Good morning, everyone, and welcome to the Natural Gas Services Group Incorporated Quarter 1 Earnings Call. At this moment, all participants are in listen-only mode. I would now like to hand the call over to Ms. Anna Delgado. Please proceed.

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 our filings with the SEC, including our Form 10-Q for the period ended March 31, 2025, annual report on Form 10-K for 2024 and our Form 8-Ks. These documents can be found in the Investors section of our website located at www.ngsgi.com. 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 a reconciliation 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.

Thank you, Anna, and good morning, everyone. I'd like to welcome all participants to our first quarter 2025 earnings call. Let me first introduce the team. Joining me today, we have Ian Eckert, our Chief Financial Officer; and Brian Tucker, our President and Chief Operating Officer. I'd also like to extend special thanks to the entire NGS team for their dedication, passion and unwavering commitment to servicing our customers. After two record years at NGS, we started off 2025 in great fashion. I continue to believe NGS has a very strong competitive position and will continue to deliver attractive growth in revenue and profits in the years ahead. Market demand for compression remains strong and our success in winning market share stems from a combination of our innovative technology, high service levels driven by the strength of our people and flexible balance sheet. While there has been a great deal of market volatility over the past couple of months, we have been fortunate that our business has not been materially impacted to date. Our 2025 unit deliveries, all of which are under a long-term contract, remain on target. In addition to the already contracted unit deliveries in 2026, our discussions with customers remained focused on growth in the future. We have and continue to allocate capital prudently, supported by our expanded credit facility and a balance sheet that affords flexibility even in these volatile markets. I'll give just a couple of highlights as it relates to first quarter financial performance. Rental revenue hit a quarterly record of $38.9 million, a 15% increase versus the prior year quarter and 2% sequentially. Adjusted rental gross margin of 61.9%, another banner quarter for margins. Adjusted EBITDA of $19.3 million in the quarter, once again, a record number. We finished the quarter at 2.18x leverage, providing significant margin of safety against any currently unforeseen softening of results, while also providing significant offensive firepower to maintain organic growth and add inorganic growth to the mix. As a final note in the quarter, we exceeded our internal expectations, which I will discuss further in our forward-looking guidance. Turning to the overall market conditions. There is obviously a lot going on in macroeconomic factors and commodity markets. Since our last call, we've seen WTI in the 50s, in the 70s and everywhere in between. And our last call was less than two months ago. We've used this volatility to look at the business in multiple cases, an upside, a downside and stable, so that in each case, we can mount an offensive game plan. We remain confident in our ability to perform regardless of the volatility or price level that we see. Looking at the public pronouncements of customers to date, we see modest CapEx reductions that are not hitting us. These public statements are consistent with our discussion with customers that show a locked-in 2025 and growth in 2026. Obviously, we are keeping a very keen eye on this area. Natural gas prices are currently hovering in the mid-3s after peaking above four with a broad range of 2026 forecasts, some stable with current levels and others well into the 4s and beyond. LNG export growth and new pipeline projects could create upside for our small and medium fleet and present an entry point into midstream large horsepower compression, a potential tailwind not yet reflected in our models. While tariffs remain a source of volatility, the direct impact on NGS is minimal, given our supply chain consists of mostly domestic vendors and major imported components are largely exempt. That said, the indirect effects are harder to predict, so we will continue to monitor the market and engage with our customers and suppliers to better assess any indirect risks and plan accordingly. As it stands now, our business and customer installations remain on track for what is shaping up to be a strong 2025 and 2026. I'd like to now shift to our strategy and provide some updates as it relates to our growth and value drivers. I'm going to focus on three of them today: asset utilization, fleet expansion, and M&A. I'll start with asset utilization, which is comprised of converting non-cash assets into cash and increasing the utilization of our existing fleet. Our days receivable improved from 118 days a year ago to 35 days at the end of Q4 '24 and stayed at 35 days at the end of Q1 '25. This has been great progress, which we are now maintaining. Additionally, we made significant progress on monetizing the $11 million income tax receivable. It was recently submitted to the Joint Committee on Taxation in the U.S. House of Representatives for final approval. This is the last approval required, and typically, this takes less than 12 months. We look forward to reporting the collection of this amount, nearly $1 per share in cash in the near future. We have significant owned real estate, which we are looking to monetize in the near term. Currently, we're focusing on the two largest assets, our corporate headquarters in Midland and our recently closed fabrication shop in Midland. We also have opportunities to reduce inventory further. As I've stated previously, the combination of the income tax receivable, owned real estate, and inventory creates an opportunity at least as large as the approximately $25 million we monetized in accounts receivable in 2024. Lastly, I'll add that in terms of horsepower utilization, the vast preponderance of idle horsepower is in small and medium units. We're continuing to review options for technology upgrades, electric conversions, and monetization. Although still early, I'm starting to see some green shoots in this area. Certainly, strengthening natural gas prices and increased volumes are helping, but I think the technological innovation and service levels we are providing are starting to make a difference. As I've mentioned previously, this was never going to get fixed in a couple of quarters. This will take time. And while I don't have enough data points to have a trend, I'm cautiously optimistic of some anecdotes. The third driver, fleet expansion. We have previously disclosed signed contracts and unit deliveries scheduled to add roughly 90,000 horsepower, most of which in 2025, with another significant number of signed contracts for unit deliveries in 2026. These commitments are all focused on large horsepower, including a material increase in electric motor drives. The majority of these fleet additions are allocated to a key customer that will ultimately become our second largest, with well over 10% of our total revenue once units are set. As you will note in the first quarter 10-Q, our largest customer was 46% of revenue in the quarter, down from 54% in fiscal 2024. This decrease in concentration is due to growth in our other customers, not with any loss with Oxy as we continue to grow that relationship as well. Customer diversification has and continues to be a focus and we are growing both the number of key accounts and the volume of business we are doing with them. The fourth and final driver, M&A. We remain focused on continuing to drive significant organic growth while at the same time continuing to explore the M&A markets. We remain well positioned, both operationally and financially, should strategic and accretive acquisition opportunities emerge. Given the current state of the markets, we believe consolidation will continue this year and more attractive assets may be in play. Our strong balance sheet and leverage position, coupled with a volatile commodity backdrop, makes us a natural consolidator where valuations are attractive. In April of this year, we amended and expanded our revolving facility from $300 million to $400 million with an accordion feature raised from $50 million to $100 million. The amended facility has lower pricing and a more accommodating leverage covenant as well. This is a significant win that supports our industry-leading organic growth and provides optionality for M&A. We appreciate the continued confidence of our banking group and welcome our new lending partners. We look forward to delivering for them and for our shareholders. With that, I'll turn the call over to Ian to review first quarter performance in more detail.

