CCLP - Earnings call transcript Q1 2018

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning and welcome to CSI Compressco LP’s First Quarter 2018 Earnings Conference Call. The speakers for today’s call are Owen Serjeant, President and Elijio Serrano, Chief Financial Officer. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I will now turn the conference over to Mr. Serjeant.

Owen Serjeant

and this morning quarter you I may XXXX to you Good CSI joining would be Phil. contain remind first may forward-looking. Compressco’s on which assumptions results to factors. of These that beyond deemed you, are to and subject statements certain are made of These CSI number and for thank are the based of Compressco the like a by number statements be Thank that uncertainties, of the control risks a analyses are on call and many or conference conference are based partnership. call. statements

forward-looking are that are that differ those may You of the future from not actual such statements. results performance and statements materially cautioned in guarantees projected

of the Please we EBITDA, call, morning’s in to addition, coverage may accordance flow, reconciliations cash the measures. in are of of EBITDA, financial the press website for adjusted or substitute backlog our flow, the These GAAP should considered prepared a course financial information within refer to ratio, results non-GAAP nearest the reconciliations non-GAAP complete distributable public distribution cash be financial period. free context for to GAAP not measure. this release and with our other refer or In to measures for financial

to to management the provide and of projections. Chief expectations. posted and visit the will over the with to with since joined the an conduct to our I order have the filed large start website, our the on then I’ve our I secured Xth pleased our Elijio our pushing CSI to results, ourselves better logistics align is on and had opportunity The earlier in who gas Midstream lift have reviews our our of and our over business in conducted finance as the million. of and very team. in position $XXX fabrication across including we I key to what We've adding we third and financial Financial out Serrano, our I In fleet, and strategy last year. to a on on have procurement returns Officer, had business XXXX. performance, to customers. January, the turn company, with operations first and details Form margins May I Mexico. and this all November be joined operations US, the management the company’s addition months In capital. is will morning offstream In press I management visit gathering release designed the option. our went profitably many sales or Argentina and announcement areas, to taken overview also created detailed quarter, fabrication seen our X.X publication call reviews, I generate believe also I’m our clearly history, this sales more of opportunity to the model In have teams I across XX-Q segments. planned operations, on GasJack to team is before balance system to initiatives steps several that convene backlog XX of positioned detailed party business, Compressco sheet with our participate SEC several

keep process cycle. in for the business. the $XX this expanding bond capital our we million into and of maintenance asset revolver over revolver a Firstly, We're putting of place in it no based million provides working us our covenants. This refinancing a liquidity of to to provide also retiring cash with bond X-year replacing completed with invest additional $XXX to needs offering debt by into

improve to defined management have capital. team goals our and objectives how the on returns clearly Second, on

be will that achieved. We have rates hurdle

customers identified for equipment for bring. will services have the compensate the We that the appropriate we us and properly

targeted Our investments our core customers of group select areas in are of existing be at a going to future strength.

assets. We are system increasing prices with lift asset gas a large with gathering and

achieving cases, approximately coming deploying. some closer existing XX%, price These equipment in are will increases where over are of XX%. increases are to that rolling assets new and from We on be contracts

As achieve part we focus will returns. staff that are better of infrastructure inventory an on better repositioning this customers compensate us, on to

earnings $XX conference Third, to we projected XXXX during the from have communicated capital expenditures million million call. increased growth our $XX QX

our pricing. and on Those So for XX XX% above add fleet. horse to now from previous to coming for are power are their fabricate orders and million. our compressor This million approximately orders our based committed XXX,XXX engine will between All customers. in fleet XX equipment incremental orders existing approximately

improved capital our Fourth, focusing has area that operations of we expanding fabricate past equipment fabrication drive working business Midland our cost down this to improve our to further pricing growing over need This required, equipment. We're aftermarket levels that And are on services. significantly combination is to the The prices deployments fabrication minimal been drive of return The of this mandate two business the important have of on capital. margins. to in cost further lower greater in we majority on a equipment the horsepower. and fabricated with fleet quarters. expenditure expected and understand capital. are grows up our Our and also of or clear to being X,XXX vast no putting

is These our to focus and materialize. to quickly while returns is is key of ourselves for or providers a true us exceeded we we a aftermarket achieving on needs, and but challenging gas for on Fifth, than technicians quarter benefit rigs North that America and rig the continues one. aftermarket prior and The include in are average not each industry increase only are As expanding gas fleet now systems, climb and on normally better new largest effective heading from rhythm increase, cost services compression from I on clearly focus pricing, and focus performance. is requirements. also The consistently the to service knock-on our service Mexico requests at also services processing improve to the one gathering the to assets we there more utilization area significant XXX performance quotes to believe fourth XXXX equipment getting week. discipline last it the in the compression progress areas count against US a management covering seems seeing rigs we lift quarter opportunity on This monitoring the in direction where for and Argentina areas in proposals. and mechanics trying have market like than stronger in capital. Over This be is time, we right our deploying we expectations, our and become slow as better sell. most equipment our is keep sales can, to moving aftermarket

