Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group, Incorporated Quarter Three Earnings Call. At this time, all participants are in listen-only mode. I would now like to turn the call over to Ms. Anna Delgado. Please begin.

Thank you, Luke, and good morning, everyone. Before we begin, I would like to remind you that during the course of this conference call, the company will be making forward-looking statements within the meaning of federal securities laws. Investors are cautioned that forward-looking statements are not guarantees of future performance, and those actual results or developments may differ materially from those projected in the forward-looking statements. Finally, the company can give no assurance that such forward-looking statements will prove to be correct. Natural Gas Services Group disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's earnings press release and in our filings with the SEC, including our Form 10-Q for the period ended September 30, 2024, Form 8-Ks and in our Form 10-K for the year ended December 31, 2023. These documents can be found in the Investors section of our website. Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may vary materially. In addition, our discussion today will reference certain non-GAAP financial measures, including EBITDA, adjusted EBITDA and adjusted gross margin, among others. For reconciliations of these non-GAAP financial measures to the most directly comparable measures under GAAP, please see yesterday's earnings release. I will now turn the call over to Justin Jacobs, our Chief Executive Officer. Justin?

Thank you, Anna, and good morning. I will start by introducing the team, joining me today on the call this morning is John Bittner, our Interim Chief Financial Officer. Brian Tucker, our President and Chief Operating Officer, is unable to join us this morning, but will be back on our fourth quarter earnings call. I trust by now you've had a chance to review our third quarter results, which we announced yesterday after market close. We are pleased with our performance, as we had another quarter of significant top line and bottom line growth. We reported higher revenue, net cash from operations, and adjusted EBITDA, while delivering tangible results against the key growth and value drivers I outlined on our last call. I will focus a significant portion of my remarks today on these growth and value drivers, optimizing our fleet, improving asset utilization, driving new unit growth, particularly large horsepower, and then eventually M&A. Market dynamics remain strong, and we continue to leverage our innovative compression technology, strong customer relationships, and our relatively low leverage to drive growth. With our recently announced awards for large horsepower compression and strong customer demand, we see significant opportunities for expansion in the coming years. I'll start today with a quick recap of the quarter, followed by some high level remarks around the industry and what we're seeing. I'll then give an update on progress against our growth and value drivers, as well as discussing some new additions to the team. I'll then turn the call over to John Bittner, who will review the quarter in more detail. I'll end with a few closing comments on our increased guidance for 2024 and our longer term outlook, which remains quite bullish. For the third quarter, we reported a 35% increase in rental revenue year-over-year and a 7% increase sequentially, with the growth driven by higher rented horsepower, as well as selected rate increases. Adjusted rental gross margin percentage was 61.3%, compared to 59.3% last quarter and 51.4% in Q3 of last year. Adjusted EBITDA of $18.2 million increased 54%, compared to last year's third quarter, and was up approximately 11% from Q2. Based on our results year-to-date and our favorable outlook moving into the final quarter of the year, we increased our 2024 adjusted EBITDA outlook from $64 million to $68 million to a range of $67 million to $69 million. At the midpoint of the updated range, this implies 48% growth over fiscal 2023, after posting growth of 56% last year. As I noted on our last call, Natural Gas Services is a different company than it was just a few years back. We are taking advantage of supply constraints and strong customer demand to increase our growth CapEx in 2025. Our guidance for 2024 growth CapEx, along with our newly provided 2025 growth CapEx guidance is to support new contracts we signed and I will add is entirely for large horsepower compression investments. Approximately 40% of the new horsepower will be electric motor driven. With these new units, we will diversify our customer mix and reduce concentration with larger accounts. More importantly, these contracts will help drive horsepower growth, rental revenue, and cash flow while significantly increasing the earnings of our business. As for market conditions, I'll first look to oil. WTI has been in the high 60s to low 70s for the last several months. This is a level at which we are seeing strong production and is still driving significant incremental needs for compression. While we are mindful of macro factors that could bring WTI down, generally, we see a strong market for oil. I've received numerous questions regarding the coming administration change and impact on oil prices. While I believe the new administration will materially ease the regulatory burden, my personal view is that macro factors and the growth capital from oil companies are the significantly larger drivers of oil prices, regardless of whether it was a Democratic or Republican administration. The natural gas market is a different story. Natural gas prices remain weak, activity is muted, and this impacts demand for our small compression fleet. I believe the