CCLP - Earnings call transcript Q2 2019

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Operator

Good morning and welcome to the CSI Compressco LP's Second Quarter 2019 Earnings Conference Call. The speakers for today's call are Brady Murphy, Interim President of CSI Compressco LP, Roy McNiven, Vice President Operations for CSI Compressco LP; and Elijio Serrano, Chief Financial Officer for CSI Compressco LP and also for TETRA Technologies Incorporated, which is the general partner of CSI Compressco LP. Also in attendance today, is Michael Moscoso, Vice President of Finance for CSI Compressco LP. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. this being note, Please Instructions] event recorded. is [Operator

turn over to would now Brady. conference to like ahead. I Mr. the Please go

Brady Murphy

CSI Jake. analysis, to to These factors. on statements remind that and on be everyone that this Compressco's forward-looking. results Good or made based may for assumptions Compressco you call. a certain you, contain call conference like CSI and XXXX second based may thank would statements of I are by are conference joining are and quarter Thank you morning number be deemed

These uncertainties, statements are subject control to beyond a number of many risks which of and of the partnership. the are

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

the measures. we ratio, In this refer adjusted measures measure. cash course to EBITDA, flow, call non-GAAP GAAP of financial free coverage morning's to flow, website release distribution to of financial the non-GAAP refer Please the EBITDA, nearest other our may cash public distributable or for to reconciliations press or addition, backlog in

not period. a are of be complete prepared context financial for within for GAAP and reconciliations These should in accordance considered results financial our the information the with substitute

SEC In or this our posted the went on be before our Form to release our August XXXX. XX-Q out addition on to morning announcements with that filed website, press XX, early and as is planned

overview provide more results compression Owen our commenting services recent some CSI on post briefly Serrano, detail provide on projections. I'll improvements from turn margins, on followed President who Serjeant's and Compressco McNiven then updated the our performance start Elijio financial of call Roy the in an to So to over of our followed by some will our as departure and call by his

his fourth XXXX. you We position address well. from Owen we for for CSI XXXX, than contributions. CSI most Serjeant much President July in Owen As XX, as of quarter him stronger thank wish and to Compressco personal effective announced the Compressco his matters. contributions company a Owen today part that when Thanks seen, of was of resigned in it CSI to is his joined Compressco

CSI Compressco backed continue performance strong the pleased partnership. we with to and be team very to management and be outlook the a by for continues

We the will President announce a at time. appropriate new

Now our turning to Compression performances had level outstanding margins Services with million utilization delivered since compressed highs fleet. record revenue services compression an sequentially. and operations. ago record combining compression CSI CSI of services August X.X% quarter second of Compressco in which XX.X% XX.X% will for several $XX.X is and of XXXX, and increased

revenue, to incremental A represents incremental initiatives will XXXX. gross were the million margins expanded Gross $XX.X million profits incremental million of quarter, of quarter which for quarter relative to from quarter the walk in in second quarter comparing little Roy margins year. $XX.X increased the to these through Sequential $XX.X some the this $XX million first second us first first the from in the improvements. as are driving that XXX%, of year profits the later,

XXXX equipment quarter margin gross EBITDA with and adjusted led quarter XXXX first the margin compression increases gross million over $XX.X by all sequentially, the segments of as Second services of increased three XX% and increased in revenue sales.

aftermarket As timing to both services in we realized. has several indicated due large unit and that the the ramp call, new we our up quarter in been meaningful a of second expected last projects in and sales

gross our $XX.X the $XXX,XXX. the million, improvement business first experienced addition to improving a by unit rebound aftermarket quarter, new by to $X.X the from strong margin In strong sales revenue growth, sequentially, and services also in with million

for $XX in of million from totaled the XXXX. up new first Second quarter equipment quarter million XXXX bookings $XX

is XX June Our of backlog as million. $XX

excess bookings customers in Although purchasing $XXX year decisions. so have our unit delaying lowered this are new year far as new million, of equipment been last some opportunities strong pipelines remains than identified

to for materialize progressed orders pick XXXX in large the customers currently very our we the the that of will year international this late More like the requirements. stages expect expect and order quarter quarter. orders strengthen We're delivery books we sales as negotiating new for second up as of half equipment However, equipment plan in the their order encouraging. this aftermarket second for year we book, some in is outlook half that

