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, with conference rooms replaced by cameras and Zoom meetings. There was a 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 lingering effects of the pandemic, and we are hopeful that 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 premium price product and offering, which we can get. We always seem to be the price leader, so the competitors tend to price just under us. So the gap seems to be steady. The pricing there seems to be okay, while smaller and medium horsepowers are where you get traditionally more of the pricing pressure. We see some of that, primarily driven by very small regional players. But generally, I would say it’s fairly stable right now. Obviously, oil prices help; gas prices are no worse and no better than they have traditionally been, so it’s kind of a non-issue. Most of the work being gas lift, which is associated with the crude oil price, 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 in 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. That is still our primary focus. 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. We’re still the new kid on the block in that regard, looking at our bigger competitors. But we think we’ve made inroads in it, and we think we can continue that. So that’s where the opportunity lies. In the traditional horsepower, we classify large horsepower for our fleet from 400 horsepower up to about 1,400 horsepower. We’re even seeing opportunities to consider even larger horsepower units. We’re not worried about getting into that bigger horsepower; we just need to see how they develop, but there are opportunities in that range. We’ve got the financial wherewithal to pursue those as required. All the capital we’re putting to work is good return capital. As for what more 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. However, we anticipate the majority of all of this large horsepower equipment being installed by Q2, Q3, and certainly by Q4. By the end of this year, all of the big horsepower capital we’ve spent the last couple of years should be 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 have any smaller horsepower units started to go out the door? Do you see a more stable operating environment or what will it take to get more smaller horsepower clients demanding more units?

Yes, 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. What we need before a lot more can go out in that horsepower range is a considerably better gas price. It’s not just about having a better gas price, but some certainty that the gas price will last a little while. It’s been a cool winter and spring across the country, which has helped somewhat, but we are heading into the summer season where you’ll have less horsepower on pure dry natural gas due to decreased space heating requirements. Generally, summer is when we go into storage and pricing tends to moderate somewhat. This has been the case for 10 years—when there’s a bit better gas price, we see an uptick for about a week or two, then it falls back down to kind of normal levels. The rig count remains somewhat suboptimal for operators looking to chase gas. So I believe it stays and goes on smaller units. We make money at it, but we’re not putting capital into that area; it’s not a growth market. We've reiterated that before. We exploit what opportunities we can on that as we go along, whether it’s putting equipment out or, like in the past, taking some equipment out of our fleet. But that area is just not a growth zone. The real growth is in high horsepower. We think the medium horsepower has opportunities for growth too. From a capital standpoint, we have the equipment available, but certainly from a market share and revenue perspective, too.

Okay. And then last one for me. You mentioned, I think, if I heard correctly, 1.5 million in orders this month. Do you expect a quick turnaround on those orders? And are they at similar margins compared to the last couple of quarters? Can you review your comments around those orders, please?

Yes. Yes, that’s just the orders received. So, and actually, those are received this May; the last couple of weeks, the fairly recent orders. We will recognize revenue on that equipment, probably it might make it into the end of Q3, and probably more likely Q4, since these are fairly long lead items. These jobs are pretty high spec, stainless steel type of compression, which requires a longer lead time for some of the more exotic metals involved. But we have quoted some decent margins on those orders, 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.