Q4 2019 Earnings Call
Good morning, ladies and gentlemen, and welcome to the natural gas services group fourth quarter earnings call.
At this time, all participants will be in a listen only mode. Operator. Since this is available at anytime during this conference by pressing Star zero.
Your call leaders for today's call, our Leisha data I, our coordinator and Steve Taylor, Chairman, President and CEO I would now like to turn to Golar can Miss data you may begin.
Thank you Ross and get money listeners. Please allow me I'm on it until the following forward looking statement prior to commencing aren't any football.
Except for the historical information contained here in the statements in this morning's conference call their core it looking and are made pursuant to the safe Harbor provisions outlined in the private Securities Litigation Reform Act of 1995.
Forward looking statements as you may now involve known and unknown risks and uncertainties, which may cause natural gas services group actual results in future periods to differ materially from forecast it results.
Those risks include among other things lots of market share through competition or otherwise their introduction of competing technologies by other companies and new governmental safety health or environmental regulations, which could require natural gas or was this group to make significant capital expenditures.
The forward looking statements included in this conference call are made after the date of this call and natural gas services undertakes no obligation to publicly update such forward looking statements to reflect subsequent events or circumstances.
Important factors that could cause actual results to differ materially from the expectations reflect in the forward looking statements include but are not limit. It to you factors described in our recent press release and also under the caption risk factors in the company's annual report on form 10-K filed with the Securities and Exchange Commission.
Having all that state it I will turn the call over 50 Taylor He was president chairman and CEO of natural gas services group Steve.
[laughter].
Okay. Thank you elation Ross and good morning, everyone and welcome to natural gas services groups fourth quarter.
And for your 2019 earnings review.
Thank you for turn into the call.
We filed our annual report on form 10-K for 12 months ended December 31, 2019, with your Securities and Exchange Commission after market closed on Tuesday March 31 2020.
Additionally, we provide.
Information on our fourth quarter 2019 results in a press release after the market close yesterday.
Before I discuss our financial results from 2019, I'd like to address the current challenges facing our communities and our industry.
There's no doubt that to cope with 19 pandemic has having and we'll continue to have a meaningful impact to our business our communities are domestic and global economies.
We remain focused on our business is in times like these are we must also focus on the building blocks for our company our team members and their families our customers in our communities.
Our team has done a remarkable job of remaining focused on the needs of our customers who are adapting to the new realities.
Such as social distancing, which have been presented by the pandemic.
We have workforces varied and their functions there professions and their locations.
On the offices to the fabrication facilities to the front lines in the field relocations from the Permian basin to the Niobrara to the Marcellus service teams consisted of multiple people to loan out post.
He has their own particular set of circumstances and we continue to adapt to the short term reality by transitioning to a remote to remote work plans.
And supporting our field service and fabrication team members on best practices to protect themselves from Vars exposure.
We're focused on continuing our work and as safe and environment as possible.
And this impressive health challenge our goal is to establish protocols to protect our team well at the same time delivering continuing to deliver the exceptional service to our customers. They are grown to expect from Ngs.
We are necessarily more deliberate and Howard to lever that service and it may not be as efficient as in our normal operating environments, our effectiveness without suffers.
As this this pandemic is not enough the energy industry also faces economic challenges, we have not seen in over generations.
The combination of a flow supply from OPEC in Russia, combined with an unprecedented decline in demand, resulting from that level pandemic.
He resulting economic shocks have caused also activity plans and demand for <unk> oilfield services to follow.
[noise] never my four decades in the oil field have us the usage of island the time in price no fill activity like we've seen in the last month.
Well I'd like to say I can see the proverbial light at the end of the tunnel I do not think it will be that easy.
We are likely to see more price weakness before the market begins to heal.
But it is obvious at this point is nobody's crystal balls clear.
And they are likely to remain blurred for the next several weeks and potentially months.
In short 2020 is gonna be a challenging year for our industry here or there will likely lead to significant company just placements surprises that aren't yet predictable.
And when we emerge from the Abyss and new normal that brings new efficiencies and operating disciplines to both producers and service providers.