new administration will be materially more favorable for natural gas, particularly to ease LNG permitting and ultimately drive production volumes up. This should have a positive impact on compression demand. Now, will this drive prices up? I don't know. We are not including that in our plans, so if it happens it will have a positive impact relative to our current expectations. I'd like to shift now to our strategy by reviewing our four growth and value drivers. I believe we showed demonstrable progress against several of these drivers, leading to our strong quarterly results, increased 2024 guidance, as well as our bullish outlook for 2025 and the years ahead. I'll start with the first driver, fleet optimization. Our monthly rental revenue per average horsepower, which I calculate as rental revenue in the quarter, divided by the average utilized horsepower divided by three, yields a metric of $26.78 per horsepower in Q3 of this year. This is a 12% increase over the same quarter from a year ago. The same metric increased meaningfully in Q3 and Q4 of 2023, with more modest increases since then. The increase in revenue per average horsepower is a function of mix shift to higher horsepower units and price increases for installed units. The second driver is asset utilization, which encompasses two parts: converting non-cash assets into cash, and increasing the utilization of our existing fleet. With respect to the former, accounts receivable continue to decline. It was $42 million at the end of Q1, went to $33 million at the end of Q2, and is now less than $25 million at the end of Q3. This created $17.5 million in cash over two quarters, or approximately $1.40 per share. We believe there are additional areas to take cash off the balance sheet, including inventory and real estate, which in turn will be used to invest in new unit growth with higher anticipated levels of return on invested capital. We are delivering against exactly what I told you we were going to do over the coming quarters, and I am confident that as we execute, you'll see more of our non-cash assets converted into cash, leading to higher returns for shareholders. As I noted on our last call, this is an ongoing initiative and will likely span through 2025 to fully execute. With respect to increasing utilization of our rental fleet, this is a key priority for us, but more of a medium-term initiative as we perform technology upgrades, and conversions of our utilized fleet. The third driver is fleet expansion. We have made consistent progress on this driver with significantly more to come. As of the end of Q3 2024, we had units rented totaling approximately 476,000 horsepower. This is a 19% increase in horsepower rented year-over-year. Just looking at the large horsepower units, as of Q3 2024, we had approximately 333,000 horsepower, compared to approximately 253,000 horsepower at Q3 2023. This represents a 32% increase in our large horsepower. As of Q3 2024, 70% of our rented horsepower is in large units. Over the coming five quarters, we currently expect to increase our large horsepower rental fleet by nearly 100,000 horsepower. I will reiterate that these additional units are all contracted with blue chip customers, typically on four to five-year terms, with pricing that we expect to yield returns above our 20% return on invested capital target. We are now almost entirely focused on units that will be set beginning in 2026, once again with an exclusive focus on large horsepower units, with a mix of electric motor drives and natural gas engines. Our fourth driver is accretive M&A. While we remain active in looking at potential deals, I want to reiterate that we will remain disciplined on the M&A front. Any potential transaction needs to result in our company and our shareholders being in a better position than the already great position I believe we are in. I would summarize that I don't feel we need to do an acquisition. We will only do a deal if it advances the strategic priorities of the business, at a price that makes sense for our shareholders. I would like to highlight two recent additions to the NGS team. Ian Eckert will join NGS as Chief Financial Officer no later than January 6, 2025. Ian has a broad range of financial experience including public company accounting, financial analysis, and operational improvement. We are very excited to have him join our team. John Bittner, who has served as our Interim Chief Financial Officer since October 2023 will continue in that role until Ian’s start date and then we'll provide transition services thereafter. I would like to take this opportunity to thank John and all of his colleagues at the Accordion team, who have worked with us over the past year and have been instrumental in our success. Jean Holley was added as a Director of NGS, effective November 1 of this year. Jean's experience with other rental equipment companies outside of the energy space is additive to our Board as well as her substantial technical experience as a former Chief Information Officer. I believe we have a substantial opportunity using data to improve all facets of our business. I look forward to working with Jean and implementing additional strategies towards that goal. In looking at the talent that has joined NGS over the last 18 months at the management level, on Board and in the field, I think it is a great indication of the power of our story and the opportunity that lies ahead. I also want to take a second to thank all of our employees who delivered these results for our shareholders, as well as to thank our customers for trusting us with their business. To paraphrase our Chairman Steve Taylor, we should all put our sunglasses on as we look ahead to the future of NGS. With that, it is now my pleasure to turn the call over to John.