the We sequentially. should and requires capital quarter returns. increase minimal very believe in our revenue investments third and This generates profitability business good

to trend for to required centralized support our which their horsepower use core We production. oil well customer, production equipment as the continue early gas gas as in compression stages higher lift deploy higher is levels of to new increasing the for

for first the thousand up the end, XXXX. of and on utilization and from fleet second higher entire Our lift XX.X% at the from XXXX. horsepower Overall, first gathering XXX end the quarter the of of at XX% points the systems for end from end XX.X% focused utilization centralized gas is up at basis was quarter in and the equipment up quarter at the XX.X% the the quarter

Oklahoma. of vast to with the be the majority increase in areas Basin, the Ford SCOOP/STACK including most continues and The areas Eagle Permian activity the in

a their approximately currently these to customers large our have We're discussions for to three gas units and their XX% our in XXXX requirements on areas. operating horsepower gas centralized lift. address of gathering We where deployed horsepower

build customer new we As and to it order do stated, speculation. full unless commit not we commitment, we has equipment previously on equipment not fleet do

Our on XX% approach, equipment and value. and above to where disciplined shareholder preserve whole returns of to new deploy or approaching allows us capital attain

rollover. price each more key to see our with key are as services The unit our scale more increases up minimal the compression by markets deployed. improve equipment adding contracts costs we in business profitability on these horsepower with existing we additional customers, our to continue able We

will This TETRA our on horsepower horsepower year projected is Between XXXX. our Elijio into our expectations. to in more further and equipment X,XXX capital XXX,XXX elaborate we approximately fleet total support, growth plans than new approximately expect expenditure deploy guidance. prior of our

summer, increasing continues The strong X EBITDA quarter, which lines In to compression sequentially. be and business a had we adjusted of one across increasing sequentially million all business very revenues three gas strongest in production increased long-term the future the energy this and gas the continued about growth outlook and to for of excited its continues strong. business segments sector We're be profile. the

and President what Roy field on our Operations operations Now, overseeing driving aftermarket the margins. and McNiven, side incremental our our Roy? Vice some of services provide fleet color will is improvements on

Roy McNiven

you, Thank Brady.

Vice Operations, our aftermarket As to technicians of our and have domestic for our the mechanics skilled our equipment services services. deliver highly and and responsibility group of compression including aftermarket teams I President service

experiencing mentioned, the improvements second compression sequential high in gross services and in Brady continued XX.X%. we're the As of margin quarter reached

improvements addition for elaborate are attained In initiatives to that fantastic I'll results, being delivering responsible great these from several upon. a team

utilization functions predictive a manage addition technicians allowing In more us of transition deployed visibility maintenance ERP mechanics scheduled for more effectively on provides and us our provides that improved mid-XXXX, we of from our in and the cost back enabled each an to business. to towards system This to better office real-time tools available units, system effectively. significantly maintenance manage to the to P&Ls us us

tools the customers my and the in sector, is determine and seeing granular to system a I've allow real-time providing us areas which most level decisions. one best the in visibility to to seen of This energy geographic make the utilizing at history that advanced are most margins these services We're returns.

capital Our to those deployed areas. is new being

the per a of individual As ratios. effectiveness improving and horsepower of We effectively not unit, the achieving units our margins a performance rate. are the and or the technicians, to source adding technician adding and result, mechanics maintained. And horsepower our we issue are how fleet being also much application we can identify higher via pinpoints that incremental are the of quickly it's the desired the

towards from and and We This levels. as addition maintenance restocking to down results have using cost the to based then scheduled better clearly parts equipment these components improves overtime model optimize We're maintenance can to address actions we in of manage our defined cost more and drive predictive transitioning in tools also regularly to efficiencies runtime. the programs it.