Thank you, Justin, and good morning to those joining us. I'll begin with a brief overview of our first quarter 2025 financial and operational performance. For the first quarter of 2025, Natural Gas Services Group reported total revenue of $41.4 million, a 12% increase over $36.9 million recorded in the first quarter of 2024. Rental revenue was $38.9 million, up 15% year-over-year and 2% sequentially. This increase was driven by higher average rented horsepower and continued pricing improvements, particularly from large horsepower units. Total adjusted gross margin for the quarter was $24.3 million, an increase of $3.1 million over the prior year quarter and $1.3 million sequentially. Adjusted gross margin percentage came in at 58.6%, representing a 140-basis point improvement over Q1 2024 and a 210-basis point improvement compared with the fourth quarter of 2024. These results reflect sustained pricing discipline, unit additions, and enhanced cost controls. Rented adjusted gross margin reached 61.9%, up 80 basis points from the prior year and 150 basis points sequentially, marking one of the highest levels we've achieved in the past decade or so. Net income for the quarter was $4.9 million or $0.38 per diluted share compared to $5.1 million or $0.41 per diluted share in the prior year period. Sequentially, net income increased by $2 million, largely reflecting the impact of the inventory allowances recognized in the fourth quarter of 2024 tied to the closure of our Midland, Texas fabrication facility. SG&A expense rose by $0.7 million year-on-year to $5.4 million. However, as a percentage of revenue, SG&A remained essentially flat at 13%. Adjusted EBITDA for the first quarter was $19.3 million, an increase of 14% compared with the first quarter of 2024 and 7% sequentially. As of March 31, 2025, rented horsepower totaled approximately 493,000, representing an 11% year-over-year increase. Utilization was 81.7%, essentially unchanged from a year ago and all recently deployed large horsepower units were fully utilized. Moving to the balance sheet. We ended the quarter with $168 million outstanding on our revolving credit facility. The leverage ratio was 2.18x, down from 2.36x at year-end '24, and our fixed charge coverage ratio improved to 2.98x. As of the end of the first quarter, we had $132 million in available credit. This excludes the $100 million expansion that we secured in April. These results put us well within our covenant thresholds. Accounts receivable were $15.4 million at quarter end, a modest decline from year-end levels. Days sales outstanding performance remains strong, reflective of our continued efforts to monetize noncash assets. Cash from operations of $21.3 million nearly quadrupled the $5.6 million generated in the first quarter of last year. Capital expenditures in the quarter totaled $19.3 million, including $16.7 million of growth capital and $2.6 million of maintenance capital. Growth spending is in line with our 2025 plan and will be weighted toward the back half of the year in conjunction with scheduled unit deployments. Our focus remains on margin expansion, disciplined cost control, and capital efficiency. Our balance sheet is solid, and we have ample liquidity to fund our growth initiatives, which potentially could include the pursuit of value-accretive acquisition opportunities. With that, I'll turn the call to Justin for closing remarks.

