NGS - Earnings call transcript Q3 2020 | Natural Gas Services Group, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group's Third Quarter 2020 Earnings Call. At this time all participants are in 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, Act to listeners. allow outlined forward-looking Private historical Please our morning's the in Thank call in the conference read good XXXX. Safe the of a are information the for to call. are prior Reform the following me statement earnings this made you, and Except morning, herein, to forward-looking Litigation commencing Provisions statements Harbor

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

Stephen Taylor

quarter review. in and call. in Thank you XXXX commodity a created tuning earnings you, I've which for the and and and Alicia years everyone, good of and nearly alongside to Natural service work. our prices industry, challenging energy morning, third challenges experienced demand Thank never operators a suppliers XX to energy have for volatile NGSG's more operational Erica, In providers unprecedented result, working my to Pervasive welcome and environment weakness Gas are financial and as them. the in all in

to extraordinary our industry. is we NGS these this No energy While fortunate said That pain immune the our from ability of to our reduce to operational on have of protected financial company well-positioned quarter, been is less last sharp as and for the noted entirely and impact needs of period during in peers act to respond cost many resulted our challenges. structure and that impact both condition. customers' rapidly our to and

and solid this revenues and sales adjusted While just modestly gross XX% EBITDA in came quarter. in were basis, service margins year-over-year Though really XX% quarter, or our revenue. grew revenues and on rental affected at was of the a declined

sales redesigns, downturns, to due to we've is This the them current customers' degree Compressor budget especially and sales compressor projects. were displacing quarter due unusual reluctance seen at any margin not to our sales to Although business. higher level capacity in by are this delays jobs and in a completion contracts, and of already volatility severely low primarily committed push manner. [indiscernible] appreciable compressor customer not cuts of impacted relatively quarter a constraints restore higher sales from last

business forward, in have continues environment, any any liquidity carries our a as in compression to and generated cash during end cash had cancellation we're million million sheet not company of the the we the cash and important the operating second to million material compressor of firm. quarter. balance begins the of Though $XX.X More flow financial its at $XX.X end such quarter, sales $XX.X At our position. NGS quarter. statements, had a to positive million challenging we work operating in The strengthen the market strengthen As third not sales will NGS and net free quarter. $XX.X activities flow confident backlog noted of our did compared to the of position from September a have

to Our October. through increase continued cash position

continue vigilant this and continues one provides the strain market with period flexibility in best position and industry. opportunity NGS balance of sheets cash industry significant in financial any have be to the during protecting NGS environment. in our of We remarkable our stress to

initial of to prices that signs oilfield activity, trough level a below in we're beginning meaningful remain result a commodity new will also and see While activity. consistent

as as to to we to early approach our We into that we year. they constraints. of we new spite cautious capital XXXX as strong and believe are likely the those and maybe of capabilities, service we will for materialize next which remain expect end because the superior to caution fabrication quarter, financial believe of in trend growth it, see to capitalize said in and position new last continue their remain opportunities allow choppy us address or the In operators to year

Midland to and as when our remain contained impact period to possible. of of with the to remain As quarter members We're staff on work team urge in-person COVID-XX headquarters to remotely health severely reduced our our operating safe you're take protecting team healthy. and extended a result, vigilant Midland follow our the and and a to steps time pandemic our the firm. report community aware, we the third We

team working distancing while with on continues to health appropriate locations. practices customers exercise Our to field

driven for added in our in dedicated team the that, increase to of million $XX.X an and by in decline have move revenues in Conversely, India's decrease the primarily to cost let's to X%, and a third the by total XXXX. revenue revenue details. when same driven quarters, lesser into our incremental was of at same these XXXX. sales by While revenues decrease quarter by compared lower quarter in With maintenance the service Sequentially, of quarter health remain our This revenues decrease we unprecedented of practices protecting X%. as as in effort, XXXX from NGS three and a times. decrease almost XX% customers rental a these experienced decreased sales and reported extent revenue rental total revenue. and of the welfare X% efficiencies to a well of