growth, our where With volumes existing very coming compression in which the have volumes demand gas more The business. play demand the the increase. continue for drilling associated our count in of well programs, from gas rig our customer to to base from customers the is bodes increase for higher oil shale US

are into the Our having gas them systems. associated the Midstream large move assets horsepower

our existing Our more network. capacity adding to customers keep

are We service their primary provider.

the business [indiscernible] Midland obviously our on Delaware in networks where seeing fabrication based. We’re build is Basin them

We material any Basin. Permian the scale in compression the fabricator are only of of horsepower equipment large

to next preferred Midstream growth large the In expansion later Basin. allowed $XX or accomplished the In by to for our lift. [indiscernible] to is gas like the daily year with the locators that we’re of of ideal our range volumes wellhead XX engineering and driven are gas, high the This has Company. ASPs utilization horsepower and to into horsepower. in growth gas, Delaware secure million an size capital than compressors our for associated greater XXXX volume on breadth in compression increase centralized our over held us horsepower in expenditure and in alternatives year lift are to deploy with location to the more and larger the gathering higher XXX support will this of to operations. units. able we Permian order larger with this a XXX of be gas either services support fleet, gas centralized oil of over horsepower required that the order lift for into process, horsepower This units Our knowhow improved either method of basin fabricate of other gas wellhead production. to lift focused bases continue compression large is offer This XXXX the [indiscernible] trend gas

we the in Rockies. are improved seeing the application this fleet, GasJack for demand With

broader applications application gas fleet evolving increased gas assets are well these for stronger of our opportunities and for We demand production on The our of evolving lift liquids. enhance our gas to and lift assets. lift also for systems, gathering combination of diverse plays towards

and XX.X% gathering previously at where majority fleet up to in to XXXX end from of focus up back entire of XX.X%, and XX,XXX Compared XXXX. deploy increase quarter power of The the at increasing from the horse work Our systems for over the fourth XX% vast deployed during at XXXXX quarter first incremental is that the QX, end XX.X%. as Eagle the nearly horse for amount We higher to the horse well include of an power XX% stack put utilization as the our activity horsepower deployed. utilization quarter, XXX,XXX. to around Overall equipment XXXX, and the the in that the first have end Ford quarter areas crude XXX, is demand with areas the idle. Oklahoma we the now most and of basins operating Permian quarter is horsepower power was on

Then, open are for I provide it equipment on are equipment adding more for out on a details will now will more Elijio a securing turn customers questions. placing for With than offering. large to equipment making building capacity commitment Today, the new recent that, at are shortage. our we we over year some quarter. as to Our bond orders and financial is but the equipment, up

Elijio Serrano

Thank you, Owen.

XX.X% of potential with horsepower allow XXXXX the to reports the equipment. in for given we regions to of categories equipment costs XXX our industry Compression aligns compressor three services of our three cold across equipment and how of divided with general date. improving to better rate. XXX are idle zero of hours or Historical To year deploy revenue quarter sizes, measuring times XXXX do better XX% We revenue was unlock XXXX This the horsepower sequentially a Equipment increased the from non-recurring. XXX locking by comparisons, reflect basis up over exclude horsepower, impacted weather horsepower unlock as horsepower. published XXXX from the X.X impaired to either We the categories X were be in $XX.X consider up. utilization margins to compressor utilization to fleet was XX.X% from from package period define equipment industry points of horsepower services aggregate stronger trends that utilized. aftermarket horsepower freezing this increasing service to million with and XX.X% prolonged [indiscernible] from that to issues million First quarter revenues, to fuel approximately fourth improving parts in in horsepower website. activity by is March labor Compression period, Active otherwise bills labor quarter Compared the by services. utilization services were million. almost on $X increased the ago we X% We $XX Total from horsepower as fleet the and expended year. last sales and increased XX% under XXXX various December for XXXX aggregate $XX.X increased the will in of and we not initiated by fleet and during XX.X%. higher for conditions repair be as by the by that first we publishing to better address our million. utilization incurred million our equipment continued to to time. technicians proactively aftermarket this sequentially over and composition horsepower equipment to or on X.X% Texas in the

fuel repeat future After was inventory Midland into adjustments $XX at with to one expect other of margins the cost and gross million that The services revenue we for don't for XX.X%. was market quarters.