In short that's a descriptive way of saying, we're very limited visibility into the balance of 2020, except to say it will be challenging.
That said Ingeus is fortunate that we have and consistently have had a strong balance sheet with free cash.
And we operate efficiently, although we will be expected become even more.
Efficient in coming months.
We have solid customer who allowed our equipment and services to produce hydrocarbons that create revenue.
Well I'm certain time uncertain of the exact road map in coming months I'm confident that our team worked tirelessly to ensure customers are stakeholders able to rely on ngs well into the future.
Despite continued volatility in energy markets and pressured on commodity prices in just continue to make progress in our core business during the fourth quarter 2019.
Rental revenue increased 6% sequentially and 19% when compared to the fourth quarter of 2018.
We're pleased with our full year 2019, adjusted EBITDA of $24 million, which increased 10% when compared to 2018.
Additionally, our operating cash flow increased to $29.4 million, an increase of 24% over 2018.
We continue to have one of the strongest financial positions in the industry with over $11 million or net cash on balance sheet.
There's little doubt that we are operating in an environment significant headwinds in an unprecedented level of uncertainty.
And just team will continue to deliver best in class service to our long term customers.
We continue to need him need quality reliable compression services.
We will continue to focus on operating efficiently and use our existing contracts generate cash.
With little short term visibility for new projects, we expect total capital expenditures to decline at least 75% in 2020.
From approximately $70 million in 2019.
On March 13, 2020, we filed form Twelveb 25, requesting an extension of time to file our annual report on form 10-K.
Which we did did not before last.
The extension, we indicated a number of compressor macready jobs had not been property closed and recorded on a timely manner.
Additionally, those it had been close correctly, there was an interpretive difference as to whether those expenses should be taken as incurred or amortized over time.
In deliberations with the auditors and resolve the questions we allocated additional operating costs and expenses of approximately $1.1 million 2018.
As was the same amount for the first nine months in 2019.
These adjustments are reflected in the operating results who will discuss.
So with all that said.
Let's discuss the financial results as well as permanent operating in market comments.
Yes reported total revenue of $19.7 million for the fourth quarter 2019 at 22% increase compared to the same quarter in 2018.
We experienced an increase in all revenue stream for 34% increase in sales revenues, 19%, <unk> rentals and 16% in service and maintenance when compared to the same quarter of 2018.
Sequentially total revenue decreased by 5% rental revenues increased 6% sequentially well sales revenues decreased due to a drop in compressor sales.
The comparative year to date periods, our total revenues increased approximately $13 million or 20%.
Total adjusted gross margin for the three months ended December 31, 2019 increased to $7.9 million from $7.6 million or 4% for the same period ended December 31 2018.
Adjusted gross margin, which does not include depreciation or various non cash non recurring items as a percentage of revenue for the three months ended December 31, 2019 was 40%.
They decreased from 47% for the same period in 2018 due to higher rental costs lower compressor sales margins and a $560000 bad debt write offs.
With that the bad debt adjustment our total adjusted gross margin would have increased to eight and half million dollars were 43% of revenue.
Sequentially adjusted gross margin for the fourth quarter 2019 decreased from $9.6 million to $7.9 million or 17% for the prior quarter.
This is driven by lower sales revenues and margins lower rental margins and the bad debt expense adjusted gross margin as a percentage of revenue decreased to 40% in this quarter compared to 46% in the far prior quarter.
But that's a bad debt charge adjusted gross margin would have fallen 11% quarter to quarter instead of just mentioned 17%.
No.
General and administrative expenses for $2.7 million a year over year increase of approximately $330000 and a decrease of approximately $50000 sequentially.
<unk> expenses for the full year in current quarter were $155000 higher due to the previously announced stock vesting of our former Chief Financial Officer.
Our adjusted asked you know expenses generally run at 13% to 14% of total revenue and continue to do so.
Adjusted operating income for the fourth quarter 2019, it was a loss of $880000 compared to 490000 dollar loss in the fourth quarter of 2018.
The adjusted operating loss this quarter was due to higher depreciation expenses in our large horsepower equipment Irish DNA and excludes an inventory allows for approximately $408000.
