CCLP - Earnings call transcript Q2 2018

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Operator

Good morning and welcome to CSI Compressco LP's Second 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. ahead. go Please

Owen Serjeant

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

forward-looking are those 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

a over the opportunities. of our posted call turn EBITDA capital with am report to idle with more provide an results our series filed and start website, best our our our on and of financial our financial Xth our to get as the prices undertaken on earlier out Elijio to XXXX. performance services, then Form to August and CCLP be over for and high equipment equipment significant the addition projections. QX In is who and pleased better would morning I press release deploy chief went or in announcement has overview return Serrano, The and previously the this I XX-Q planned before QX. on initiatives that team officer detail to improvement will SEC

to back our at continue newly ERP focus supported the after our centers in office, have We system. improving operations efficiencies our our all field aftermarket fabrication and implement by and on distribution facility in

reflected we This that those continues compression and market continue America strong. the financial quarter results coming on to believe be benefits impact of upturn efficiency as future. initiatives efforts these the are North our from on We further there The improvement. into in the

CCLP; demanding adjust and are to and to those customers respond Our more we've equipment services from been and quickly able demands. compression

through and After-Market you Compressor to walk me New they and Services, Let our continue are how describe performing strong a market segments. in three improve business conditions. and Units

early provided are fleet. for equipment X,XXX guidance we've building XX% approximately this year. million adding Services from for business the compression expenditures. not Of million this decided XXX,XXX to capital on capital robust. to equipment, capital we of $XX is over customers fleet. we million a inclusive be that basis expenditures between segments All year, $XX our be new as we increase to to to a To services continue we expenditure, growing our Compression increase approximately from HP. horsepower $XXX is our This from address the be a $XXX $XX ordering our Firstly, orders demand of million we're disclosed XXXX anticipate and maintenance This increasing million very our an our will total customer-specific a projected speculative

equipment This focused and leverage total where who are how that ROIC on allows the in to very being geographic continues customers capital targeting only CCLP infrastructure and are a high areas strengths have what with want or a our partner We and we as disciplined in horsepower network and fleet systems existing XX%, secure currently existing with flexibility of that margins solutions. new us with incremental investment the as we to are better higher, allocate to compressor attaining. supplier to experience and offer opportunities

on will we focus our offer regions hurdle customers, and returns the have for identified we on compensate services projects and probably meet equipment appropriate rates. capital, Given and our the that

We continue to of systems future these closely to providing with ranges. the applications work customers solutions horsepower requirements compressor range compression on on a

contracts our second supporting increases started gas quarter to system compression as for impact results continue larger in or rollover material also services the XXXX. repricing and to gathering with assets. place We customers, These contracts especially new our

increased progress on with leading pleased all believe active deploy at service reflect is we edge pricing in fleet equipment large We horsepower customers our price to our for most today the basins. actions the demand and with are new equipment. We from

a continue integration to combination drive a expect and pricing equipment improved vertical We to to our cost fabricate given of lower returns on our capital. up

strong QX, backlog and million, remained over at orders end our January order pushing our early quarter the equipment have $XX $XXX we of party shipments as new we another Secondly, third secured $XXX the had even over fabrication activity with we above of incoming And sales in strong though million. company's quarter million in very strong in our in the reported, largest backlog second new QX. booking sales unit history our remains

it additional $XXX expected in and America, $XX short time out in end this new horsepower operate basins. to to demand trend as received day. equipment processing to build around mainstream strong million as capacity an out The take have is key for in build of a is the in continues basin The up backlog Permian of we companies ship Permian million industry pipeline as pushing through to rising XXXX constrained the the in sales in early expect large large some that of of equipment Additionally, more and areas infrastructure, specifically as basin. away that capacity for already continue North QX, we is and

improved the overall third orders, additional a go-forward segment be on party and basis. we EBITDA expect expansion a to unit new margin recent the contributor the company With much to

our grow continued recent in services Thirdly, in aftermarket strong delivered with have another QX. top to quarters line

