Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Natural Gas Services Group Inc (NGS, Financial) reported a 45% increase in rental revenue year-over-year and a 4% increase sequentially.
- Adjusted EBITDA increased by 67% compared to last year's second quarter, reaching $16.5 million.
- The company increased its 2024 adjusted EBITDA outlook from $61 million to $67 million to a range of $64 million to $68 million.
- NGS signed new long-term contracts with premier customers, including a significant portion of electric motor-driven units.
- The company made significant progress in reducing accounts receivable, improving cash flow by $9 million in one quarter.
Negative Points
- Adjusted gross margin as a percent of sales decreased sequentially from 57.2% in Q1 2024 to 54.6% in Q2 2024.
- SG&A expenses increased slightly from $4.7 million in Q1 2024 to $4.8 million in Q2 2024.
- Net income decreased sequentially from $5.1 million in Q1 2024 to $4.3 million in Q2 2024.
- The company faces long lead times for procuring engines and other key components, impacting the timing of CapEx spend.
- There is uncertainty regarding the timing of receiving income tax receivables, which is dependent on government processing.
Q & A Highlights
Q: Can you provide more details on the new contracts and the demand environment?
A: We have announced several new contracts and expect significant activity in the second half of 2024 and throughout 2025. The demand for compression remains robust, and we are already in discussions with customers for 2025 and 2026.
Q: How is the market for electric drive units developing, and how do their rental rates and margins compare?
A: The market for electric drive units has seen significant demand over the last few years. The rental rates and margins for electric units are generally comparable to natural gas units. The main constraint is the availability of power at the site.
Q: Can you provide more details on the pricing of the new contracts compared to your fleet average?
A: The new contracts are priced above our fleet average, indicating a good pricing environment for new equipment. These new units are expected to be above our target return on invested capital.
Q: How much incremental horsepower will the new growth CapEx equate to?
A: We haven't disclosed the exact horsepower amount, but the cost of building this horsepower is generally in line with market prices. A significant percentage of this is fabricated externally due to the size.
Q: What is the timeline for your cash initiatives, including DSOs and other improvements?
A: We have made good progress on accounts receivable and expect to return to historical levels by year-end. The income tax receivable is progressing but depends on government processing. The owned real estate initiatives may take up to 24 months.
Q: How is the procurement process for engines and other components?
A: The procurement time frame for engines, compressor frames, and fabrication space is still long but slightly better than two years ago. This leads to some uncertainty in the exact timing of CapEx spend between 2024 and 2025.
Q: Can you elaborate on your industry-leading technology?
A: Our technology includes smart units that provide strong run times and reduce emissions. These features are highly valued by our customers and contribute to our competitive advantage.
Q: Do you already have electric motor horsepower in the field?
A: Yes, we do have electric motor horsepower units in the field.
Q: What is your outlook for acquisitions?
A: Acquisitions are an ongoing process, but we are not pressured to do them. We will remain disciplined and only pursue opportunities that make sense for our shareholders.
Q: Are there opportunities to buy compressor packages from your customers?
A: We have seen some opportunities, but this is not a material portion of our M&A focus today.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