Thank you, Justin and good morning everyone. Let me quickly hit the financial highlights of our third quarter. Total revenue for the quarter was up sequentially by 5.7%, to $40.7 million and rental revenue was up 7%, to $37.4 million. Our total adjusted gross margin increased by $1.9 million, sequentially driven by a $2.2 million increase in rental adjusted gross margin, which came in at a gross margin percentage of 61.3% for the quarter. We've now realized four straight quarters with rental adjusted gross margin percentages near or above 60%, which continues to boost our confidence in the margin generating potential of our recently installed high horsepower compressor units. Net income for the quarter was $5 million or $0.40 per share. Our third quarter adjusted EBITDA was $18.2 million, which was a $1.7 million or 11% increase sequentially. At September 30, 2024, rented units represented 475,534 horsepower, compared to 454,568 horsepower as of June 30, 2024. At the end of Q3 2024, we had 1,229 rented units compared to 1,242 rented units as of June 30, 2024. Turning to the balance sheet, we ended the quarter with $163 million outstanding on our amended and restated revolving credit facility. In looking at the two financial covenants contained in our credit agreement, our leverage ratio was 2.25 times, down from 2.51 times as of Q2. Our fixed charge coverage ratio for Q3 was 2.71, meaning that we were comfortably in compliance with both of our financial covenants at the end of the third quarter. Our accounts receivable balance as of September 30 was $24.8 million, a $17.5 million decrease from our high balance at the end of Q1. This put our DSO at around 55 days, and while this is a significant improvement over recent levels, it remains higher than we think is ultimately achievable. We are pleased with the progress to date, but continue to believe there is opportunity to further improve this metric over the coming quarters. Substantial improvement will likely require an investment in upgrading certain of our systems. We generated cash flow from operations of $57 million year-to-date in 2024. Our CapEx for that same period totaled $57.1 million, which can be broken out to $49.7 million of new unit growth CapEx and rental upgrades, with the remaining $7.7 million being maintenance CapEx. We paid down the balance on our amended and restated credit facility by a net $1 million during the first nine months of 2024. With that, I'll turn it back over to you Justin for closing remarks.

Thanks, John. With respect to our 2024 guidance, our current outlook for 2024 adjusted EBITDA is $67 million to $69 million, which marks an increase from the prior guidance. We tightened the range by $2 million, and the midpoint of the range moved up by $2 million. We did this based on our results through the first three quarters of the year and our confidence in the margin generating potential of our rented compressor units. We are being mindful of costs, looking to improve efficiencies, lower non-core expenses where we can, and reallocate cash flow to growth and cash flow generating initiatives. With that said, there are some incremental investments that are necessary, as it relates to improving scalability and efficiency of our operations. We also have some one-time costs related to people transitions, namely our new CFO and related professional service fees, as well as some potential incremental labor expenses associated with significant new unit set activity that could happen in the holiday season. With respect to growth capital expenditures, we expect to spend between $65 million to $75 million in 2024, reflecting investments in new large horsepower compression. For 2024, we've tightened the range but kept the midpoint the same to indicate our expectation of the likely number. For 2025, our expected range for growth CapEx is between $90 million and $110 million. At the midpoint of both ranges, $70 million and $100 million, our growth capital would increase by more than 40%. This is a good indication of our view of the markets, as well as the flexibility we have due to our low relative leverage and significant increase in cash from operations. Our outlook for 2024 maintenance CapEx remains unchanged at $8 million to $11 million, with the majority of expenditures related to our rental compression units and smaller amounts for field equipment, including trucks and other equipment. In terms of return on invested capital, our target remains at least 20%. In closing, we are taking advantage of the market and leveraging our relationships, and position where we can. We are growing faster than our peers, certainly the public ones, and we are well positioned to capture an increasing share of the large horsepower compression market. We are profitable and continue to generate high net cash from operating activities to reinvest in our business. Our balance sheet remains strong, and we are executing on our strategy to drive cash flow and earnings, while never losing sight on increasing both near and long-term shareholder value. All in, I remain quite excited about what NGS can achieve in the coming years. This concludes our prepared remarks. So I'll ask the operator to queue up for the Q&A portion of the call.

Our first question of three so far is from Jim Rollyson with Raymond James. Go ahead, sir.

Hi, good morning guys, and congratulations on another great quarter.

Good morning, Jim.

Yes, sure. Maybe circling back, Mr. Bittner made a good comment about margins, right? You guys have been posting kind of 60-ish plus percent margins for a little while, and he kind of indicating a little bit lower maybe, because you weren't quite certain. But as you look beyond say '24, where we've got guidance and you continue to shuffle in more large horsepower, that's on contracted terms at great returns. How are you thinking about the margin profile just beyond 2024, in the rental business?