parts, maintenance, service engaging in deferred new ordering customers maintenance, recondition previously completing and on more technical pushing and spare up catching older to site support. to equipment are on back bring times equipment that overhauls are to is customers up lead catch re-application engineering our many more long The Our etc. equipment, requires services

in we business deliver half this partner While can this margins substantial second to expect and in returns. the of fluctuate the to mix to sometimes due business grow continue services,

quarter from capital over after-market time sales previously; new should disclosed parts services last business does and often The we to more settling any Importantly, roughly the between seemingly the this equipment that X,XXX as to going continue correlated our in business us and to equipment. return The has stronger sell grow. compression purchase than aftermarket one. rig strong prior the X,XXX stabilized at X,XXX I count who not with to purchase industry each ten equipment US is is need business above rigs gas The a trend weeks. customers

our have where business. are with designated and drilling customers where high XX% equipment, of with from now of in headed. more our regions programs we the rigs as our shale deal XXX well compression fleet demand to for of additions are of old deployed play bodes the for Over rigs Our the volumes which majority these majority have gas associated new

more of from activity and areas and and QX and large majority Overall Eagle demand from deployed. for gathering XX.X% the XX.X XXX,XXX. in offering, XX.X%, the Today, we the significant amount horsepower quarter-over-quarter The new letters high most rates. basins, is for agreement to quarter. well In debt then of open our equipment operating deployed have systems from overall on to our $XX and addition quarter, the horsepower million demands. Elijio bond last utilization our capacity return we are uptick earnings utilization Oklahoma horsepower these financial respond on questions. business. around active details entire of without but end end mentioned debt where SCOOP/STACK the at XXXX. credit. it maintenance we to the end will an outstanding the at capital are major flexibility of out XX.X% working vast of are second existing equipment areas is will now include are up expect the at to up to a turn of covenants The the previously of We structures all liquidity quarter, incremental Ford asset-based for offering focused With flow, of with as mainly the bond recent reported greater Our building the in a to horsepower our of are XX%, the and the of call, finalized equipment, we during at deployed fund second that, fleet on which increase the and as last all increased favorable XX,XXX the up and new X,XXX funded of a our the the and increasing at I some over up to from quarter to quarter, Permian for XX% investments plus Today, cash structure meet provide customer provides also needs

Elijio Serrano

Owen. you, Thank

Compression sequentially with revenue XX% year XX% up increased $XX.X increases Unit with quarter from activity sales by impacted were our initiatives quarter, $XX.X to margins And Services efficiency. by and Services including improvements Services XX% the was Services the efficiency to XXX an margins continued price Revenue compared year-ago year in gross to three Aftermarket of Services We first line for million XX% Owen Second last and revenue increased to up Aftermarket bases, first $XX.X the due increased million. XX.X% the in with of New the quarter business also. stronger a lack to million. increase pricing, exited increased Aftermarket million. XX% all earlier. has pricing, primarily accumulative the continued events mentioned quarter and revenue revenue weather of sales, equipment was better second due XX.X%, margins from this $XX.X in over Services benefit that Compression quarter us XX.X%. sequentially Compression reflecting better to

in from due delivery the with vary backlog We of and drop activity to area can the million this started of strong of demand levels. continue which up deferred inventory XX.X%. call-out last The higher Equipment nature came maintenance, continue building year. continued deploy This sequential reflects quarter stock some equipment as to services mix equipment in third of gross work. customers $XX.X margins the to on that of sales anticipation growth the margins up we previously and to were rebuild a in and catch from of their idle in see parts a

are benefits equipment in our last of the the made manufacturing are margins quarters. delivering, materializing to line and couple the strides type we we over improve this Our of based have costs, can efficiencies on vary great and

value We gain we the of expect that a The press up equipment continued quarter. of improvement in result see in morning second sales second second of the the $XXX units. the to quarter guidance the A EBITDA Adjusted in issued recorded three backlog. from $X.X key $XXX,XXX increases was million non-cash quarter, to in half $XX.X a as XXXX first million, the the adjust carrying updated Series In release we this million areas.