Thank you, Ian. We started 2025 with strong momentum, and our Q1 results surpassed our internal expectations. In light of this, we are raising the upper limit of our adjusted EBITDA guidance to $79 million. Anticipating some of the discussions I might have with our investors, I recognize that our Q1 adjusted EBITDA of $19.3 million projects to an annualized figure of $77.2 million. This places us above the midpoint of our revised range, not considering the unit delivery schedule, which is mainly in the latter half of the year. I anticipate the topic of sandbagging may arise during those discussions. Considering the current macroeconomic uncertainties, and with only two months having passed since our year-end call, I plan to be prudent and patient to review another quarter of results and, more significantly, overall market conditions. If the macroeconomic environment resembled that of 2024, the high end of our guidance would probably start with an eight. I want to emphasize that I do not currently perceive any significant impacts from tariffs on our business, and I’m enthusiastic about the remainder of 2025 and 2026. We are maintaining our growth CapEx guidance of $95 million to $120 million, primarily weighted towards the second half of the year, alongside maintenance CapEx of $10 million to $13 million and aiming for at least a 20% return on invested capital. Rental revenue, margins, and EBITDA are either on track or exceeding our plans, and our expanded credit facility provides us with the resources to pursue organic growth and strategic acquisitions. We will continue to invest in technology, systems, and personnel to strengthen customer relationships, enhance service levels, and further differentiate NGS. In summary, it's an exciting time for our company as we capture market share, enhance our financial position, and concentrate on delivering substantial value for our shareholders. Thank you once again for your interest in NGS. Operator, we are now ready to open the call for questions.

Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from Mr. Rob Brown with Lake Street Capital Markets. Please go ahead.

Morning. Thanks for calling in. First question is kind of on the current demand environment and the volatility. Obviously, it's a bit of a volatile situation. But what's sort of the indications from customers and how do you see that flowing into your conversations? Is it really timing of the '26 deployments? Or is there starting to be some pricing pressure? And just what's sort of the demand environment implications at the moment?