due maintenance and this service increase good exhibited Our strength quarter to revenue maintenance and increased a over we in won one-third quarter. by service this work

be to the price expect we soft the uncertainties to sales remain continue budget macroeconomic backdrop. surrounding commodity into total the year. capital constrained customers' Our to Therefore, revenues new

economy, the in in Given challenges in the the operation quarter XXXX. of performance our we're our industry with pleased continued third and overall

only uncertainty Our quarter in our despite rental revenue the in resilient industry. proved declined modestly the to be

revenue XXXX. rental compared first of for fact, XX% up In the XXXX when same period is months nine of to the

which quarter our to our decrease quarter. gross was when the volume percentage going $X.X turmoil of XX, fabrication gross is unprecedented were year-over-year. to in administrative to in the revenue year burden to depreciation operating gross the of include quarter higher ended share quarter lower $X.X a oilfield operating the of provides compared $X.X million and from XXXX. gross the a period September compared is $XXX,XXX three XX% $X.X interest, XX%. per are of XX% for quarter Adjusted in loss position total income XXXX unabsorbed of for XX% India's from to The the partially and XX, diluted in in in Adjusted the we the same quarter was $XXX,XXX the to adjusted performance last XXXX. expenses and The XXXX to second challenges of during $XXX,XXX. last to the India's third and in quarter the million, quarter adjusted associated comparative or same current the for report The for $XXX,XXX a as months of this $X.XX a quarter the Given reported percentage operating of Selling, from Adjusted for of loss our quarter compared of sector, in XXXX. of the both is million this of was second compared depreciation margin energy cost September allowance comparative year. our primarily quarter income inventory the income $XXX,XXX $X.XX $X.X XXXX to to XXXX of total not an XX, for of for XX% XXXX. comparative of this prior of facilities sales revenue general total the due total quarter adjusted increases his loss due sales quarter the when margin's of before three XXXX $X.X EBITDA, loss the XX% leader is rentals. as which to months the costs. $X.X reported quarter second as second Sequentially, decreased earnings the taxes, which expense, income XXXX revenue; income adjusted offset sequentially Adjusted year of quarter the third from to the was loss compared rental quarter, were quarter pleased above sales run XXXX, this the services of third Sequentially, XX%, third when plants. general work cause SG&A in to ended the months decrease third for margins due revenue million, September $XXX,XXX Total earnings share to absorbed of per same net million is Operating defined to of was decreased XXXX million, same decline support to slightly XXXX. EBITDA revenues a of or the the XX% net million compared to three quarter this XX% lower and in compared fabrication of XX% from second decline the X% million XXXX the operating from compression third net XXXX rate of a margin $X.XX lower of percent revenue to dollars XXXX. year. Sequentially, XX% of loss by attributable net in periods XX, revenue quarter September in for unabsorbed for an predominant slightly margin, lower this mainly with of higher period increase positive decreased in amortization, of XXXX. does quarter. $XXX,XXX loss declining XX% costs. and XX% second margins mainly third $X.X of approximately by to due adjusted in A in our and as XX% quarter a or of during revenue in income period and depreciation decreased decreased $XXX,XXX the period of a and a for and ended diluted gross

Now and year-over-year is basis. The revenues components decreased parts include to player decreases to breakdown a extent sales compressor revenue sales, more. $XXX,XXX to lesser little $X.X in million year-over-year Total product a flare decline which attributable sales a a and predominantly to lack the sales. of and compressor, on

sequential to Both minimum sequential at underutilized unabsorbed with declined margins revenues level gross period compression by especially primary compared $X.X from the and equipment higher due of a our total facilities gross positive due revenue million loss. were decreasing decreased to due our to fabrication the same industry, $XXX,XXX fabricated lower to underutilized from same lower margins million. capital largely custom fabrication severe reasons, and the levels These to to sales costs sales to caused need losses from periods. margins maintain to a unabsorbed the of facilities. in these sales margins, with of $XX,XXX quarter for during loss were $X Year-over-year $XXX,XXX $XXX,XXX For costs contraction operating

$X.X the second compressor XXXX. $X.X backlogs sales than backlog backlog increased of slightly third million, with in the flat quarter our for that's million, just a to quarter Our higher August

postponed Now delayed margin to rental due quarter for this off fabrication the throughput the higher reasons. of contracted a balance backlog because a A equipment was portion customer-requested and couple was worked redesign builds. of of limited backlog was due in to their current the

in compressor XXXX, record such quarter third we did not the any As sales.