impact hosted the we increased we of to adjusted will the million million. in allow the we New this earlier city year, improve aftermarket year, delivering to line York million in $XX.X materially to guidance. projected deliver XX% deployed new delivery our idle in leverage mentioned year year equipment half between $XXX guidance, the investments of full $XX achieve in $XX second plus that of on EBITDA coming At net year impact returns of continued to services we of of in EBITDA delivery-- capital us the half the price this XX% on million this as million. of of expect the achieved Investor will half midpoint the whole-year second achieve of what of progresses. ratio To the we First, over a the of be the we first $XX.X year; our as equipment and the Day cumulative adjusted of this strength have up The first type the half increases,

improvement the second went We year expect quarter from our getting better. the I We commentary as ratio quarter that, leverage sequentially reconfirm fourth each will X.Xx we with levels X.Xx reflecting just earlier that strong in be material adjusted earnings range, the in in the based annualized EBITDA are adjusted on to EBITDA, current year-end that of seeing. half through strong rebound a our deliver to our a

coverage I the by sheet. year. distribution $XX of be of ratio release in bond we've are we range on Second, encourage we higher the guidance. work margin. EBITDA by concentration distribution all from opportunities, million expected offering. to customer lower and third, mentioned additional our half assets D that the give the is stronger year is this second in Despite the we investing capital the income of operations. to our the times assumptions from X.Xx balance $XX streamlining carefully total on press half adjusted half an in secured And activity in our we improvement for scheduled in incremental levels, the in X.Xx to read you outlines better proceeds versus deploy release. the the of we all driving commitment We our bond the maintenance continue capital stronger driven that provided this-- press that improve to statement press This All several second first an as mentioned the that ratio a in investments the this very Owen offerings us our to year our release will materially have the coverage our raised return where stronger and guidance capital. focusing from of million

result With efficiency a costs opportunities to to continue in ERP second-half August lower of the Included level a that ERP guidance year as office. in we benefit system deployed back cost and our ago, system. of see streamline in reduce both a field and the is at and the we

committed with will up We are questions. we we live to $X to deliver saving deliver we year million went on open a in that track to August ago, system the when it With systems the that, Xst.

Operator

Please Instructions] [Operator question Raymond ahead. comes The Marshall first from of go Adkins James.

Marshall Adkins

horsepower, XX% we number On which maxed high morning, effectively for equipment are there? an exceptionally got your large you the out Good guys. utilization is the

Owen Serjeant

yes the-- returns so Hi, Owen. we that limited, are. in Marshall, size level what ship as to I on XX% The we it's is our it. very focused ready and why know and on investments be of from horsepower capital of size sounds, to soon back that's horsepower, that utilized highly field, it perhaps it's is coming as is growth are ready of our the deployed

Marshall Adkins

Okay.

horsepower us well, is lower average trends and update a on work? are the means still pricing that utilization to get how So to and fairly horsepower low, give is of utilization the horsepower obviously XX get as chance there an low more those to trends in you that back

Owen Serjeant

Sure.

to gas of sort high shaft some of oil that below prices - away oil as up the prices range, more we Again, back subject size and It's lift, XXXX the from half application, to where they're year, reciprocating moving to the to filed in XXs On application XXX over that's that. the on different for unconventional an started sequentially range. nonetheless still gas the smaller basins wells conventional of improvements production. the XXX high wells, but quite the and the on in opposed of The horsepower different the see units. mid we slightly the--

below So range. at each but the there getting the part into - the XXs opportunities more is XXX, XXX the fleet up X,XXX of more XXX certainly to a a opportunity X-- high moved to has up for in is find the field,

Marshall Adkins

but been have scale getting bills phenomenal debt high to know Elijio? least the from what are pay time guys the and Last still new at very you back you start at I debt Okay. now of do you one new levels, point on horsepower you me, adding, have returns down

Elijio Serrano

Marshall. existing and are infrastructure margins attractive. is incremental into very equipment The existing first are you are within point, we that footprint, So, customers deploying the on right

continue that to ratio be right the material process. X.X opportunities. that cash that QX we those drop see we retain is think of our improving now. demand don't we part I those we range, the hurdle the I achieve and deploy mentioned will X.X in from going If where to and we also our deliver as run to areas leverage EBITDA, rate on based off, down use rate, to are in annualized

