward compared and rent gross of gross Adjusted of from higher financial to quarters. renting percentage $X.X the second larger a This On million $X.X margin as even increases finish and XXXX. and months for XXXX to Adjusted expenses percentage unusually reported quarter. We a in as more later. results. horsepower for high depreciation the equipment drop of essentially the quarter. Total was third growth of gross gross high in the quarter discuss September revenues through for compression our from is this The revenue rental sequential number review $XXX,XXX solution margin the relatively a as the offset if and XX% This of as move the XXXX, flat the provide costs to a XXXX, the can ended our infrastructure XXXX. will X% With growing, XX% a catalyst was of load to basis, for sales, ended quarter the XXXX. sales the our quarter of three quarter previous adjusted of compared $XXX,XXX even and third large in is in the to in due all year-over-year of related for rental the compared remained increase the operating sales quarter company fell $XX.X XX% a XXXX. XXXX. is the costs as in third September carry the rates. the and in as for for as growth West months margin XXXX services XXXX. second quarter. driven decreased $X.X in when of Total partially in off. XXXX, by million on income previous units, contract, to quarter $X.X from enter of million Sequentially, our quarter million large further horsepower capture third of growth ability ended quarter months $X rental compressor transportation the operating compression key The revenue for revenue rental gross the SG&A approximately well to income service the part the operating increased period the we million in period which the which to our revenue three administrative sequential as to same revenue third revenue fuel revenue quarter and XX, to three preparing be pressured falloff comparable broke higher general timing

third year-over-year, XX% of revenues a Total considerable slightly which before XXXX, of attributable The the about aftermarket NGS to the to compressors, million ended in $X.X slight due of and million For revenue compared XX, and the drop or On from to EBITDA can revenues, per Three September $X.X period a for third quarter interest, income to quarter period. of quarter $X.X sales to same compressor unpredictable million Earnings $X.XX Sequentially, quarter of relatively XX, from $X.X was the third net from Compressor $X.XX and or share for million include comparative flare revenues the for common of cause last sequentially, company was remained approximately second roughly EBITDA where $XXX,XXX in decreased the prior the XXXX. of of fabrication for with sales more per all is XXXX averaged taxes, the $X.X be the up to $X.X decrease depreciation revenue reported sales periods. million, year. XXXX, $XXX,XXX variation were quarter. quarter pronounced compared much September quarter of swings flat lower fully million ended $XXX,XXX in dropped year-over-year flares income second three common of revenue X% fully net months the share approximately sales. or XXXX. net diluted amortization period margins in sales for of and $X.X somewhat sales roughly XXXX XXXX. activities million income this quarters diluted can remainder XXXX. when have

in a in However, from drop saw of quarter. sales transitory quarter second this this million the $X.X we $X.X million to year

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

drop to compared this the for of XXXX. as is. a period averaging I percentage quarterly months it margin XX% same XX% what is a revenue gross this sales significantly, in for and However, mentioned transitory first in year nine the of exactly

of was as increase backlog sales September million. XXXX, threefold of million, a was from end XXXX, quarter the of Our which second the nearly approximately XX, $X.X $XX

in are of each allocation now in product mind, fabrication Both is which at however, consider we the between are fabrication. keep of robust have contributes have sales times to usually traditional and and revenues priority the to rental our One so other sales. build; sales the rental of type impact is space to lines variability the trade-off, we between scheduling

of revenue XXXX. compared of results, $XX with is This an nine pleased year-over-year XXXX be for increase to quarter to million with for and continue We XXXX. the segment third of months our first sequentially the rental rental

revenue the the fourth XXXX. was in Additionally, quarter since highest of XXXX rental the third quarter

within good gains future the and while it set full revenues deployment the standby in kick we here year-over-year rental the of being news sequentially. rates months have X% and at disconnect year-over-year between and, that saw revenue increase combination an of as deployed will corresponding time sequentially. rental in Rental to revenues our time, The the when and We quarter year-to-date units will the running rates. lower XX% is utilized X% booked. six deployment rental The revenue at in is that due consistent and, higher rental revenues nominal, increased Although that increased see to we end of year-over-year when full X% horsepower XX% it’s variation increase and timing equipment. likely and This to of commissioning sequentially, field signifies anomaly, growth. is horsepower believe between important already a interim turned are three we was revenues on future horsepower corner

presence combined of large expense We fabrication significant our in third order XXXX. continue through combined to quarter. a of represents order significantly over the and quarter customers during expand through that the This NGS The received represents a first company contracts. to capital couple then horsepower additional very rental order a and long-term long-term from will coincident our leading at of $XX million keep history largest a secured the in in shops market the single rates order loaded XXXX. large the

with recall, you market NGS a ago we that entered to If over received horsepower the the had order largest date. just high year