XXXX. equipment equipment from deployed prices geographic on seeing much optimal benefiting also to customers higher the addition market of top in intentional to This maintenance, our being creates to targeted In synergies our create cost our the in mechanics we're the and and at deploying technicians. new efforts growth of clusters, ability peak doing schedule predictive effectively areas, has supported which than and prior impact more to

continued increases as the demand to fleet, rollover. compression given contracts finally, of customer And we price utilization and to high continue the achieve for do services

the second fleet. GasJack increase successfully quarter, During implemented to price the a U.S. we also

the to turn I'll over Elijio. call

Elijio Serrano

capital expenditures, minutes strategies. Thank needed balance spend to and you, Roy charges, capital a our cash we sheet, the the on key and Brady operating I'll results. our flow, of touched on non-recurring Roy. couple allocation guidance areas

The which were million deem in Now $XXX,XXX or charges and million were cash non-cash small of we unlikely recurring quarter expenses charges XXX which of charges. included XX,XXX write-off in $X.X non-cash to units, horsepower of service. GasJack the terms horsepower $X.X million $X.X were

statistics margin reminder participation our reflect gross write-off. a this As

of positive a to as XX,XXX be have domestic We horsepower, XXX items about can put units market GasJack warrants. it conditions

market a from unit expense premium. the incurred to cash $X.X the preferred firm seriously also and related valuation million the We non-cash redemption

the use horsepower $X.X the net activities for flow received in approximately equipment we deploy million also for the In maintenance Capital of second expenditures capital, were were quarter cash operating quarter XX,XXX million. $X.X capital million of growth sales Cash $XX.X expenditures. quarter. from in the invested to

XXX% flow first of of the and quarter second this last cash from year, million Distributable $XX.X quarter of from the improved year. XXX%

reflects in unit. to December the to was significant Discovered year ratio redeemed times XX the first the coverage compared reduce decision XX prefer of our cash times Our quarter. last in distribution to

tomorrow, final be Series X, be all $XXX,XXX. after the redeemed. unit on will redemption Distributions fully sustained preferred which is of will A Series in The August which units quarter A preferred were cash

for August do mature the in the $XXX Cash to our drawn outstanding comply as At $XXX No million. the and covenants XXXX were million total note on hand was that year note about up million not any of have of we secured debt revolver. a XXXX. that $X million And gross mature the maintenance was of June, ABL unsecured $XXX in end with. on amounts which reminder,

at our EBITDA, gross our would Our times. adjusted ratio X.XX second leverage times. annualizing growth leverage When June quarter X.XX be ratio end of was the

conference investor communicated our a X.X New year. announced December in last are We York and in our May way year of our well City distribution we in a last reduction target times in in also towards

maintenance be With million expenditures. respect capital expect for XXXX between million $XX expenditures, we and $XX $XX million will capital $XX million to capital of expenditures to inclusive

Our expenditures growth and between $XX million. million capital be estimated $XX are to

or cash to from cash fund flow expect with We on sell hand operations.

our to has TETRA partner customer next of deployed horsepower purchase five And as equipment anytime XX,XXX from equipment need general be buy million, demand. at meet agreed $XX leased CSI Technologies our right with to to will as will the the previously years having over This Compressco's that CSI discretion. XX,XXX or to X-X mentioned, TETRA the sole compression be Compressco

Through and to support and at within by commitments of been the growth the end more that same we demand current than second two-thirds the our of own will made. TETRA satisfy investment has grow believe customers in TETRA's cash equipment Between flow. plans, quarter us our capital our time

XX% to high expected and horsepower, All the capital of our from be with advantage taking this initiatives that XXX,XXX targeting initiative margin year through horsepower fall in mentioned of is returns approximately added increase X.X% an Total all earlier. to we margins approximately this fleet. on

guidance, guidance and from for we adjusted $XXX of increase compares year-over-year million. million. year This $XXX -- to revising XX%. and and XXX guidance million our $XXX million and of million. in respect $XX million and revenue, prior XXXX compares of with XXX XX% million be between between total we to growth XXXX expect adjusted XXXX This This million and to our of is to and between year million XXX between EBITDA $XX prior On total guidance million. represents to expect million are a $XXX between to XXX an be compares We XXXX $XX EBITDA

revenue the first adjusted half in up year. new in guidance to the of of orders the tightening slowdown equipment sales and reflects a this The guidance EBITDA adjustments for

are encouraged continue we the We on very our to see fleet with as rollover. increases price contracts

record call. high improvements a New services compression everyone the out equipment elaborated upon in continued in and margins earlier prices going

compression increase. Gross the revenue sequential In the profit greater services quarter, in than was margin. the improvements second

generated. In Given fall said of incremental gross quarter through over we of things delivered among XXX% or and differently dollar every profit $X.XX revenue second for of from first quarter, cost margins compression gross reductions the other efficiently. the

interest of accounting $XXX.X adjusted for of midpoint maintenance expense, guidance EBITDA cash full million the At cash in taxes. our capital after and year expenditures