$X.X not and million than were more it $XXX,XXX compared downturns. not were the a severe and gross of For during quarter losses before Compressor only comparison, XXXX million sales and of happened quarter in margins it compressor XXXX This the quarter XXXX. second in something million plan third quarter $XXX,XXX second in quarter. this unprecedented on is $X in of we but $X.X is the little third has only the to certainly

of XXXX, average peers. of the a quarter last higher sales Year-to-date XX% primarily caused and of unit is revenue due rates the industry than business over upheaval were Compared but many million XXXX rates horsepower Rental rental XXXX. through second given basis. on this last $XX.X mentioned, on of of industry our to discount X% third quarter our unabsorbed X% customers second to quarter September,. than to dramatic by of in million, better This last As same year quarter revenues than year's the the much rental and impact X% we were for of exclusively is the rental the past at quarter. than activity. is when in was time. in slight second from to are $XX.X XX%, third this the revenue X% decreased our higher the quarter to in crude gross a this losses nine from quarter in compared decreased year XX%. the the the XXXX decrease significantly oil margin This year felt margin third margins last Rental prices fabrication quarter months $XX.X at gross rental XXXX lower costs. million period increase remarkable considering quarter gross are XX%, the of and Reported sequentially, decreased in in

strong bad margins a in would are base rental exhibiting for allowance this except of have the debt quarter higher and increase $XXX,XXX. been Our

XX, compared horsepower, over of horsepower total we XX, compression of XXXX. XXX,XXX XX, XX XX with increased fleet horsepower total The year. last up units September now just period This in of XX, increased large September September as and This addition the the approximately our XX% over the horsepower XXXX. utilization packages past of approximately September from horsepower of our on XXXX, to XXXX, company's As had XX%. large horsepower fleet compressor X,XXX of XXX,XXX units fleet, XX% has by company's includes to XX% to to fleet utilized is X,XXX same horsepower as months. the fleet our equipment XX% since classified a at

compares small in of of utilization were above XX% Our quarter the which XXXX. horsepower total quarter to fleet utilization is XX% third the quarter a very second in the XXXX XXXX increase third XX.X% and

third unit base quarter of third the XX% remained when Our and utilization in quarter in year this XXXX flat of XXXX. second the compared to XX% quarter the

year, time quarter-to-quarter. environment. is the in slight, positive first the that For fact are seeing is this a but this we positive any is This very utilization there increase

million equipment quarters that, this but spent first following of rental million year. $X we on to million three the in this another of $XX million the The to on the their to $XX subject For timing. through capital a total year, expenditures, $X balance and quarter capital fourth quarters of projections capital million $XX.X $X million course dedicated of to in another $X we last We anticipated equipment. million the quarter, customers and for spent of on expenses anticipate call

sheet balance our our total perspective, September is just over minimal and debt million. our $XX.X with remains at $XXX,XXX XX, bank strong XXXX, as cash For balance of

last of continued quarter X% increase Our the October. from to through at and almost million cash end up balance $XX.X is has

tax timing $XX.X XX% Without activities $X flow $XX quarter are of we is this of cash of is owed cash including of anticipating $XX.X refund certain cash. XX% current this of from revenue regarding have positive million our quarterly which have us still million was of million operating There's operating million net our that tax is refund, of the although We another represents reflected refund, quarter generated we of tax refund $XX and in not revenue. received for the We been revenue. cash it. still benefit that Free balance. extraordinary conversion an the cash $X the This into flow million at in tax total million. ran

