Good morning, ladies and gentlemen and welcome to the Natural Gas Services Group First Quarter 2021 Earnings Call. Your call leaders for today’s call are Alicia Dada, IR Coordinator and Steve Taylor, Chairman, President and CEO. I would now like to turn the call over to Ms. Alicia Dada. You may begin..

Thank you, Ross and good morning listeners. Please allow me a moment to read the following forward-looking statement prior to commencing our earnings call.

Except for the historical information contained herein, the statements in this morning’s conference call are forward-looking and are made pursuant to the Safe Harbor provisions as outlined in the Private Securities Litigation Reform Act of 1995..

Thank you, Alicia and Ross and good morning everyone and welcome to Natural Gas Services Group’s first quarter 2021 earnings review. Thank you for tuning into our call. Well, it’s only a year ago when our business, our industry and the world around us came to nearly a complete stop. It seems like it was just yesterday and forever at the same time.

While I have said this before, it deserves one last mention.

The pandemic and the resulting slump in energy demand and collapse in energy prices had a profound effect on our business, not just from a revenue and profit standpoint, but also from the way we do business, running our core business from the homes of our employees, conference rooms replaced by cameras and Zoom meetings and necessity to completely re-imagine our field business to ensure the safety of our employees and customers.

The challenges to our business were unprecedented. However, we still are experiencing the weighing effects of the pandemic we are hopeful of a slow return to normal will accelerate in the coming months. As our results suggest, the energy market is showing early signs of stabilization and we expect a generally steady recovery to continue.

We have continued enhanced safety protocols and field operations and many of our central office employees continue to work remotely. Given growth in vaccination rates, we are hopeful that our operations will evolve toward a more normal workflow in the coming months..

Our first question comes from Rob Brown from Lake Street Capital. Please go ahead, Rob..

Hi, Steve..

Hi, Rob..

In the quarter, nice to see some recovery here. I just wanted to get your view on the pricing environment.

How has it been going this year? What are you seeing in the pricing at this point?.

You always have to break it down between horsepower ranges than anymore, it seems like. I mean the high horsepower seems to be holding up fairly well. We always have somewhat of a value-added or price – premium price product and offering, which we can get. We always seem to be the price leader. So the competitors tend to necessarily end right under us.

So the gap seems to be steady. So the pricing there seems to be okay, smaller and medium horsepowers where you get traditionally more of the pricing pressure. And we see a little bit of that. And that’s primarily driven, especially in the small horsepower by very small regional players. So we see some of that.

But generally, I would say it’s fairly stable right now. Obviously, oil price helps; gas prices, no worse and no better than it has traditionally been. So it’s kind of a non-issue. But most of the work being gas lift, which is associated with the crude oil price and crude oil market seems to be generally okay right now..

Okay, great. And then on the high horsepower investments you talked about.

Where do you see opportunities there? And I guess, what remains of high horsepower units that you have to put into the field at this point?.

There is still opportunity there. That’s the small, medium and large horsepower categories. That’s the one still with the most opportunity in it, not just from share growth, but obviously, revenue growth because the revenue per unit is so high on those. So we – that is still our primary focus.

Obviously, we’re not taking our eye off the ball in the medium and small horsepower, but certainly a primary focus from a capital spend standpoint is the higher horsepower. So there is a lot – we’re still the new kid on the block on that as far as when you start looking at our bigger competitors on it. But we think we’ve made inroads in it.

We think we can continue that. So that’s where the opportunity lies there. And it’s in the traditional horsepower, we’ve seen – we classify large horsepower for our fleet. It is different from other people from 400 horsepower up to about 1,400 horsepower.

And we’re even seeing opportunities to go a little higher on some of those stuff where we evaluate those as they come along.

But we’re not worried about getting into that bigger horsepower, we just had to kind of see what they – how they develop, but there is opportunities in the – in that horsepower range I mentioned, plus this even larger horse power, too. And we’ve got the – obviously, the financial wherewithal to pursue those as required.

Now I mentioned too that all the capital we’re putting to work is good return capital.

As far as what more do we have to put out, we’ve had a fair amount of units on standby, getting paid a standby rate, but they haven’t been at full rate, but they – we anticipate the majority of all of this large horsepower equipment being installed by – in Q2, Q3 and certainly by Q4.

So by the end of this year, all of the big horsepower capital we’ve spent the last couple of years should be at earning full 100% revenue..

Okay. Great, thank you. I will turn it over..

Okay. Thanks, Rob..

Our next question comes from Tate Sullivan from Maxim Group. Please go ahead, Tate..

Thanks you. Good morning, Steve. .

Hi, Tate..

Hey, you commented on the pricing a little bit, but has any smaller horsepower units started to go out the door? Do you see with a more stable operating environment or what will it take to get more smaller horsepower clients demanding more units?.

Yes, we – that horsepower range is generally stable. I mean we will get some fluctuations in it quarterly up or down, depending on what’s going on. But the – what we need for a lot more to go out in that horsepower range is a lot better gas price. And not just a lot better gas price, but some surety that gas price lasts a little bit.

Now it’s been kind of a cool winter and spring across the country. So that’s helped somewhat, but we are headed into the solder season and then into the summer season, where you’ll have commensurately less horsepower on just pure dry natural gas because of space heating requirements going down, stuff like that.

So, generally, summer times when it goes into storage and pricing tends to moderate somewhat.

So it’s been the case for 10 years, right, a little more gas price, a little more gas price, you get it for about a week or 2, then it falls back down to kind of normal levels which are – you can talk about the rig count somewhat suboptimal for operators to chase gas. So I think it just stays and goes on smaller stuff.

We make money at it, but we’re not putting capital in it. It’s not a growth market. We’ve repeated that before. And we take the opportunities to do what we can on that as we go along, whether it’s putting equipment out or like we’ve done in the past, taking some equipment out of the fleet. But that’s not going to be a – it’s just not a growth area.

Obviously, the growth is high horsepower. And then we think the medium horsepower is – has opportunities for growth. Now from a capital standpoint, we’ve got the equipment we can utilize, but certainly from a market share standpoint, a little revenue standpoint, too. So – and that is primarily wellhead gas lift equipment at medium horsepower.

So with the oil price, we have some hopes that we will get a little stronger than that towards the end of the year, too..

Okay. And then last one for me. You mentioned, I think, if I heard right, 1.5 million orders so far, sale orders so far this month.

And do you expect a quick turnaround on those orders? And were they – are they at similar margins compared to the last couple of quarters or can you just review your comments around those orders, please?.

Yes. Yes, that’s just the order. So – and actually, those are received, this is May, so this month, the last couple of weeks, the fairly recent orders, so that we will recognize revenue on that equipment, probably, it might make it into the end of Q3, probably more likely Q4, fairly long lead stuff.

These jobs are – these particular jobs are pretty high spec, stainless steel type of compression. So takes a little longer lead time for some of the exotic metals on that. But we’ve got – yes, we’ve quoted some decent margins in that stuff being a little more specialized. So we expect some good returns out of it..

Okay. Thank you, Steve..

And Steve, at this time, there appears to be no further questions..

Okay. Thanks, Ross, and thanks, everyone, for joining me on the call. I appreciate your time this morning and look forward to visiting with you again next quarter..

This concludes today’s conference call. Thank you for attending..