Sequentially adjusted operating income decreased $1.7 million, primarily due to lower compressor sales revenue and margins and lower rental margins.
Adjusted operating income for the full year 2019 was $156000 compared to a loss of $507000 in 2018.
Adjusted net loss for this quarter was $1.4 million compared to adjusted loss of $116000 in last year's fourth quarter.
Our third quarter 2019, adjusted net income was $967000.
Adjusted loss on earnings per diluted share was 11 cents for the fourth quarter, which compares to adjusted earnings per share or seven cents last quarter and a one cent loss a year ago adjusted earnings per share for 2019 was zero.
EBITDA is obviously earnings before interest taxes depreciation amortization.
And our referenced adjusted EBITDA also excludes goodwill inventory inflate impairments.
Adjusted EBITDA for the three months ended December 31, 2019 remained flat at $5.2 million compared to the same period in 2018.
EBITDA decreased $1.7 million sequentially from $6.9 million, primarily due to lower compressor sales and margins.
Adjusted EBITDA for the year ended December 31, 2019 was $24 million compared to $21.8 million, an increase of 10% for the same period ended in 2019.
Total sales revenues, which includes compressors flares and product sales increased 34% or $1 million on a year over year basis.
Sequential sales revenue decreased to $3.9 million from $5.9 million, primarily due to decreased compressor sales.
Fourth quarter 2019, total sales gross margin was 9% of revenue compared to 25% and third quarter of 2019.
Fourth quarter 2019, compressor only sales increased from $1.5 million in the fourth quarter 2018.
Two $2.9 million this quarter.
Compressor only sales were $3 million compares to $4.7 million in the prior quarter.
Compressor only sales in 2019 increased $4.2 million or 38% to $15.2 million compared to 2018.
[noise] compressor only sales margin was 3% for the three months ended December 31, 2019, compared to 5% for the same period a year ago.
This low margin was due to unabsorbed labor expenses, our fabrication facilities there were incurred during the fourth quarter.
On a four year comparison gross margin in 2019 was 14% versus 18% in 2018.
Gross margin dollars increased 5% this year over last.
Our sales backlog as of December 31, 2019 was approximately $2.2 million compared to approximately $5 million in the third quarter 2019.
We continue to see growth in our rental business with rental revenue of $15.3 million for the fourth quarter 2019 $56.7 million year to date.
Real revenue increased 19% for both year over year periods and the four year comparison.
Sequentially rental revenues increased over 6%.
Compared to the third quarter 2019, our average rental rates on a per unit basis increased 5%.
And were down 5% on average per horsepower basis.
This slide decrease in per horsepower rates is not uncommon as larger horsepower equipment cost less per horsepower, which translates into lower per horsepower rental rates.
[noise] rental rates increased by an average of 13% per unit in the year over year quarters, mainly due to our continued penetration into larger horsepower market, which carry higher rental rates.
Reported rental gross margins this year or 47% decrease from third quarter 2019, real and gross margin, 54% to last year's fourth quarter, 53%.
Our rental margin this quarter was negatively impacted by the previously mentioned.
Bad debt charge without the bad debt.
Adjustment Ngs would have a would have posted they fit 1% gross margins.
Besides at the end of December 2019 totaled 20, 304 compressors are almost 429700 horsepower.
In addition of 28 units are almost 23000 horsepower during the fourth quarter.
Got it Decemberthirty, one 2019, 26% over you live utilize horsepower is classified as large.
For the past 12 months, we've added 82, new fleet units totaling 74000 horsepower with 95% of those units classified our large horsepower category.
Our horsepower utilization is 70% and unit base utilization was 62% as of December 31 2019.
Our large horsepower units continue to exhibit greater than 90% utilization.
Our large horsepower class continued to grow throughout the year.
And the fourth quarter, and our mid range horse experiencing incremental gains throughout the year, we anticipate softening in our small and medium horsepower fleet utilization this year.
We have some cushion going into the year with some opportunities. We are presently are executing on.
Overall, we had 30% more horsepower generate revenues compared to last year's quarter, 11% more revenue generating horsepower sequentially.
