NATURAL GAS SERVICES GROUP INC Q3 FY2024 earnings call

• Introduced the team, noting Brian Tucker is unavailable for this call but will return for Q4. - Recapped third quarter results with higher revenue, net cash from operations, and adjusted EBITDA. - Highlighted market dynamics with strong oil market and mixed natural gas market. - Outlined growth and value drivers: fleet optimization (12% increase in revenue per average horsepower), asset utilization (accounts receivable declined from $42M in Q1 to <$25M in Q3, with plans to convert non-cash assets to cash), fleet expansion (expect to increase large horsepower rental fleet by nearly 100,000 horsepower over five quarters, with units contracted to blue-chip customers), and accretive M&A (disciplined approach, only doing deals that advance strategy). - Introduced new team members: Ian Eckert as CFO starting Jan 6, 2025; Jean Holley as Director.

For the third quarter, rental revenue increased 35% year-over-year and 7% sequentially, driven by higher rented horsepower and selected rate increases. Adjusted rental gross margin was 61.3%. Total revenue for the quarter was $40.7 million, with rental revenue at $37.4 million. Rented units totaled approximately 475,534 horsepower at the end of Q3 2024, a 19% increase year-over-year, with large horsepower units accounting for 70% of rented horsepower, up 32% year-over-year.

• 2024 adjusted EBITDA outlook revised to $67 million to $69 million, up from prior guidance. - 2024 growth CapEx expected to be between $65 million to $75 million. - 2025 growth CapEx expected to be between $90 million and $110 million. - 2024 maintenance CapEx unchanged at $8 million to $11 million. - Return on invested capital target remains at least 20%.

• Risks described in earnings press release and SEC filings, including potential materialization of risks or incorrect assumptions leading to material variance in results. - Non-GAAP measures used, with reconciliations needed.

Q: Circling back on margins and future margin profile beyond 2024.

A: Pleased with Q3 margin, expecting margin levels seen over past four quarters to continue, with mix shift to higher horsepower units in 2025 potentially leading to modestly higher margins.

Q: On utilization front, color on large vs small horsepower utilization.

A: High horsepower is effectively 100% utilized; unutilized is mostly small and medium, with plan to drive down unutilized in those sizes.

Q: Demand environment, CapEx ramp, and visibility.

A: Focus on 2026 with customers providing demand plans; pricing still has positive bias but not at past step function levels.

Q: Q4 costs related to unit setting.

A: Potential incremental costs due to holiday season and weather, but focused on exceeding customer expectations.

Q: Customer count decline.

A: Small decline, not a material driver, expected to fluctuate.

Q: CapEx for electricity in 2025.

A: About 40% of horsepower will be electric drive.

Q: Leverage and 2025 outlook.

A: Expect leverage to increase, focusing on set activity timing for EBITDA capture.

Q: Macro comments on oil price impact on customer behavior.

A: Changes in behavior expected at certain price ranges, but incremental demand still strong for 2026.

Q: Average horsepower per rented compressor and unit disposal.

A: Utilization of small/medium units reviewed, with some potential to sell or scrap unutilized assets.

Q: CapEx lag time.

A: Lag of three quarters from initial spend to units being ready for field.