We I basis second fleet our large up have This additional down larger going is may will built average of even is the this future. zero price that year interim large quarter the will horsepower since This X% an than business in on we’re and the per ago. horsepower the added component on more average our Compared alone improvement double were large time year XXXX. delivered, to exceed By rental two equipment. is current approximately and rates the $XX This million. build and to estimate conjunction basis. order, a will prior associated The our with per rental basis. through from XXXX, this of with horsepower last be one order capital from order to XX% speculative this and large unit essentially an units is point active than In firmer quarters horsepower horsepower the also concentration. on a flat horsepower

this last XX%. in gross fact, trends selectively quarter of are, last from year’s quarter, XX%, Rental down We pricing as to were up. activity quarter increasing but margins similar

performing of overhaul rental been subdued Our quarters to we’ve of been large due to rent. last for work, have prepare amount the contracted equipment margins over couple gross

This rental seeing a noted, increase for a results our As cost lubricating beginning impacting we’re the was and equipment to in margins in periods. costs I revenue. gets set nine-month X,XXX units represented oil of horsepower addition expense surprisingly increase to Fleet at quarter. and previously XX the of units. this end as $XXX,XXX was September the horsepower, during of in all $XXX,XXX starts the generate in our Also the from which compressors, the third larger size gasoline XX,XXX comparative

quarter. this horsepower climbed when utilization to quarter Our last measured from by – XX% was XX%

utilization unit Our grew quarter. base XX% this from to XX%

$XX represents of months, as large XX,XXX few times and, we’re penetration is fleet as drilled XXXX, seeing production full horsepower target our DUCs, in wells. between for backlog of relieved, new XX% horsepower For wells, that gas units that on million classified the this out XX, and our horsepower. I $XX.X the Once I’ve from large. have have large will over basin. totaled in move the XX% alone spent I as completed of million. increase opportunities alone horsepower $XX XX our Last that a XXXX, of line, category. year million with to we we of This XX% CapEx Permian utilized but Year-to-date, a which rental demonstrate To very and past $XX be raised XX in large in quarter, the should is being of climbed added example, X,XXX September an compression to are growth mentioned this call in pipeline compression require a fleet have X% XXXX read a not an this horsepower bottlenecks million. gas associated morning to all that this

about business, every of spending $XX capitalize that fair I that With angst among approximately for market companies. has rental million amount a will the But now reassure with E&P we already we in year to compression spending. There equipment the capital OFS CapEx been added about outlay estimate XX% and higher want one contracted. our this of

has essentially debt. NGS no First,

million $XXX XXXX. has historical equipment. since rental over new capital XX% additions have Over capital fleet self-funded our in of We been

we a balance and the capital have history So successful managing of sheet.

Secondly, capital money of spending to rates one bank. is we this so approximately mentioned discipline, are is the higher-than-market into capital our XXXX the every XX% the thrown in long-term in contracts. abyss. as we’re in can to of at spending dark committed This for be a what not contracts remind I capital referred deep

sheet, a just cash our over strong desired peaked Moving our September to million. $XXX,XXX balance amount we down over debt of as the back our since is last about into to million with little remained cash and year, $XX is and total the XX, XXXX, invest $XX bank balance This company ability our our healthy routinely of to new a directed high rental NGS occupies small position majority with respect position significant our of levels balance EBITDA, our vast debt generate differentiated on companies liquidity equipment. at horsepower cash among compression and investment in cap with sheet. negligible to amounts results which

of maintain able to advantage liquidity to otherwise of levels be Our ability in. exceptional enables us participate wouldn’t take to we opportunities

quickly We have the and market crisis cash horsepower, when customers. In our NGS coming balance to high-pressure demanded demonstrated history. compressors this the our multiple our financial a XXXX, times company’s enter lift build allowed off by medium gas in

second use The horsepower current penetrated cash large time our is the of market.