operating $XX.X in XX% this competitive in nine-month than XXXX, cash generated of in the It's period. In operating nine-month to compared $XX.X year cash generated comparison, million year almost Our we more XXXX. million year-to-date there balance a that summary, stream, space companies many the ability services rental cash. the in debt sheet, generate to oilfield cash essentially bank have in the revenue are not on recurring no reserves continued the and last

in pandemic the ethic take making has not us. thankful. NGS express continued I in for the the their entire work Before NGS easy and a to midst to industry. proud dedication my resulting I of team is questions, any I'm thanks tireless our something uncertainty companies to energy been for of one which the the XXXX want our industry for the services of best the in incredibly Yet and of team

in-personal Our metrics those result that is by shareholders our the effort company NGS the people measure of the comprise of family. care financial a a of of and series direct numbers, each

a to Erica, is business lot the XXXX, providing opportunities important, thank be to there expect prospects sheet, to while operating well-positioned a capital end More uncompromised that progress cautiously, remarks. do prepared the XXXX a environment, So year. of my NGS new we a stable are don't signs believe of in We that's customer modestly expense, early the we in balance solid and horizon. is as will XX and base will meaningful team believe with service. strong a for committed we of improving the to improvement start With expect the of our year change in days you. final recovery course on end. hope likely finally there except We

the for So questions. would, you if lines phone any please open

Operator

session. Street Rob from question Capital. we your question. at will Instructions] [Operator comes and Please conduct Brown Our time this Lake first state a question-and-answer Ladies gentlemen, from

Rob Brown

morning, Good Steve.

Stephen Taylor

Bob. Hi,

Rob Brown

environment Nice QX? I question clarify the just of you that high at the a out, execution type CapEx projects of maybe think. kind comprise horsepower, pretty what's characterize of of My around filling maybe really and first it, CapEx the driving tough laid [indiscernible] you're is as quarters QX, that that

Stephen Taylor

our of made committed, now but I the XXX a quarter more. the horsepower it's it's already end that's utilization timed QX, that some some is stuff utilized been was end and primarily about idle at two Yes, was order has equipment we're components. temporarily. of X% horsepower got for One to then because of mentioned, XXX what and we building good The a XX% the pretty high actually and

So got also it's then the primarily past, it potential that and purchasing we've and for back some from leaseback the new some customers of to them. thing to written equipment admission purchases,

So and interesting contracts. leaseback to pieces point from some And and the them customer. it pretty for the past of good that other revenue biggest to rental into the those convert capital we and we a in are equipment get that. ranks provides built is It's [ph] two part think I the actually that long-term

it's least the components, and customer this Probably in timing is interesting that the one not back. at will So they risk biggest monetize to there's own that projects looking is biggest this two lease it really but just happen, -- the CapEx number that mid-November. equipment especially is environment to

that's everything get in holidays coming have the a We and done crunch to projects or up else it get is. into whatever to whether years and always

biggest it'd to think. that. we be are numbers it, components are wavering not those part commitments. there's solid, but If any the of the pretty two That's timing, So

Rob Brown

Stephen And in bottoming utilization in [ph]. and kind of then Thanks, the industry.

back exactly, have of utilization I it's the sense do stable and like going few sort hard but plays units predict sort a of you and out feel out of bottomed coming maybe You was the months? on visibility much you here? How of over next do know sort it's to utilization quarter-to-quarter here. how said

Stephen Taylor

everywhere I you'll Yes, and pretty it's are think discussion It's have up some some and and sparks I this is but be straight to a there jagged, bottomed, think else. everything still downs line in fits thing. never up. going The

based still few can price it. course, I a read We that them. and some equipment more, good written change positive little next positive of on anything analysts year, coming a -- on but in fairly they're think the lets anticipate is those all we are back bias got are reports reports the shedding day

think But up So bias the to utilization I yes, some is and there's going positive down be good. it. to for

year. fast. March than obviously. has a would XXXX This to done is actually continuing on stuff lot I our when because and the pretty of recovering it year taking cost, job back But actually better been watching guys a think going in have of be great and was a it guessed fairly happened, I all good care this have down