demand for we our of delayed sales the Equipment gross maintenance and margins area, strong We anticipation prepare the we customers year. in previously and up with levels. stocks see continue idle started third $XX.X to catch this quarter if in equipment deploy, equipment delivery reflected activity build previously growth million inventory of This XX.X%. that last higher the in of of were backlog building to

backlog. million associated with equipment we in sale see retired that the the incurred In a $X.X of increases offering. costs million result write and charge We deferred as to financing continued with the expect a off non-cash first to $XXX.X the bond revolver we quarter, of replaced

million first the the the EBITDA the $X carrying units. charge the was impacted by adjust A we guidance we incurred increasing a million and build to in of meet are previously perspective, non-cash fuel Additionally, our to as cost Adjusted we $XXX.X From expenditures first schedule of guidance customers’ I on million our $XX.X mentioned. quarter, prior million by to was demands. $XX capital adding for quarter are value Series

million We CapEx horsepower is $XX growth the by expected approximately million. to are to our be projecting This fleet deliver year the XXX,XXX end and year. total between $XX to incremental of

maintenance first to between was million capital $XX million at million. remain quarter, We the the $XX and $X.X expect for In year. capital maintenance

total from give that several These momentum year areas providing guidance. the seen have us items in include confidence We following.

is to XX.X%. equipment XXXX improve. unit continues is over horsepower utilization Large horsepower total and XX.X% per at First, at

in on quarter, Second, the rolling of first an from that quarter in had expected over. the second are quarter didn’t and mid to the but these started have and first material we impact Many success contracts have to impact prices increasing late in beyond. a have increases are

the mentioned, cases increases have been slightly at a or XX% As where Owen increases are higher. with averaging XX% few the

customers adding they large by delivered end horsepower above year. our fields what mainly approximately horsepower These had being XX% and building to systems. are last existing for of at gathering are our to we approximately equipment prices Third, XXXXXX year fleet, in existing

services be new equipment being we customers. will a technicians by core is higher orders, mechanics The fall continues of our where Fourth, through to this this majority end million equipment is accumulated equipment And the customers is than and support the from commitments vast where area of delivered will of this have in upcycle. the fifth, commitments aftermarket the have last over infrastructure areas Our on business Most of to overall our year. to from sell. be And the our increase. is build of of backlog we $XXX margins. fabricate expected the than and this in backlog stronger a

up year we're be to these bond X-year million quarter is the coupon data revenue XXXX between back record be paid of a to on of it we quarter Directors we Owen over a that we X.X% close on outstanding to be balance $XXX that, and invest business are pricing million, Adjusted five common On allow step base will secured sheet XXXX data we covenants, five will the will maintenance partner general maturity. finally, a previously million we EBITDA perspective, place of these hurdle first successfully May a million our XX.XX on at first completed the contract. a that debt April with open [Technical mentioned in $XX have Difficulty] cash bond question. of is put $XXX of run This And secured a mentioned provided working total mentioned to distribution on rate us unit, this as return. us May rates reflecting from which these attributable holders meet in XXXX structure million. $XXX to asset also the points, of which in implies to common are From to X. cash for projecting $XXX and revolver Owen higher of when cents than that unsecured of of that seeing. now significant current $XXX covenants. Board $XX of Their neither million the term unit million also projected XX, announced invest per up of declared With between a also the million opportunities XX And rates that $XXX million of $XXX with that maturing, offering to notes points.

Operator

Raymond James. from comes Adkins Marshall The first question Instructions] with [Operator

Marshall Adkins

comments see to focusing to contracts Couple these you’re long to going pricing Good morning, you’re me. percent on gentlemen. to over good for on seeing? take and roll forward. returns of going XX higher Thank plus it for this is things you the pricing it’s How

Elijio Serrano

morning, Good Marshall.

year. all that over of vast during expect the the this We majority roll we contracts

Marshall Adkins

Perfect. the go? can you’re right horsepower, on And at How then utilization, on XX%. high you’re large that

Owen Serjeant

It’s Owen Hi, Marshall. here.

much a that pretty There We’re is improved still little industry, at number. back, capped out I that will think come that. bit in pretty we’ve much, the but obviously,

You that in only XXs. level the have

out. capped much pretty You’re

Marshall Adkins

Right.