Operator

from of next The comes go question Janney. ahead. Please Michael Gyure

Michael Gyure

you good to related morning, guys. about-- a bit guess I Hey, little Can talk backlog. capacity the

the you a that take about I backlog you guess talk mentioned availability backlog engines, actually higher. and could your stuff? of product of and about ability $XXX Can potentially is I million you think how as turning sort as far the your infrastructure, large that

Owen Serjeant

our the load is about customer equipment requirements Midland require within built and and Hi, very capacity Owen the I with what and here. new comfortable scheduled we talk facility, the backlog the we and both being the also are, we levels that out that we for didn't facility the it's so against units, work support are fleet. because what

We a also some we to speaking, have fleet have. Midland help commitments have party local extra load by met made customers, third side equipment with held have, the us being company that that to and our of are are generally may externally facility. with partnership a very for both we good and we business to schedule the our But the being

Michael Gyure

that you And next the of delivered then mid to of the that next you the at maybe of kind of do - expect little be about Speakers] do rolling year talk backlog into late year, timing to or if could the most bit a about of end you off see [Multiple

Owen Serjeant

building the pickup up next and so know in the get now half half orders of going sort so QX, of to moment-- the for are from of QX in shipped be generally described I the want our will first the we second we-- you now and the they we new to year, year. that orders in, At see backlog in be

year units the activity. terms a in year on because anticipating shipments So the of of similar next we're new

quotations take-away customers are budgetary firm, through well of where on influxes picking of it processing these plants both horsepower working and at look out as with building positioned We that's a lot and and up we we where are and sitting - start are pipelines, they capacity. orders go that the because infrastructure into been That's we have into XXXX. go will to

Elijio Serrano

and I time of to compression-- delivered received that compressors add, the incremental the year the from forward that Michael beyond. of this are for the most orders lead would and likely delivered the unlikely here QX-QX any for we because engine, be

and have rest So we QX for pretty much the shipments the year. out of QX laid

Operator

of question Morgan. go Please comes from Tonet ahead. Jeremy The JP next

Charles Barber

This is on Jeremy. for Charlie

First one on the wellhead compression side.

you Permian, if the on curious the there. of Just set could takeaway constraints in touch opportunity a got lot

So curious and on what latest discussions your kind you're of hearing.

Owen Serjeant

as processing on spent applications time, They of processor they described top the operators our Yes, lift investing and out the of customers, new be in key that to project of natural are takeaway gathering/gas where And are capacity. plants pads required on stripping larger companies, gas and the capacity from part midstream or as we longevity seemed new the that's our for out I've ten LNG again existing might that topic the XXXX positioned customers if plant then, some buy to capacity. that terms to of in the process and about new our just capacity. a horsepower you the compression to is sort to larger serve a there into get so-- functionality. going equipment when into like, because the gas tend the dual of takeaway tendency compressor who have particular have of talking be needs you them which, now, into And committed well

we and customers from are we with. XXXX are they starting it's inverse, generally So for plan the plot positive not and to our their ahead from the deal standpoint, pullback requirements. that any In seeing speaking

Charles Barber

Or think then discussed And plus I What's rollover kind of.-- on getting kind kind secondly, XX% higher is of contracts expected the great. for this year-end? to of that When by the kick duration pricing. Okay, you that? in, is

Owen Serjeant

percent didn't the cost lot a in we basis. through this call particular ongoing we've because sort gone pushed mention this of an a on It's as pricing year. We

end new on if sort this at equivalent horsepower pre-downturn. like what of year that's and been the sort next. was of is of towards around into back are to But deployed price certainly going We it to you two,

So advantage those we and that to sort new horsepower in the that take shortage horsepower of levels of higher demand on continue ones. especially is about

Elijio Serrano

those one-year will I add basis, that-- rollover, And, on on they throughout an Charlie, a matured, were contracts get renewed contractual they renewed and basis. XXXX annual

those renewed rolling are January more they that's you obviously contracts contracts again prices the we impact starting over, margin buildup at and you and get at year into being new why account, and now seeing as of So, revenue higher rates. And are going XXXX, month. month, of a over each each in of through cumulative push roll the each