I mentioned last quarter that our rental fleet capex was projected to be $60 million to $65 million for the full year 2019.
In fact in 2019, we spent $65.7 million on rental food equipment.
How remind you the or at least 90% of that was pre contracted equipment.
I also mentioned last quarter, we thought our capex would be down roughly 50% in 2020.
Now due to the severity of the downturn in commodity prices and the operating environment, We anticipate capex good decreased by approximately 75% when compared to 2019 levels.
On August 12, 2019, Ngs announced that our board approved in an authorization to invest up to $10 million direction to the company through a stock buyback.
The authorization expires on September 30, 2020.
As of December 31, 2019, the company had repurchased almost 30000 shares at a cost of almost $490000.
We continue to be vigilant and protect our cash position in the current environment.
And we'll remain judicious and making capital allocation decisions.
That said, we continue to believe that our equity remains one of the more attractive investments available to us in the current environment.
<unk> balance sheet.
Total bank debt remains minimal a $417000 as of December 31, 2019.
Our cash balance remained strong at $11.6 million.
In addition, we have a largely untapped credit line of $30 million available to us, which provides ample liquidity endeavor to every conceivable scenario.
We generated positive net cash flow from operating activities in this quarter of $8.1 million, which represents 41% of our quarterly revenue.
Our operating cash flow.
In 2018 was $23.7 million.
And it increased 24 portion.
The 4% to 24 $29.4 million in 2019.
There are not many companies in the oilfield services space that have a recurring rental revenue stream essentially no debt on the balance sheet cash reserves in the bank the strong cash flow yield.
Trading at a meaningful discount to tangible book value.
Before I take questions I want to thank the entire ngs team for their dedication effort during the past year in the first part of the new year.
In a very difficult operating environment, and just managed to continue to grow our customer relationships.
Build our recurring revenue base and significantly build our higher horsepower compression fleet without using debt, while maintaining a strong balance sheet when that cash.
Because we must will be challenging, but we have a fleet of new advanced compression assets should start to generate cash flow and earnings in the much in years ahead.
We're also seeing in my prepared remarks. So if you would please open the phone lines for questions.
At this time, we will conduct a question and answer session.
I feel like the ask the question. Please press star one on your phone now and you will be placed in the Q. When you had received it compressed pound what it anytime to remove yourself from the Q. Once again, if you like to ask the question.
Please press star one on your phone now and our first question comes from Rob Brown from Lake Street Capital. Please go ahead Rob.
Well Steve.
Hi, Rob.
Realizing the environment is tough to predict just wanted to get some some boundaries and kind of what your business looks like and I think a number the high horsepower units for were sort of fully contracted.
A couple of years, but could you remind us and how much your business I guess in the next sort of 12 months is.
Is it sort of fully contracted now much conservatism in the month to month basis.
Well you know the lack of misery.
There's 26% of our.
A working horsepower is high horsepower and probably 98, well, let's say 80, 85% as is contracted Oh, yeah multiyear.
So you know from.
No say three to four more years, they've got a pretty good base on that you know the rest of the fleet.
You know, there's not long term contracted they're all on minimum terms of some 0.6 to 12 months then go month to month, but.
No overall I'd say you know good good long term contracts by comprise.
20% of.
Oh, the horsepower, which is actually historically, a pretty high percentage because yes, our business in the compression industry as a whole typically runs on.
You know short term contracts, you know 612 months than month most inches after that so.
20% done so like a whole lot, but it's a pretty good from a horsepower basis in you know that utilized horsepower and they had historically its is probably the strongest hussein.
Okay, great. Thank you, that's that's great color and and the.
And then the sort of backlog of projects that you have yet to complete and it's been capex on.
Is when does that in <unk> in 2020.
We're pretty well enter the committed in into that we've got some equipment to build over the next quarter. So not a whole lot I mean, we have.
Slowed down and you know.
And fourth you had to make adjustments to the <unk>.
The workforce on fabrication standpoint.
But we don't but there's not a whole lot of money involved you know I don't think theres probably more than.
Four or $5 million yeah, we've.