I would say that we are certainly pleased with the third quarter margin of 61.3%. As we look at that prior to compared to some of the prior quarters, we had some units going on standby and so that will pull that margin up a little bit. I think John's comments both on this call, and the previous calls that we're getting increasing levels of confidence that the margin levels that we've been seeing over - not just this past quarter, but looking at the past four quarters, that that should be kind of the levels going forward. Then as you know, kind of throughout 2025, as we'll see some mix shift with the higher horsepower units which will be, a little bit more back end loaded in the second half of the year, that we should see some shift to modestly higher margins.

Got it. That's very helpful. And on the utilization front, you've been kind of in this low 80s, 82% or so type of range. And obviously as you add more large horsepower, that's on longer term contracts, I imagine that number should trend higher. Just maybe a little color, on how you're thinking about that. And even if you can give us a little detail on what utilization looks like on the large versus some of the smaller horsepower stuff today, just think about that transition over time?

Sure. So, and I'll start with the second point because that I think really will drive kind of how you think about it going forward. On the high horsepower side, we're effectively 100% utilized. There's some frictional kind of here and there, when we have a unit or two come in, but those are really going back out quite quickly. And so that's really the big driver. As I've said on previous calls in our conversations, the horsepower that's not utilized, it's almost entirely in the small and the medium. And that's really kind of the medium- and long-term initiative for us, to drive that roughly 100,000 horsepower in those size ranges and drive that unutilized number down.

Perfect. Appreciate that. I'll turn it back to one of those kind of questions.

Thank you very much. Our next question comes from Mr. Rob Brown with Lake Street Capital Market. Go ahead, please.

Good morning.

Good morning.

I just want to talk a little bit about the demand environment. It's quite strong. I think you talked about electric drive coming into the mix, but maybe could you provide some further color on kind of the decision to ramp up CapEx? Are you seeing customers signing contracts now for '26, and how much visibility do you have? Kind of the next, I guess, two years out now, marketplace?

Sure. So I think as we mentioned in the prepared remarks, really we're in terms of new units that are really – I shouldn't say new units set in terms of contracts. We're really looking at 2026 at this point. I'm not saying there won't be any in the back half of 2025 incremental, but really it's a focus on 2026, and looking with some of our larger customers. They're providing demand plans of what they think they're going to need in 2026. And so that's really kind of the focus of the business. And I would say at a high level, it's still a little early for that, but generally we're seeing still strong demand in terms of incremental compression that's required.

Okay. Great. And maybe a sense on the pricing environment. Obviously, if demand is strong, it's good. But how is pricing sort of looking year-over-year? And are you still looking at price as a driver for the fleet average price?

I think on the price increases just overall in the whole market over the last five years or so have been so substantial in terms of magnitude driven by significantly increased costs of the equipment and of labor and other cost inflators, that the rate of change that we're seeing certainly has come down materially, but we're still seeing, I think, a positive upward bias on pricing, just not at the same rate. We've been able to go through a significant percentage of the utilized fleet and capture some pricing there, which is really in conversation with customers driven by incremental expenses that we're seeing. So I expect to see still kind of a positive bias on pricing, but just not at the levels that have happened over the past five years or so, which just really kind of step function changes.

Okay. And then I want to look back on your comments on Q4. I think you said there were some costs in terms of setting units that you're going to incur and maybe a little bit of cost in the quarter. Could you give us a sense of what that is? And is there any type, what is the sort of visibility there at that cost?

Yes, the specific comment was some potential incremental costs. And that really revolves around kind of the time of year, holiday season, Thanksgiving to Christmas, potential weather challenges that can occur in terms of cold snaps, and really just making sure that we're delivering for our customers that they need something at a particular time. If incremental labor is required for a short period of time to make sure that those units are up and running and servicing, that is an expense that we look at and say if that is required, we want to make sure that we're delivering the service and exceeding the service levels that our customers expect. If that causes some short-term, modest amount of incremental expense, that's fine. As I said, it's potential at this point, we're just kind of looking forward over the next eight weeks or so and just want to make sure that we exceed our customers' expectations.

Okay. Got it. Thank you. I'll turn it over.

Thank you very much. Our next question comes from Selman Akyol with Stifel. Please go ahead.

Thank you. Good morning. Congratulations on a nice quarter.

Thank you.

Let me start with your customer count declining sequentially from 73 to 69. I'm just curious, is that you high grading, raising prices and people returning, or is that really just seeing the M&A going on out there?

It's such a small decline overall, there's not a particular factor I would point to there. There's nothing from a conscientious strategy that we were trying to reduce customer count. I expect that number to fluctuate around, and I don't see it as a particularly material driver for us.

Okay. And then, I may have missed this, but as you think about your CapEx for next year, how much of the - how many, how much of that going to be dedicated towards electricity?