So, I would say we haven't really seen much of a change in the demand environment over the past, let's call it, 60 to 90 days ago. 2025 is essentially all locked in, still having discussions with customers about 2026 growth. We have a significant number of units already contracted for delivery throughout 2026. And there remain ongoing discussions of incremental units to get contracted in 2026. And so, from the demand environment there, really haven't seen any change. It remains a strong environment. On the pricing side, no material discussions. I mean, obviously, there are always times when customers ask for a price, but there's nothing that's any different from the environment we've seen or at least I've seen since becoming CEO. So, it's really pretty consistent from where we were even 90 days ago.

Okay. Great. And then, on the gross margins, they continue to tick up. The mix of the high horsepower, should that continue to expand as the mix...?

Let me address two aspects of the margin. First, the rental adjusted margin, which remains consistent around the 60% mark. This quarter, we reported 61.9%. The variation is influenced by certain items, including parts that can show slight fluctuations from quarter to quarter. While these movements are not large, they can lower the margin from 61.9% to around 60.5%. We experienced some lightness in these items in the first quarter, contributing to the expected natural volatility. However, we have demonstrated consistent performance in the rental adjusted gross margins, with this quarter being at the high end of that range. Regarding the overall margin, we successfully reduced the gross margin impact from the sales line that was particularly high last fourth quarter due to the closure of the Midland fab facility. We have significantly mitigated these losses in the first quarter, which positively influences the overall adjusted gross margin.

Our next question comes from Mr. Jim Rollyson with Raymond James. Go ahead, sir.

Good morning, Justin and Ian. Justin, I want to revisit the margin question. You've been consistently around the low 60% range in rentals. As you progress through the year and start taking on most of your new deliveries, are there any cost factors that could impact that margin negatively? Or do you believe a rental margin of over 60% is sustainable moving forward?

If you look at NGS historically, particularly over the last five years, we’ve been increasing our large horsepower installations. During this time, there have been occasional temporary spikes in installation expenses. Sometimes these are balanced out by revenue, and other times they are not, depending on the customer, and at times, there has been no impact at all. We are closely monitoring this to minimize its occurrence. While some temporary expense increases may happen, I don't anticipate them having a significant effect. It's possible this could bring us to the lower end of our typical rental adjusted gross margin range seen over the past six to eight quarters, but I don’t see any specific issues at the moment; it's something we are keeping an eye on, and any impact would likely be temporary.

It seems like the low to midpoint of guidance might be around 60 or possibly in the low 60s. I was trying to understand that better. You also provided an update on some of the monetization plans. Just as a reminder, you mentioned going through the AR last year, which is still within the 30-day range and quite impressive. As you focus on real estate and some specific targets, including the tax receivable, what is your overall plan for utilizing those proceeds? Since you aren't currently at the stage of returning capital, does that mean you are looking at reinvesting in further organic growth? Is that the general thinking at the moment?

It is. At this time, as we generate proceeds from various items like real estate, income tax receivable, or inventory, the primary use will be to pay down debt, followed by organic growth. There have been discussions, both publicly and privately, about returning capital, and the Board is carefully considering the appropriate time and method to return capital to shareholders. We are experiencing significant growth and believe we are achieving a high return on invested capital. However, our industry leads shareholders to expect some form of capital return, and the Board is aware of this. The focus is really on the timing of when we will move towards that, and we are closely examining it.

Got it. Appreciate that. And congrats again on the new credit facility, especially given the market environment when you guys got that signed up.

Thank you very much. We were quite happy to get that closed. I think it was right around two days after April 2. And as I looked at the high yield and Term Loan B market, not very much was getting done. So we thought it really spoke to the strength of the relationship and of the business.

Our next question comes from Mr. Selman Akyol of Stifel. Please go ahead.