Got to Bill from an execution standpoint, and again that that equipment is is pretty contracted so that'll that'll stretch out another quarter or so minimal capex.
And then go no go out in the field so.
Like I mentioned, we think Capex said last time, 50% of course, that's for the Raj really got go on them before crude.
Decide to go way south.
And now we're down about 75% and really that's that's only because we had some is pretty contractor stuff that fell into this year I don't really anticipate <unk>.
Much.
You know rental capital expenses expended the rest of year. Obviously, you know things are slowing down we've got all of our pre pre contracted stuff just about Don and you know the the effort. This year will be obviously to yeah maintained the big horsepower.
Our but also tried to.
Keep our medium horsepower are going out now I'd mention here, we've got some opportunities we're executing on right now needs your contracts that came to us in the mid horsepower range.
You know before the end of the year.
Generally and we're still sitting in equipment.
On that and we haven't seen any pull back on that.
Yeah, you know and yet is gonna be the operative turn for the next.
You are probably but yeah right now the.
The two or three opportunities that we got a for.
You know a multiple rental units or beginning of year are still going forward for someone to slow down a little but I'm still haven't seen any any pull back on some of that now obviously, we're gonna have you know utilization pressure price pressures and everything else. That's typical in these downturns will fight through those.
The way, we typically do but.
You know.
Now those those existing opportunities or are.
Continuing and hopefully we'll find a some incremental.
Jobs going forward to offset some of the expected declines.
Okay. Good and then and then you give some utilization numbers for the for year end, what what sort of the utilization rate today and how much have you seen the decline in utilization and or is that still a candidate but in terms of setting of that that's coming in.
Yes, it's still pretty much day by day of the.
Missing the horsepower utilization, 70% utilization was 63.
Its a.
Yes, that's the mix between.
The big in the in the small the big horsepower as highly utilized in the smaller stuff is less so and you know in the mid mid.
So, but it changed today most of what we're seeing.
Now I mean, obviously, we're seeing some you know some equipment come back because young.
20 dollar all it's tough to make money sometimes.
But also.
We're seeing people you know just from a discount basis, which.
No I don't know.
If you want to try to rank bad news, but discounts are better than terminations.
And so yeah, we're we're working with customers on those and.
You know it at this point everybody's kind of working together to see what a what's good for the operator, what's good for us and things like that we've got a lot of good relationships.
A good service out there and that carries a long way and in times like this you know where downturns and you know and this will be a severe downturn.
So we're optimistic we'll we'll come out yeah, you know much better the industry in the end, but you know you still got to fight through the details of it.
Yeah, Yeah, they get sorted are.
Okay. Thanks, Rob.
Our next question kind of sort of Kyle may from capital One Securities. Please go ahead Kyle.
Hey, Steve Good morning.
Michael how are you.
Doing well all things considered.
Oh I was hoping we can they cannot go into the outlook for 2020, a little bit more and I realized I appreciate there's not a lot of visibility but.
Mentioned, there's there's ever whenever things going on and also in the 10-K filing you touched on some potential headwinds so.
Is there anyway, you can help us kind of frame up how you're thinking about a year, maybe talk about the potential magnitude of some of the impacts that you're seeing.
Boy.
Yeah. It's.
Let's say, it's tough and.
Yeah from.
Again, the big horsepower side, we're not as worried about because you know that's steph.
Good times your bad pinch tends to be pretty sticky codes the equipment, it's expensive its not real easy to move around.
Cetera, you know and and again, you know to remind everybody that we always thought we always try minor because he is yeah. We're on the production side not the drilling side, so production tends to <unk>.
<unk> day, obviously, if you get below cash cost of production has to come down to but generally I suppose still pays a lot bills. So production tend to stay out there that maybe adjustments may be pressures and things like that but yeah. We're on the better.
Better divide of the the.
Energy industry right now.
The big horsepower not too bad do you expect more pressure on utilization and the in the mid and small horsepower stuff, which is typical it's not.
A nice thing different you know this downturn is not going to be different than others. It's just quicker.
Very fast down.
And.
Yeah, but it's not like we.