I we'll hard it's So, slope see think what that up, a is. say trend but to

Rob Brown

it what and last the Okay the any cycles? and this about Are environment similar to expected and question is on there? historical competitive you through. really pretty then you seeing played changes Is

Stephen Taylor

it's historical I it see. what expected in we and to is trends that with Yes, tend line

pricing market. the questionable in Some

we or guessed see see to it we stuff as So as to those, aren't the both price we're strong see where pick do want weaker competitors you might choose we six the some what financially and of those probably still have want got in are due can, just downturn. due price downturns, can, but X%. But as fast if you, prices select down as mentioned like we months to to choice a It's we our we've have would to we If jobs you other I stuff that to we the people not aggressive, now. the from able we want, pricing be hold we X% to lot that. especially don't ago But A choice get much and issues. that. as want, there. out typically are, to

needs there, drag bigger little horsepower dollars cost put it more because in out less horsepower bigger a horsepower. get as You'll price per

horsepower. less it's rental good down, That pricing. like is actually kind but So it's per of a your looks dollars

quarter. the being pricing we mentioned, saw decrease from the On force full the I QX, into a unit primarily throughout on and as basis come was,

next new quarters get of going the that and back to operators we things for the or one, some as to to give the equipment year, number intend going also, a three back work some as into back. back start to them anyway So basis. over those those putting ask to to customers from standby discounts two them And expect we solidify,

expected, So I But that'll not the while bad do and is pricing think would thought X% little reasonable as more don't X% continue. we some it's but but to I But down months you still probably see explainable than as overall, and weird have a once six ago. again would like.

Rob Brown

Okay, great. Thank you. over. I'll turn it

Stephen Taylor

Rob. Thanks,

Operator

Please Our next Tate from question comes Sullivan. question. say your

Tate Sullivan

Thanks.

Steve. the of of this industry? equipment? compressor have So your talk some and new And a understandably of historically Can at little you morning. are I want purchases? million was the monetize compressor an customers heard is and you advantage [ph]. more looking you Or talk I of of leaseback gas about other market $XX that about their since this active thank you, Good end in just Is this the equipment situated natural XXXX before. -- sales sales. to to not natural take uniquely compressors

Stephen Taylor

I that wants got a to we monetize, little couple money. last to him When something. situated the probably advantage just to quarters, uniquely we of a probably pay customer are over Yes. admit you because got take

They stuff, financial So like want worse don't There's and you but big someone that. the It's when maybe or because older than reason to monetize a not it. that. that of is market. that want. we issues, we on something it don't got do why the equipment not they're trying either shape stuff approaches flexibility or want they Typically to it's a

in Rental of take smaller a long So to they do fit look have all our situation a -- of very This or dealt and just with we've years over most financially I us, interested, and or not long to for or like that kinds time came with of things of horsepower something of I've Drilling like ‘You fleet that. things don't dollars. within and me it just reasons. spend say or shape amount makeup, these I customers the customer on comes of I being It's a to don't now the and what, but that's also spend ahead more not all is on that know of expertise. on, drilling take some can CapEx money a stuff. advantages we our equipment. looking money. equipment?' and the don't spend this -- all at, on my we're customer provides they're And operationally you certainly have from, at it's a the spend can That's return cash, to lot really not it this where finite that rent from Why point to and good. lot guess, having work go bad makes of a I got -- care

with out else. have downsize, buy If going it. you doesn't out can everything than to these to go do we need another are you customer do upsize figure The to to what other it, and a whole unit try and

this them more because to is $X mentioned, I we're -- but they this it, downturns happen. you I the and can I got along see feed this don't rentals demanding plus -- into we and and advantage cash think actually market and are We take I returned faster, as market as right as when from operators, start around to will they of just get equipment to they like we like capability, more. million with operate, stuff $X and and and I quick think out it know. it to comfortable timing think we question go it of mentioned, severe come needing that. kind or of The think that's enough background only million it's dedicated is as the Yes, it I

Tate Sullivan

timing the of order some thank mentioned the on question XXX you to you. Okay, the of quarter. XXX And you CapEx good for And answered earlier my horsepower. the in that

horsepower? can larger you rental the Steve? horsepower, size term you roughly, your before, share that about If lengths Have that versus average talked

Stephen Taylor

two and three getting on those XXX XXX We're years the to on horsepower.