cash. opportunities Our about learned One has cash. others I us to capitalizing allowed on to not cash balance routinely ready have access thing did when

it access final opportunities NGS. of when fleeting the need, then is for can you difference. can be the is a a to need volatility need make don’t often opportunities you and have three better it. At you to potential market until XXXX, ready of Translation recent likely number You create of end and the cash months it,

certain is opportunities position While we of in to good have and tools A number believe of and sheet we of we we provide strong opportunities. to to disciplined continue advantage consider be we’ll want a very right likely foundation evaluating such opportunities, opportunities. growth that and grow, balance such have flexibility number a been cash take and the to to make

which additional capital coming universal as shelf likely will from our new provides to days, This access ways value to the simply for markets. have public the file add allow look equity range a to and to tools in we addition wide a statement, debt company of continue we stakeholders. will registration for In the additional options

future the new results operating and financial continue year. conclude deliver and solid we the as We enter and bright to so XXXX looks

this the posted is and business XXXX. quarter poised results rental solid in growth to Our third in continue

very quarter, sales and coming While second lower backlog. fulfill orders transiently new a continue existing to results off strong our our were

market, Although and traction higher opportunities. into results horsepower just and positive significant of to year utilization show our a the continue market penetration

Erica, growth market and the optimism Our and And our our targets and of combined CapEx performance to future. in for flow fund demands future. the outlook our in the the the of to – balance growing the sheet balance a customers. these amid All prepared provide our my compression cash increase continue cash factors finally, fuel sheet end regarding that’s continue to our base remarks. strong

any open questions. the for please phone lines So

Operator

[Operator Brown Please question. Street tell first Rob from Capital. your Lake Instructions] Our question comes from

Rob Brown

Good situation? that some one really that sales stepped that morning, the you color backlog, contract referred Starting Steve. on up with maybe the nicely. And to? Was

Steve Taylor

the is No. is – The strictly contract and backlog rental, the so sales.

levels seeing. So are the two, different of we distinctly activity that

quite grew contract, sales backlog just that million dollars a the again So for which The XX-plus quite a rental bit. is this then receive quarter we’ll and bit grew equipment.

Rob Brown

Okay, okay.

activity. bringing on sides $XX that... us both million How rental equipment? So of up are some how that could and to deployed sort on get color you long contract that Maybe give takes

Steve Taylor

we’ve that That, equipment ordered built be the – will already.

of six around that deploying of essentially starting And deliveries equipment will throughout months XXXX equipment coolers. we seeing XXXX, compressions XXXX. engines of QX be and through on QX and We’re

So the on that’s about schedule that deployment equipment.

fluctuate that schedule we’ve that’s now. past, as can to stretch quarter-to-quarter move may Now and right But a bit. the out the around, even stuff seen in little as

Rob Brown

was gross that what then of for see in Do kind sense units as in rental terms placements? you quarter headwind the have And of you of you maybe margin? did new prepped – good. a what some of Okay, kind margin

Steve Taylor

well this the come expense year. expense, is makeready X, are up if, pretty that’s margins point from along gross which holding a Our big the

it margins operating as fine. now out an and you take makeready fairly lot but So we’re we – forward. through increase go so I seen those that fluctuation gasoline standpoint means there And a like pressure Yes, that in some the be from thing, expense. the operating margins we lubricants incremental an that seeing from an standpoint, not year. – It’s if then, subdued have said and see on just you sort of are going and and this this significant of pressure been shouldn’t right we it’s

but of this flat stuff. remind rental amount quarter-to-quarter margin future capitalizing we all that, again, we move on expenses. And those So to as comparison because everybody, fair seen we’re those be should year show has of gross that so on expense, year. It’s expense the this over tend

Rob Brown

be? Okay. on XXXX. for And there? spending giving maybe there opportunities, you is some look You on Last really new of I CapEx question does that opportunity sort – that cash guess, your what could products? the How out some what those what balance is the set color said

Steve Taylor

Yes. numbers contract spending announced easy million in the anybody, pretty I stuff. little I the you on alarm for spec high another add spec it’s But, to say, CapEx, $XX XXXX We haven’t over up in will involved a $XX mean, the not next throughout, spec capital. horsepower big this plan rental if million And we I’d call. the but units units.