You know she exam, but down during <unk>, what do we do now yeah. We will you know we've got game plans in place we know what to do you know how to handle it is just show the speed of the declines have been pretty quick.
So it's it's real hard to.
I'll, just say, what's going to happen on any this stuff I fully expect utilization come down how much I don't know expect pricing come off I don't know a yeah. We've had some.
We've built up some good cushion over 19 from utilization from pricing.
Yes positive impacts on things like that so yeah, Weve got cushion built into the system anyway, but you know still going to hurt you know we were still going to see things come off.
[music].
Yeah, so to answer any questions right can you tell.
[laughter] hissed hard to say, what's gonna [laughter], what's kind of go on.
I'd say, there's going be declines, but I don't know I don't know how much and I don't know exactly when.
They're going to happen, we're starting to you know we're starting to see all that all those pressures you on the in the end the worst pressure, we typically see if there's just touching customers dealing.
Yeah.
That's okay were good relationships good equipment, good service et cetera.
The wildcard in all these changes competition and what they do and they will typically you know dropped pricing a little more severely then we will yeah they've got other.
Issues, they've got to look at we don't have to look at that they do.
Yeah, we don't we don't heavy payments like that we own every bit of our equipment.
Yeah. So that's always a wildcard as to whether you know everybody maintains a decent amount of disciplined he or the bottom drops out and that's that's yet to be seen you know a we don't have a feel yet as to.
How that market is gonna be but yeah. That's that's the one we always have to kind of keep a little closer islands. So God I can answer your question I don't know I don't know what kind of decline. We're gonna see you know not yet I I really hesitate, even though a number out there.
Yes, that's fair I appreciate.
The detailed color there.
One other question I was curious about it you mentioned the the large horsepower contracts or are definitely longer and lakes and more sticky but.
As we think about the smaller and mid horsepower size.
Can you give us any color or talk about how I guess customers or.
Changing those contracts really requesting changes and what's the what's the dynamic there.
Yeah, we seen.
You know and again were.
Were you know month into it. So we don't know all that might might come but typically on that study other steps lot easier to move around.
Not that expensive to move around and so you know customer will tend to either want to obviously they'll come back and say can we help them and and that's you know that's typically always yes.
I would try that you'll have a <unk> negotiate something or if we can negotiate some obviously the customers you know freely go out and find something else. If you still got production he wants to.
Put down the line and a and you can do that on smaller equipment 'cause, it's just easier to move around the or is a big stuff is just not.
So yeah, we'll see some of that we'll see yeah, there might be some replacements just due to its not being able to get to where the customer wants us to get too.
And of course are stories out there you know.
Yeah 20, 25%.
Ill decreases and stuff like that you know and were we don't play in that that ballpark. You know, we don't look at that kind of those kinda decreases. So you know if somebody wants to 20% decrease or probably gonna have to figure something else out because we're not going to.
Yeah, We just can't go that we don't think it's fair to go that so and that's why I referenced before youll competitions that big a wall Carlos on those things.
So typically up till now we haven't seen.
That you know a customers have been.
Thank you know fairly.
You know pragmatic about like Hey, you know.
Read the papers lately all exists and they would need some help and yeah. That's fine you know always try to to figure out how we can do and and you know we always try to get a little given take on it if we're going to do this you know what what can we do to cut our cost and and those sort of things I mean, one thing we will not do is is he others.
There's going to be more.
Slow pay and in issues around that in a downturn always our annual in and we tend to get pretty strict on those items to where.
If there's.
Yeah with theirs.
Potential payment issues or stuff like that we typically won't deal a whole loan discounts.
Till we get all that straightened out so it's a it's negotiation.
Oh sales guys and we've already got a process in place to evaluate every.
Every <unk> request and we and we would do that centralized you know it's it's made a couple of other guys look at this stuff every one of them and decide what we can do based on what's our utilization all that particular equipment. You know what's our density in the area things that drive cost and you know and that tells us a little about how much.
Just can't we can do you ever can't give and so it's you know we've got a process set up you. Unfortunately, you know when.
He can do this every few years so.
Don't have to reinvent everything all the time, but.
It's just CNN medium small horsepower she's gonna be.
