Natural Gas Services (NGS) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported record results in Q3 2025, with adjusted EBITDA of $20.8 million, up approximately 15% year-over-year and 6% sequentially [5][12] - Total rental revenue grew 11.1% year-over-year and 4.9% sequentially to $41.5 million, driven by a 27,000 horsepower increase [12] - Net income was $5.8 million or $0.46 per diluted share, an increase of $800,000 year-over-year and $600,000 sequentially [13] - The leverage ratio was 2.5 times, up from 2.31 times in the previous quarter, remaining the lowest among public compression peers [15] Business Line Data and Key Metrics Changes - Rented horsepower increased to approximately 526,000, an 11% increase year-over-year and 5% sequentially [14] - Fleet utilization reached a record 84.1%, up 204 basis points year-over-year and 45 basis points sequentially [14] - Rental adjusted gross margin was $25.5 million, up $2.6 million year-over-year, with a margin percentage of 61.5%, reflecting sustained pricing discipline [12] Market Data and Key Metrics Changes - The company is taking market share in large horsepower compression, with all new sets under long-term contracts, half of which are large horsepower electric units [5] - The company noted strong demand for compression driven by oil production efficiency, reliability, and emissions performance [8] Company Strategy and Development Direction - The company plans to add approximately 90,000 horsepower over 2025 and early 2026, with significant new electric and gas units already under contract [7] - The company aims to optimize fleet assets and improve rental revenue per horsepower, which finished the quarter at $27.08 per horsepower per month, a 1.7% sequential increase [9] - The company is focused on converting non-productive assets into productive horsepower, enhancing fleet expansion [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering improved performance despite global macroeconomic uncertainty, citing strong demand for compression tied to existing production [8] - The company raised full-year 2025 adjusted EBITDA guidance to $78-$81 million, reflecting a 2% increase at the midpoint from previous guidance [16] - Preliminary expectations for 2026 growth CapEx are set at $50 million-$70 million, indicating continued organic growth [16] Other Important Information - The company paid out its inaugural quarterly dividend of $0.10 per share and plans to increase the fourth-quarter dividend by 10% to $0.11 per share [6] - The company maintains the best leverage position among its public compression peers, allowing for both growth and shareholder returns [6] Q&A Session Summary Question: Outlook for 2026 and customer conversations - Management noted that there is no hesitancy from customers regarding 2026 contracts, with a broad range of interest observed [20][22] - Lead times for new unit fabrication vary, but management is optimistic about meeting customer demand in the second half of 2026 [23] Question: Opportunities for margin improvement - Management indicated that margins are expected to remain in the low 60s in the near term, with potential for improvement through a mix shift to large horsepower [24] Question: End market uses for larger compressors - The majority of demand remains for gas lift in the Permian, but there is growing demand for data center natural gas loads, creating incremental opportunities [27] Question: CapEx outlook for 2026 - Management expects 2026 to be generally in line with 2024, with significant growth opportunities already contracted [46][47] Question: Increasing dividend and balancing growth - The decision to increase the dividend reflects confidence in future growth while maintaining a balance between capital returns and growth opportunities [39]