Preferred was to in $XX million the free for capital a distribution. small that approximately flow. in directed amount of cash We of year and growth This Series of generate A expect $XX towards million a redeemed cash unit rest

We of previously capital. flows communicated our our plans to growth towards cash direct future XX%

assumption On higher capital. margins we're on the returns that market the the XX% that achieving, reports reflect which

XX% stakeholders will our equity other to in be The returning debt holders. and targeted holders to cash

We ratio to leverage are better. times or committed improving to our X.X

at and of cash combination the target unsecured of with unsecured end dependent bonds the at. flow debt of the be generating was X.X of open free to EBITDA, the it's on see times by to of expect to purchases We are in a at market target retirement continued timing the XXXX improvements adjusted markets bonds. The trading monitoring the targeted

which with X.XX%. XX%, compares capital with reinvesting disciplined back around at trading and the our a XX-XX improving above be yield We'll into business the value. bonds Currently, stakeholder to maturity approach of toward the to are coupon unsecured $X.XX

margin and on and allocation. best be Our focus to having opportunities, prudent highest which focus a We'll the those disciplined and is provide pricing. on customer's returns, improvements demands only approach answering very returns our capital in

will grow We deliver. and

call we'll Jake, to open with now that, the questions.

Operator

Capital [Operator now session. Kyle ahead. from The begin with question go comes will question-and-answer Instructions] Securities. first the Please May We One

Kyle May

the tot wan operations I start contract So with just segment.

utilization XX% Or second in close mentioned overall hitting? fleet about you can much to service you increase quarter. increased getting continue How You to farther are this? the

Elijio Serrano

the is of I'm going large customer already. XXs the that maxed on large that opportunity much to maintenance. the I equipment and equipment. So, we're down equipment, that that out. in into the Anything the deployed then, up size get primarily be midsized, much we're amount horsepower low increases more for into the in XXs. on that the we've of a smaller the sure horsepower we're that's And any that there's jobsite mentioned XX,XXX suggest between horsepower high equipment equipment Brady And I From would got is not mentioned to running are or mid on deploying small high to transition large XXs. also and an go almost the horsepower, there's pretty we not

Kyle May

talked I debt down And the think between about, the times you one next for you the X.X of the difference do you the about me, I by balancing How believe, reaching ratio Elijio, end dividend? the, guess leverage increasing reference, paying XXXX. and

Elijio Serrano

cash there's very toward among part, Kyle. opportunity the something an Good more as a at. board. the near price look remains look the to will trading do at what think on That's equity immediate a bonds straighten the is we the the we we're depressed, going in get then side. par And do at beyond growth and I the discussion bonds take trading we've We're the want management Yes, team that take at at. what probably look the made, had something to question that near available to capital free we've are we then equity our If unit soon going is bond, the equity. flow a what as to into trading commitment

going really function to trading it's securities be those to So that what we're decision. ready a two to as make when the are

Kyle May

the of got back sales about help we're one I that the, Can of more? be when level. that equipment bit more, us still about bit you gave define and the little little When the little dial realized on about year, in half may. Okay, start a if you thinking XQ but should bit us thinking it. a we're color a And I

Elijio Serrano

Right.

got went of we We've to dropped ranges, of QX. in QX the that year million to going QX, it's either occur equipment or then pretty would two that order, back in $XX we've $XX this in is the and in high fabricated. million those already in QX, equipment sales we And a got much stay been to up I already between QX. scheduled jump from cycle. manufacturing We million the So anything that $XX expect we're