Okay.

think adding? talked build do equipment that returns returns, what So you are you to about going new you’re you be equipment, that on your new

Elijio Serrano

pricing target a will that our to in Yeah. house. and toward to give Marshall, I not we in competitive environment, recurrence. philosophy keep Otherwise, prefer lead it market prefer

I have fall a majority expect of would significant to the through the say However, the that we pricing line. bottom to

Marshall Adkins

mean, – How XX% give range, we us I you talking give about can Can IRRs, a just XX% to me like this? that are is the ballpark? you

Elijio Serrano

on lower expectations. say would I our that’s end that of the

Marshall Adkins

Last your one horsepower, just of not us is focus of kind market picking give know overview. there it what looks but me, the give should demand expect? me I we there, overview forward, up conditions like for small that’s a and going

Owen Serjeant

And lift the wellhead still there, unconventional, reset those because are have not but to a unconventional focused maybe of on apply On of at can GasJacks, we recovery and areas. in improving. looking on reship of the utilized lot slow applications, continue a be activity see we highly more and it’s where horsepower conventional in units There a applications. units, fairly there however, that’s gas is up gas on volumes, smaller we Permian, Midcontinent, still the in is of sort because activity the of the quite lot side, type we the

to of the year. up that go course that creeping the expect can towards, we start So through

Operator

Morgan. Andrew question comes next from with Burd The JP

Andrew Burd

Mostly housekeeping questions.

core portion business? services is from what provided, that the you guidance revenue of compression the On

Elijio Serrano

equipment a -- that $XXX expect range come say of would to slightly we've million million the on XXX from have fleet -- and at million right $XXX I rest going will and modestly expect would that we're increase would sales continue deploying. services to the I will backlog that it aftermarket I that of got over equipment. the we're

Andrew Burd

price? what raising terms they existing for contracts what how you getting of new you on equipment that signing term new types a today, contracts and think or -- do about you're term on whether are versus And prices new customer, philosophically be

Owen Serjeant

are the the not think I them of as tends horsepower be traditional, longer both the this length be of well. see term to and units, parts of in higher market, historical on you especially will important, that all what that’s sort

larger you'll period price them type those to and see a be one market. year this contracts, we units, here So and three think or conflict year smaller year between don't I in two term ones, bought has in

Andrew Burd

then Can local sizable fabrication, capacity, industry and order to sales comment the been of but from And you modest. outside you equipment announced have for additions business the especially footprint? to Texas competition that West in turning your on January, backlog just good, fairly and customers

Owen Serjeant

Yeah.

think well moving I’ll based position Generally the the based in one. sell as to not focus on, support roof policy. to the a answer to based towards as chain of capacity trying fleet industry capacitized companies strong on sort on – and particularly speaking, the supply about I Fed supplying is resources line, perhaps

activity. quite lead time is From see a will about we you extend. our still no see to of standpoint, doubt start So lot There that.

a are of looking sort be buy. of of period buy through because sort infrastructure, midstream large E&P You've as but of XX Midstream go who will to to are own time we their order. at some looking got but economics, might services the looking there are million of look model who to people growing this compression companies equipment And got for a

to is but of a model mixed So, there moment, horizon. the on it’s bit little a activity at still say a that the lot of suffice

Andrew Burd

it's Great. and more about And final question picture opportunity the for me big West in Texas.

for this with constrained compression particularly are business? open there wellhead in flaring, any face your opportunities producers issues you, up As takeaway and could that

Owen Serjeant

certainly be so there's time, at Yeah. on that over utilize be left I'm people applications to gas where a compression not being certainly at we’re push we’re gas of but a flaring can looking lift looking with for that pumps, sure big but see, plunged us. of the those there we alleviated, alternate, conferences how gas will much but an for constraints might that's infrastructure, be the opportunity wellhead the and to some for solution and where

know there. back end yes, every got to there the after has with on out We're lot a it the well your it’s day, focus that, but to to down help is gas. markets or there opportunity with looking about to our resolve do I what but industry recovery. this So of situation goes is And

Operator

The Janney. from comes with next question Michael Gyure

Michael Gyure

Yeah.

seems this bit comments that drivers if some for the little talking of is what the your you you Is in at that -- year, we it than most to it’s guess expectation and forward. backlog faster think can that you were about to me talk end the roll about were to guys of reason, quarter? that’s last going what's talked be moving I why maybe off about that's so, the happening, consistent with a talking? I of

Elijio Serrano

one behind the vertically of in of a through of to is your have can queue and activity others. integrated volume control benefits Michael operations you the you don't So that being wait

facilities. XX adding the delivered on believe pushing month incremental the have. end only X, but this but to We're of got period, some by for build that capacity engines our ramping The compressors not we're to the be into also fabrication Midland we've year. able we we're that times lead up of up the staff the backlog to most the backlog incremental fleet our be deliver cat that on adding, and So of we can own

Michael Gyure

a talked grow you talk business, about that you the focus growing in business. about business? on you that there initiatives of then some And maybe to going Can on aftermarket the have