So terms them, good we're on market-leading getting rates on them too. and

or anything to like to just deals. on our else. to not any money money go share We're spending use We're not use any other we're money. our trying to So make market CapEx, trying CapEx get

we And rates, the and terms so want want We we don't money. longer better so we to. spend have don't

the that's So million to and But know that's all we standpoints. million we longer from high $X terms this those and other to this look pointed dedicated what and rates. year. at to It's $X

Tate Sullivan

equipment horsepower understand change and-a-half, in are rental And that more larger based than on units, as [indiscernible]? that can year in you've particularly The well? a I the typically they the year terms built last

Stephen Taylor

a go the little rentals. terms equipment, with only stuff it XX-month some stay two to and but the typically long We say, we a smaller a contracted the and time. on be kind X,XXX It Generally, rental on that good term. rent bigger Yes. sometimes. of and equipment and so hard install dare we the the try is, stuff time you extend the mid-horsepower stuff of equipment a freight overall to customer, term this terms. all and all period obviously, go horsepower and too other the security yes, this. want could one-month is not midterms units say we biggest years on so But I the three get to for to the get it's terms depends on to will Not so those./ lot to longer and on years ones paying that to of and The that it. like that long three It's installation, we obviously, stuff customers going and of much a operate, expensive, big takes out security The there and five then longer

Tate Sullivan

that? talked between whole ever renewables forward. utilities Thanks. one are And people And renewable balance I compressors. Has more And think about opportunity for of the some that last industry Have trying the you talking gas mentioning going market know I needs more about me. going been for to forward? natural into an process or get and pipelines? you that it ever can be

Stephen Taylor

[ph] been [ph] it of guess the the it much. big been Yes. overt answers part hadn't past on market because in SG just I as hadn't a the

feel environment, that real cleaner opportunities being growing. air, contribute to converters engines obviously obviously our got engines of from just equipment a ratio we've etcetera. fuel one that. virtue a in regulations. cleaner mission the there meet actually are exceed going state's the better capitalize worst controllers the I Now of that But of the some engines, on the fuel And from Yes, natural controlled think some compressors that's of by we drive gain like in Kind already of to every standpoint. point to or and tightly fleet, is of clean of gas very any and

We decided a say and I while to we back. vast -- it's exceed of this majority -- typically stage, we but that exceed. all So hesitate the that

to some there think mechanically more and one, market do and customers to know in of is that number fluids, opportunity physically things So engines. But and skin we've itself to etcetera, gas we clean like so practices units the oil, to to it got conserve more [ph] different, and real some that. components is adequately equipment to gathers field; capture in The the number the recycling on I our that. two, got they

more little that equipment it. and more I think clean a more of out But the And and going the an share to piece part there's of see taken that get of it. customers and us, think more got are more of more gains emphasis think sensitive I and out on you'll equipment. I more not-so-clean to certainly we've and do advantage, more versus to

Tate Sullivan

comments. all day. of great Steve, a Thank Have you, the the rest for

Stephen Taylor

Okay. Thanks, Tate.

Operator

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

Stephen Taylor

Hope and Okay. you to morning. you your you. appreciate each holidays new joining Thank speaking happy you, me with look year. wish I the and are your in of XXXX. forward call. Thank for NGS on Erica, prosperous this more healthy about thanks, I everyone, time a and

Operator

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

Natural Gas Services (NGS) 17 Nov 202020 Q3 Earnings call transcript