Hi, good morning. This is Tim on for Selman. Congrats on the quarter. So, just first question, do you anticipate any of this kind of crude oil volatility to kind of bring some of the smaller compression providers to market? And then also, given some producers are trimming some of their CapEx, do you think there's potential for more outsourced compression and less in-source compression?

Regarding the effect of crude oil prices, our larger and medium-sized horsepower units primarily service crude oil wells, while the smaller horsepower units are more influenced by natural gas prices. Although I'm seeing some positive signs, it's not a definitive trend yet. There are opinions that LNG will significantly affect both volumes and prices, but it's too early to assess the influence on smaller horsepower. Currently, the trend appears modestly positive. With respect to CapEx budgets, the ranges I've observed indicate decreases of about 2.5% to 10%, without affecting the key areas that concern us. Many customer announcements emphasize productivity, which aligns with our strengths in technological innovation. We enhance productivity and operational time for our clients, and there is an increasing emphasis on this. As for the decision between in-sourcing and outsourcing, it's too early to make a determination. One might expect that if companies are worried about leverage and reducing capital, they would lean towards a renting approach instead of purchasing, but we need more time to evaluate this.

Got it. Perfect. And then, just wondering if you could give an update on lead times for engines, frames and packages, just of what you're seeing in real time on that?

Sure. Really no difference from last quarter. The engines are running depending on the model and the manufacturer of the model, you're looking probably somewhere six to eight months. Compressor frame is at the shorter end of that and fabrication is 9 to 12 months. So, really no change in that.

Our next question comes from Tate Sullivan with the Maxim Group.

Can you clarify a comment from earlier? Did you say that the potential sale proceeds from the Midland assets, specifically the office and fabrication facility, would result in at least a $25 million decrease in receivables?

Yes. So, if you look at the aggregate of those three different areas, I mean the income tax receivable, which that amount is defined, $11 million, and then adding in the proceeds from monetization of the real estate and inventory combined, we see that as an opportunity that's at least as large as the approximately $25 million of cash we were able to pull out of AR in 2024.

Okay. Great. And in Midland in the last two months, have there been a fair amount of real estate transactions, building transactions in Midland?

I think that relative to the market size, it remains active. Real estate is somewhat challenging to predict in terms of timing and generally requires a longer lead time. We are currently focused on these efforts. The Midland fabrication facility wasn't fully shut down until the end of the first quarter. Therefore, we are still in the process of monetizing those assets. I believe they are attractive assets, and there isn't any urgency to sell them. Our aim is to enhance the capital efficiency of the business, allowing us to take a careful approach in realizing their full value.

And then a metric in the Q1 that you highlighted in the case that I haven't focused on much before is the percent of your horsepower rented on a month-to-month basis was 22% in the first quarter. Do you think that's a level that will remain around that level or continue to come down as you deploy more larger horsepowers on multi-month contracts?

I think that number has been trending down over the quarters. And any new units going out, they're all large horsepower, they're all pre-contracted, and those are contract ranges that are in the 3-to-5-year range and typically towards the high end of that. So the impact is, yes, that number should continue to trend down.

Okay. And then last, please, is your comments on the LNG. Is it mostly related to putting currently unutilized smaller horsepower out into the field? Or could it indicate that some larger horsepower would be for midstream purposes or mostly on the smaller horsepower?

In terms of our customers and applications, we are seeing increased volumes. Small horsepower is mainly used in gathering natural gas, and that is where we are observing some modest growth. There is a positive sentiment about this. While we are not currently involved in the midstream sector concerning pipelines, it represents a potential opportunity for us. Even if we do not penetrate that customer base, the high utilization rates of large horsepower across the industry keep supply very tight. Thus, whether or not we enter the midstream applications, the overall market for large horsepower remains constrained.

And I don't see any other questions.

Great. So, thank you, Luke, and thanks for all of your questions and participation on the call. We sincerely appreciate your support. We look forward to updating you on our progress in the next quarter. Thank you and hope everybody has a great day.

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