Charles Barber

Sure.

makes sense. Okay. Yes, it

Just outlook another one XXXX. on your for growth CapEx

discuss your Just position year? you liquidity curious into next could if heading with you fiscal how comfortable are

Elijio Serrano

any to pre allocation there so, we that guidance those at with the we If have we until CapEx rate, We a to But out going to we going returns. laid capital. investments not that continue approach we hurdle are want our capital XXXX. anything Yes, know very organization. for begin haven't believe we disciplined to the margins be commit are sourcing within will

for in this and cross have customer committing We then to at anything bridge the not point we're future, XXXX. but that commitments yet we'll

Charles Barber

Okay. then me. for last one And

Canada. business international the mentioned you Day, Analyst in and Latin America During

you opportunity that set could Just more kind if give wondering of exists there color there.

Elijio Serrano

had horsepower seen you Mexico in as in know larger international, presence the we've we level come primarily for have horsepower Latin market, a and activity with but So Argentina, good smaller up. opportunities America a in

is going an keep the that's for And benchmark we shareholders. our I'll continue to going available approach with Now we customer, largest what the States have an network take. existing discipline to return move that with in we approach. where our against and be existing capital We back the to capital opportunities to United those

on opportunities run keep through that and put we two up in up Latin for focused States United the We we out capital. Nonetheless, our other against flush opportunities in we them coming markets are them America. modeling. So that's allocate how opportunities; we

Owen Serjeant

the as as agree of down got Basin there. made trips operators, And indigenous I've down couple taking have Argentina just now with Yes, America. to Latin in you've that. a operators assets where recently up well you Neuquen I international

So in despite with although there it change in economic opportunity some similarly both Argentina Mexico growing we the might have some footprint a presents of government new And a and in for and see. the Mexico, a leverage going woes is countries, Argentina, of the good us does in countries, where nonetheless forward. but we can TETRA off opportunities infrastructure projections, four coming those

Operator

from next Please The comes ahead. Selman of go Akyol Stifel. question

Selman Akyol

Thank you. Good morning. what Couple I ratio guess the the but of quick is? ones; first leverage you of out all, the leverage I down cycle, coming next year, you as appreciate of look your comments appropriate in about think over do the back

Elijio Serrano

objective New question. Yes, in we working long When and out term, range, York. the the laid at our meeting our right X.X an with market be in that to down the long-term opportunities is investments us objective right over the are improved in Selman, balance get X.Xx the had we want between get earnings toward We that we good analyst so there; market-- and to to then range. look capital

Selman Akyol

Thank that. can bit then, And we you, were in appreciate about they came the little expenses higher a looking you for? SG&A talk just also, in then quarter,

Elijio Serrano

our a items one-off that few the quarter on side. SG&A had we impacted Yes,

We under quarter. basis will per a be $XX that expect go-forward on SG&A million slightly

Operator

Please investor. Rothschild, from ahead. comes The next question private David go

Unidentified Analyst

investors, where your call. at? comfortable going guess investor private of the I'm distribution Thank you distribution to with are it's forward taking security always for you as concerned my a your about I

Elijio Serrano

the participating I appreciate on call. you And question. Good

market, two, we any going investor opportunity capital focus had three in opportunities we had in York this our as invest on as we down when to the high this an out meeting that growth at and New were in returns number debt, returns. and laid with look year, the to Number invest one, earlier So number distribution. there to we're market pay long

respect as we second with of would is that all. coverage believe very expect ratio to the distribution our between in million a our we $X.X the in don't the it distribution I at that say out be risk that morning Now half comfortable press release laid to million. ratio that exists, is year, and protecting coverage $X.X at that it we the this

Operator

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

Owen Serjeant

you, Thank CSI join everybody's time to thank call. concludes This taking in Compressco. for We the appreciate Michelle. this And you the us morning our interests on call.

Operator

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

CSI Compressco (CCLP) 8 Aug 182018 Q2 Earnings call transcript