Operator

from next The Raymond James. comes Marshall question with Adkins

Marshall Adkins

you big us points the to and read insight pricing slowdown leading in your compression for give a well? trends quarters. or next more edge What's kind fleet modest the as and for orders a driving equipment the, that is and of this jump quarter of you of a through any there into had compression you're little couple and Could pricing fleet

Elijio Serrano

them that simply Marshall, let taken turn X equipment either months engines, sales receive Brady. of Delaware me get the is into coolers, Knowing most or plants, gas start Timing buy internationally. those them the and when and anywhere going Permian orders. it basins deliver the then X are to I'll from the over on us to and delivered, and shipped assemble being then it's compressors we in to processing

and the if year press Last we early in orders, and significant that's our you that year in year, what QX middle orders would we received look last orders. or we go year. deliver for some we receive back delivered in at And last releases last QX, did up what summer of

it's So all the of in. timing are release coming about orders really

You from orders. million margin margins list also see those customers. discussions we're of almost with that we're low-double-digit we've And can opportunities from the achieving that $XXX in were that that we mentioned got putting

they're indicators down seen being have slow to ahead about placing went terms cautious to gas more look pricing and orders. converted a out believe off, those with bit are some being We in volumes not I at in wanted But our of of orders there. dropping purchase customers

of pull not decision customer's initiative to down. slowing as the down volume the slowing is the deal trigger So opportunities

Brady Murphy

pipeline and bookings to still opportunities million continue Marshall. live there's Elijio changed, and compare run those the this year lot do in year the we to second half I I The from increase for comments, first earlier decision $XX to a the morning, said, But say, We that 'XX making, you back quarter quarter. hasn't out there rates. Good think the showed expect of would last of year.

is what through slowdown them orders the is think executing course. further right to the then I pushing and out

Elijio Serrano

build that lead are and does centralized operators, for the And way Marshall are. processing lift primarily expectations your just different it's fleet. buyers gas gas. of operators. how to of that suggest gas that systems over the volumes buyers, two midstream completely excess gas plants would our on continue The equipment equipment in people are your is our of question the pricing I our a for have what gathering of and are is That to a taking who And

So I there's building suggest what into direct rates and we're we're for selling not a that between on a the connection equipment the orders would that versus the equipment seeing for field. deploying

Marshall Adkins

So the that pricing. compression a through edge the not flows to leading seeing fair at hesitation same statement? on least is Is you're side

Elijio Serrano

Yes.

Brady Murphy

where fair. strength we Elijio have key the That's I said, of And again customers operate, we basins services our the activity that we're think that compression as in seeing. the

Marshall Adkins

know Elijio, seem Right, I direction. be things moving it's the to early, but right

get your visibility on XXXX. thoughts CapEx, into year? going You're growth Any next starting to

Elijio Serrano

So, discussions with their strategy primarily And we of given in indications to the going XX-XX commit They've that out. customers. core planning we for have to laid terms had our we're next year.

that forward. year we cash approximately growth will for flow capital looking half of generate Our the next be what we're that

opportunities above will now are think the strategy. I that that's evaluate, beyond our but and the that right

Marshall Adkins

like It of doesn't seem lot How make bumped utilization sure. in with that but whole I associate the one, right the a want equipment? a much board. we across up the Okay, last just should from to down

Elijio Serrano

It's points. only about XXX basis

Operator

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

Selman Akyol

to kind this the delighted year? future for about you quarter you go a you're on Thank forward guidance and can you. rest margins strong gross thinking guidance, and the assumed I'm of margins, of your going basis, talk you about

Elijio Serrano

with core making good deploy key the don't terms into guidance, the We drilling programs in would to of that this clusters. granular are it business customers want I strong is keep So, to in equation, margins well that capitalized or we equipment our is also, vast progress be into place. in equipments coming of And Roy in, think through in to majority that the to given baked that challenge projections. our those

Roy have or there or or got three asking and units four for to they're issue, up on go this to or touched out customers four three that little three units. we've that two in fields,

into incremental add units And so, clusters, have to we we mechanics. deploy technicians those those don't and

items our will where capital that the that going, is and I capital That of upside, is but increases, is driving one on of that achieving. suggest if margins there it that's the our deploy, the future price would is we keep we dependent amount plus big be

