Natural Gas Services (US:NGS)2025-05-13 13:32Financial Data and Key Metrics Changes - Total revenue for Q1 2025 was $41.4 million, a 12% increase from $36.9 million in Q1 2024 [18] - Rental revenue reached a record $38.9 million, up 15% year-over-year and 2% sequentially [6][18] - Adjusted EBITDA for the quarter was $19.3 million, a 14% increase compared to Q1 2024 and 7% sequentially [20] - Net income for the quarter was $4.9 million, or $0.38 per diluted share, compared to $5.1 million or $0.41 per diluted share in the prior year [19] - Adjusted gross margin percentage was 58.6%, reflecting a 140 basis point improvement over Q1 2024 [19] Business Line Data and Key Metrics Changes - Rented adjusted gross margin reached 61.9%, marking one of the highest levels in the past decade [19] - Rented horsepower totaled approximately 493,000, representing an 11% year-over-year increase [20] - Utilization rate was 81.7%, essentially unchanged from a year ago [20] Market Data and Key Metrics Changes - Natural gas prices are currently hovering in the mid-threes after peaking above four [9] - Market demand for compression remains strong, with ongoing discussions for growth in 2026 [5][8] Company Strategy and Development Direction - The company is focused on three growth drivers: asset utilization, fleet expansion, and mergers & acquisitions [10][15] - Significant progress has been made in monetizing non-cash assets, including an $11 million income tax receivable [11] - The company is maintaining a strong balance sheet and has expanded its revolving credit facility to support growth initiatives [16][21] Management's Comments on Operating Environment and Future Outlook - Management remains confident in the ability to perform despite market volatility and has not seen material impacts from tariffs [8][26] - The company is cautiously optimistic about future growth, with a focus on maintaining strong customer relationships and technological innovation [13][27] Other Important Information - The company has a strong focus on customer diversification, with the largest customer accounting for 46% of revenue, down from 54% [14] - Capital expenditures for the quarter totaled $19.3 million, including $16.7 million for growth capital [22] Q&A Session Summary Question: Current demand environment and volatility - Management indicated that there has not been a significant change in the demand environment, with 2025 contracts locked in and ongoing discussions for 2026 growth [33] Question: Gross margins and unusual factors - Management noted that the increase in gross margins is consistent and attributed to a mix of high horsepower units, with no unusual factors impacting the quarter [35][36] Question: Future margin sustainability - Management expressed that while there could be temporary fluctuations in rental adjusted gross margins, they do not foresee significant impacts [42][44] Question: Monetization plans and use of proceeds - Proceeds from monetization efforts will primarily be used to pay down debt and fund organic growth initiatives [46] Question: Impact of crude oil volatility on smaller compression providers - Management stated that while crude oil prices primarily affect large horsepower, there are modest positive trends for small horsepower driven by natural gas prices [54] Question: Lead times for engines and frames - Lead times remain unchanged, with engines taking six to nine months and compressor frames taking nine to twelve months [58] Question: Potential sale proceeds from Midland assets - Management clarified that the potential sale proceeds from Midland assets are part of a broader strategy to improve capital efficiency [63][65] Question: Percentage of horsepower rented on a month-to-month basis - Management indicated that the percentage of horsepower rented on a month-to-month basis is expected to continue trending down as more large horsepower units are deployed [66]