of that within rent yard completion stuff You that in to almost in have or the to weeks stuff. have –

that’s extends year, But is pretty And say, you in we’re XXXX million. is XXXX. have to we’ll it’ll what from out part putting obviously, around QX now million we but stuff be so QX like, certainly this easily, XXXX, of measuring be think or so $XX exceed which that seeing $XX too, – successful

Rob Brown

thanks. Okay. Great,

Operator

from comes question question. from your Dearnley Longport Please Richard tell Partners. next Our

Richard Dearnley

moment? it your the what? take it, What that. is capacity, just I Good – have morning. capacity you at at your Let’s leave some manufacturing

Steve Taylor

sales of rental bill rental are? units are? our a size number too. depends lot, what sales on And, our compressor the our our what it and variable of what And one, It’s – are? What flare compressor requirements course, the

to on specific units. either dollars throughput or So on it’s a throughput hard number in give

two piece. $X and you XX% can the XX% course, units in shops a over think big just through little Now XXXX, million we would idea. to depending $XX it give will worth to XX what’s a the take about, roughly, say on roughly, talked you horsepower million $XX to can your plus vary of what’s units or build we XX And a minus if going which numbers rough be – that just million we on. Yes, that of

Richard Dearnley

Right.

the you’re down? units, capacity smaller making horsepower goes If

Steve Taylor

Well...

Richard Dearnley

you’re making if horsepower just big units? What

Steve Taylor

a it. goes your of a up lot on Well, Yes, but – corresponding yes, the of a the probably is capacity number units. lower, CapEx fifth

For that XXX built example, guess, XXX Yes, $XX average. compressors, about million. was over probably about horsepower I in small XXXX, but we horsepower

build this So to XX it’ll XX about about year, be million. we’ll units, $XX

probably Hey, calculated million, of to hard calculate here’s probably and $XX equipment. the your number you unless just $XX the and have. capacity it’s but exact So is number, historically million worth today,

Richard Dearnley

your as Right. said was because small all comments, for rental that correctly? I high. backlog in Am horsepower. Thanks. that change a using horsepower me the And That include you all strikes would horsepower

Steve Taylor

backlog Yes. mean, the I obviously. relative is number

little bit. that there. So the perk the grown lift but relatively start horsepower, what which in a to primarily a to smaller gas say, That’s it’s of small big deal the is, wellhead the That’s we’re XXX-horsepower, part obviously, up stuff. horsepower medium seeing. And, is that, XXX- is

backlog. while in rental backlog new And the that’s – not is a but rental and all builds. really the a – there there’s So then horsepower, big

board, small expense grown has So just across is it’s still the horsepower but the – piece. so a small relative, makeready little, your a it’s but it’s

Richard Dearnley

of units total moment to Right. lift gas the What’s mix horsepower? your at or either

Steve Taylor

utilized per the a unit utilized. XX% On the well probably, say, and fleet. as total It’s fleet far is it’s and/or – as basis, fleet, gas I’d total

XX%, XX%, equipment. will the we With horsepower horsepower, probably lift basis. yes, a that is move to up well XX% of – as classify big maybe of would gas you units But horsepower that on sort

Richard Dearnley

end but the a folks place supposed like midstream, be of in in XXXX of the that’s general, will capacity by if through XXXX, or take. are basins. many And And it see. pipeline lot in say mad give adding I to on start the coming

Steve Taylor

right. Right. All

Richard Dearnley

demand happen, the XXXX? new would it all would to of falloff effect logical for in which demand pipeline capacity that in If in be a have horsepower – high continues Or... expect XXXX, capacity to assuming loosening

Steve Taylor

I gas from gas on think lift centralized I our majority gas is the of Well, or think lift – it’s whether equipment Because going our out business, so. don’t lift. wellhead

horsepower the out going not really on on the So production is sort perspective. site, big midstream while this of

Now obviously, everything midstream, infrastructure need the gas, feeds but have drilling midstream, wells out still we’re of we’re adequate but a and still more into there. could the if producing still compression going you –

So you might have be DUCs. out there. a – backlog little flurry in like XXXX will cetera. of come some a say you not will big same That of that’s all the stuff the and time, on completely Yes, et

I a on the pretty good in activity got runway market. So think we

Richard Dearnley

you. Thank Great.

Operator

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

Steve Taylor

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

Operator

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

Natural Gas Services (NGS) 10 Nov 182018 Q3 Earnings call transcript