Selman Akyol

question. realize Great. terms I still there, much to your was you through How run of through? may that much how just increases? fleet? talk you've maybe next in then, Can And of prices my going guess the lead size be if And price the you opportunity

Elijio Serrano

increases So, is contracts over and we've digits, high the been into achieving double low single on price digits, that fleet. as roll existing

new all is out, is fleets that out say equipment going I'll rates there. higher going Now, out, average our that what than out going

So been anything is anything over that we're it's pricing overtime getting double new, that's price would increases. and has been to digit single and with digit deployed rolling deploying low contract this premium on suggest I

Operator

Cash Next ahead. question from Darren go Please McCammon Flow comes Kingdom. with

Darren McCammon

new for thanks capital the I question, just one little guys, a answer there. the on nuance allocation had previous Hey,

placing that guys that clear. of that replacing you bit emphasis it buybacks I between about that? and cash understand sounds Given you to the getting Could little the higher least you're buybacks. ROI ROIs two at also a pretty the but are I enjoying, over distribution. flow you're for units those talk going units, high understand like That's emphasize over quarter next decision why

Brady Murphy

Darren. is this Brad, Yes,

key have with good requirements relationship discussions our XXXX capital. a their for and for clients, we're with We in them

year on frontend but bit requirements split Elijio little that for for returns. a distributions about the capital that XX-XX So, returns, of between XX-XX loaded second that stakeholder committed of their the we're the in talked deploying for to may the and we XXXX year, shareholder the half meetings for a half be first

Darren McCammon

Okay.

that's correct? So it's customer demand,

Brady Murphy

for the of deployments our timing customers to related XXXX compression. it's Yes,

Darren McCammon

go once XX-XX didn't catch Does done, the is to to mean that up it Or you that? that XX-XX? after Okay. that's

Brady Murphy

XX-XX. no. No, catch We up the

Elijio Serrano

over Our period, commitment depending We're Every we're a to timing But on going quarter, not XX-XX. be a skewed time is to a time it's capital a be expenditures. way or of going XX-XX. going period. be relevant XX-XX. It might to other, Darren the the that over to be one relevant

Darren McCammon

Help me is this afterwards? Permian the understand In your out that lot question online, There's Is or comes duct plus is you is placed when operations Or an you a ducts in When that the Permian. it especially there replaced that X,XXX the more. business they online? compressors? comes our ducts of other attempt, extra for when those in already units?

Elijio Serrano

are which means any that the yet they're not So drilled gas. producing ducts but uncompleted,

a start together they pipeline. as equipment deployed once to either or it the been the gas and into has gas mode, doing soon push a during lift enhance As by production mode getting production into production a

when equipment. yet if any completed, it tying to not compression drilled, Once compression So, not that's equipment. a completed, it's it well is but tied we're to is

opportunities are opportunities duct compression unit. to those deploy all So future

Brady Murphy

The only their we and sure planning. thing for every not I would operator it speak compression can relates duct to planning as add, I'm

probably I the think bit ahead a some little game. of of them

they duct inventory a them on of may them so. building if had planned completing not up Some before be,

we I can to for duct all I'd on to think the every granularity. know So although like don't side, speak that operator answers

Darren McCammon

right? to, have That's pre-ordered because going I to thing gave the we was online? bring the already pre-ordered have and They or already these would would we they're what I units getting units guess

Brady Murphy

them. to us wouldn't to for planning. it an speak to hard and for plans I duct it's inventory their speak Again, relates to want operator's as

Darren McCammon

back how affecting The a last we're for firms CapEx are next E&P thing -- you? Is of seeing number that on cutting year. that

Brady Murphy

us the for think plans capital going pretty for to I it's operators early XXXX. are be what know still to

sheds that normally think quarter. fourth I that up, the in

have we've this to back and think far for for what complete to I all fluctuation operators our drill base, going through the in that least it's at to this early seen very be customer customers. at point. cut prices. which our bigger At that's from little Again, determine continued pretty commodity current so

Operator

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

Brady Murphy

in Okay, this time join you for to this and the That is your concludes our call. thank Brady. taking interest We us CSI Compressco morning.

Operator

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

CSI Compressco (CCLP) 7 Aug 192019 Q2 Earnings call transcript