Owen Serjeant

support is velocity going -- to the business in this one things customer. having about of the segment good a good distribution We're parts systems looking out at that aftermarket network,

our the as well but invested roof a of years. as right support have a lot the on reapplication over because past little where shops, few of out looking up there's of selling in we're line folks pent having is bit that footprint through demand, overhaul the a to So not

So the those on do equipment that engineering reapplication that’s work. of of having roof larger resource line supply, areas parties, third can the some distribution, the parts parts to overhauls having do

certainly to the three to activity are areas starting start grow. see those So

Elijio Serrano

Michael one was us implemented turnaround orders things of when very a in allow And quickly and that. the also us but process to it part that. Owen to August of part suppliers efficiencies, we're starting drive and initiative helping we is recognize the ERP our benefit this incremental we system better to orders, internal that’s connect of operating bandwidth to procurement back see that would add we management drive mentioned added that manager and

So the faster demand combination resources big is driver going plus of we system to parts turnaround ERP the to on our believe be allowing a stronger plus dedicated this.

starting is us So cost now revenue to the but in on help it's future, on the us side. also the system side helping the not only

Operator

The comes Howard next question Stifel. from Tim with

Tim Howard

should the Is XQ the your on that focused that so horsepower XX% it is timeframe? kind -- roll in And across should of First your hearing the in higher off, fully we units. ’XX then, increase. comments, are from chain earlier we see horsepower or

Owen Serjeant

XX block, the XX so. equipment to sorry, higher the XX to the that so whole I in but be less units of XX% across in be never generally I to million it the wouldn’t horsepower price horsepower, horsepower range. in tend higher I thing our to fleet, binary the pretty speaking, smaller the of XX much horsepower lot the obviously think, but horsepower are range to these applies tends the increases yeah, larger apply supply, that we're range, differences there's mean with seeing because a

Tim Howard

then of horsepower contracts XQ that? of is And fair to the reset, realize for that those all fleet as kind XX higher that it. Got timing kind

Elijio Serrano

Yeah.

those is So customer. with the organization certain out in dialog over, of and of rolling there in every sales our happens month, Tim, contracts contracts is roll over a number engaging anticipation what

up will higher we put building the that month need to the price the for rate. magnitude they in On of the Once goes the equipment, place. adjustment, next agree at

there's set each negotiated certain assets and is then those month, over, get that and roll So we that number month new are of a from the price benefit forward. contracts and

As will the question we I over have between mentioned place we today, those. will think, an pricing of opportunity new and in our all that contracts asked for the in, put the majority very that now was first expect to the I vast year, roll

Tim Howard

just then are should that expenses in anticipate expenses, XQ? more And shifting any to there field we non-recurring

Elijio Serrano

None.

Tim Howard

out aware of? SG&A, like seems be then any And equity of anything after year-over-year, it items there, one you to was back compensation, time kind

Elijio Serrano

rate saw Nothing is flat of significance, from that here expect that the we run going QX in probably to forward. be

Tim Howard

of sheet on your you kind ramping guys’ of too? balance of then kind don't understand to way kind the well, of of long want kind where as the of term -- balance out I now. get philosophy shifting what with And to kind coverage the just And the with covenant spending and the restraints, now, sheet you’re up you have those

just distribution speak XXXX, transition leverage and for So in goals year to could more but kind a of of coverage? if you

Elijio Serrano

I Historically, of as up that through we've up move go of X term, think to [Technical will see you Longer see that end in times. X from quarters in be the investment the an X.XX last that period, I above we X.X but closer to year. times, think the targeted we're we us being this more comfortable going couple to and back Difficulty]

mean, to the have invested we offering that capital where I improved to impact from our be that being of capital the we big investment us and intend combination I the revolver, earnings growth use think raised capital. from driving currently we on philosophy, will the a I direction. think the in from the been fund bond From an

will think combination of through expect that to capital while the we’ll that minimal returns cover demands working of put up allow place be in us those on and the capital. and we’ll we We all customers, the to meet that ABL our driving

Tim Howard

four be -- you times, is to that Just right? said

Elijio Serrano

longer a time period. Over

Operator

Owen like question-and-answer Serjeant session. This Okay. I over the any conference to concludes for remarks. turn Instructions] closing would [Operator to back our

Owen Serjeant

Thank and concludes to you. morning. CSI interest our the join your taking appreciate We time This for us call. this Compressco thanks in

Operator

Thank The conference now concluded. presentation. has you attending today's for

now may You disconnect.

CSI Compressco (CCLP) 7 May 182018 Q1 Earnings call transcript