About 40% of the horsepower. And that's really looking from kind of the second half of 2024 into what is contracted in 2025.

Got it. And then I guess, and I know you haven't provided guidance for 2025 yet, you have provided the CapEx guidance. But just trying to think or see how maybe you're thinking about '25. You noted in the comments that, sort of cash flow from ops equal to your investing activities, so far on a year-to-date basis. And I'm sort of looking at the capital you're investing next year. Maybe you get some more improvement in the balance sheet, as we think about 2025. Are you viewing it as, you expect to be sort of neutral from that standpoint, or would you expect to be outspending cash flow and therefore having to leverage up just a bit?

I expect our leverage will go up on an absolute basis. The leverage levels, certainly with the covenant, or the ratio coming down in the third quarter somewhat materially. I expect that number will be modestly higher in terms of we're going through the budgeting process right now for 2025, and the key for us is just looking at kind of the set activity, because that's ultimately as we look at the calendar year, will be determinant of how much EBITDA is in that year. It's not going to impact how we think about exiting 2025 in terms of the kind of earnings power of the business, because we know all of those units are currently expected to be set before the end of 2025. It's just working through the timing to figure out okay, how much of that gets captured in 2025 versus kind of an exit run rate.

Got it. And then just last one from me, just kind of going back to your macro comments, and I know you're having discussions looking into 2026, but as you think about oil - is there levels that you see out there that we'd have to hit before you'd see changes in your customer's behavior?

I think there are kind of ranges, where in conversation with customers we would see some changes. Just to reference publicly available data, some of the different regional feds put out kind of prices at which you start to see changes in behavior. Permian Basin and what I've read it's kind of low 60s, where you're going to see new wells. That's kind of the marginal price production much lower. I've seen kind of low 40s and for some of the larger operators operating significant centralized gas lift, it's even in the high 30s in the Permian Basin. So I wouldn't expect to see, absent drastic changes in WTI changes in behavior on the production side. I think it's really on the kind of incremental demand, which at this point we're looking out to 2026, and how long-term of a view. If we saw a dip down to 60 in WTI, would customers start to change behavior? I suspect they would. The magnitude of that a little bit difficult to know because then it gets to their how are they forecasting, and are they looking at a particular spot price or looking over a longer range period of time? I suspect it's more the latter, but I wouldn't say there wouldn't I expect to see, I would expect to see some change of behavior. But once again, that's really kind of forward growth as opposed to existing production.

Understood. Thank you so much for your time.

Thank you.

And our last question comes from Tate Sullivan with the Maxim Group. Go ahead, please.

Great, thank you. Certainly I'm looking more at the average horsepower per rented compressor, which meaningful growth and tries the results, but then the total number of rented compressors down 13 quarter-over-quarter. Is there any, I assume that's fully depreciated smaller horsepower? Is there any cost sending those units to the scrapyard, or do you just offload it to someone for transportation? Can you talk about that?

Sure. So on the unit utilization, you're correct there. It's not a huge number in units, but that is primarily small and almost entirely small and medium combined. It's a low number. We are doing a full review and kind of in the midst of a full review of, particularly in the small and the medium of, what, where is there an opportunity to reduce some of those units? Nothing announced at this point. I don't expect it to be a significant percentage of the horsepower part of the fleet. But certainly looking at the units and saying, as some of these smaller units coming back, what's the right economic decision around that? Some of it will be sell, and some of the existing unutilized units could even be scrapped. But it's really looking at those and saying, how do we take unutilized assets, even if they're small, in a small percentage of the horsepower of the fleet, but put them to their highest economic use for us?

Okay. Yes, I was just wondering if you could monetize that in any way, or I assume it's fully depreciated. And then just in terms of CapEx going out the door, and looking when the units are actually deployed, is it like a quarter lag in terms of the bulk of the CapEx, in terms of sort of trying to model out how many units of larger horsepower are going out the door?

No, the lag time is. Let me start with from the time that we're putting in, and confirming an order at this point to have a unit fabricated with the third-party. You're looking at a range of nine months, closer to 12 now the capital will get spent. There are a series of progress payments that we make over that period of time, but there's from kind of initial spend to units being completed and ready to go out in the field, it's more like that kind of three quarter lag.

Okay. Thank you very much.

Thank you. And I don't see any other questions.

Okay. Well thank you, Luke, and thank you to all of our shareholders and potential shareholders, and those listening in for your questions, and participation on the call. We sincerely appreciate your support and we look forward to updating you on our progress in the next quarter. Thank you.

Thank you very much, everyone. And this concludes today's conference call. Thank you for attending.