Typically you're gonna be discounts or sometimes you'll get a replaced but we didn't see the replacement that much in the last downturn. It was typically we just had to kind of figure out discounts and what we can do.
Got it okay. That's helpful.
One last one just a housekeeping thing for me I think you mentioned in your.
Prepared remarks that can you repeat the compressor sales gross margin percentage for the fourth quarter.
Yes, I don't want to.
It's 3% [laughter] third okay got it Oh, primarily due to okay, great. We we had extra.
Had extra labor.
In shops at that time, you know.
It's under absorbed so we didnt have you placed a charge. It you know you know when your equipment.
And then this is difficult to in a downturn gotta fabrication facility outside plant that you know those those work better at.
Higher utilization in capacity and of course that utilization is coming off and when it comes off you don't have as much equipment running through there.
To absorb all the costs that facility and that's what happened they've just done we've got to sell they just have no one.
Yes, so we've got to take a is typically labor you get extra labor that.
It is not fully utilized so that under utilized labor or Unabsorbed labor is what we had to take a charge for.
Not a charge for image and expensive went to the income statement.
Got it okay.
That's helpful. Alright, Thanks, Steve I appreciate it.
Okay. Thanks Kyle.
Our next question Tencent Tate Sullivan from Maxim Group. Please go ahead.
Hi, Thank you Doug good morning, Steve Thanks for having upstate hot.
A couple of quite a a couple of questions earlier on the debt commitments to rent payments resi or 20, I think in the K, It's 25.9 milling and just to circle back on that.
Because you have a larger percentage horsepower as larger horsepower is that a larger percentage.
I've covered shift you will in this downturn.
Yeah well.
I didn't hear your the 25.9.
What percent what was what.
Oh, well that 25.9 in the case in the future minimum rent payments Oh concurrent contracts you have been so I just I mean does that much.
Higher leverage revenue coverage going into this downturn than previous downturns and I think you answer there.
Yeah, Yeah typically is now yeah I'll caution everybody. Yeah. Those are you know those are contracted rates and things like that and.
Are you in a downturn like this those are there you know there maybe.
I will say quote unquote opportunities to help customers on those so I imagine legal.
Probably approached a little on some of those two but again, we always try to especially if these are contracted deals if.
If equipment you know in any at any given time, probably 25 20, 25% of a total fleet is under contract or some sort, where there's 12 month or 36 month.
But if if people come to us.
In a within a minimum term on equipment.
We typically don't have to doing thing, we typically do because obviously the long term customers, usually and guess what goes wrong comes around.
In this business. So we yeah, we will typically try to figure something out and yeah, we'll give them some relief of some storage while maintaining what we need to do you know when exchange will pull one longer you no longer subsequent terms at the end and things like that so.
Just just to kind of bound those those numbers a little.
Okay. Thank you and then just thought.
Your equipment comes in.
Or either ends rental contract or computer constant at aggressive price to swap out the smaller horsepower I mean is somebody equipment coming in fully depreciated at this point or how will you evaluate future are apparent script this year.
Leased and what's been the feedback from accounts are just can you get some context on on that evaluation.
Yeah, Yeah, the medium stuff the small stuff really is about all zero I think you know in last quarter, we took whenever million dollar charge and just wrote off the rest of the small horsepower. We had idle now we'll get some small horsepower bag that you know still has little book value, but it can be pretty negligible.
So yeah, it's essentially a zero book value business.
Medium.
Yeah, we've we're probably about two thirds through the life depreciable life on.
That does so there's always been <unk>, all that but its a.
You are relatively small.
So yeah. The medium stuff you know still have some book value is still good equipment is typically a wellhead gas lift which is you know still a good way to produce.
You know a shallow wells.
And you know.
Never say never Alright, I don't want a once you're right in this down if you do right pencil like in the ratio later.
Yeah, we don't into we don't we haven't looking out we don't anticipate any impairment or what we've got we've we've taken some in 19.
Of course, we're taking before this downturn, but equip is still good I really don't anticipate.
That happening.
No yeah, that's my operational view of it if you know if you if you get down you know from an accounting standpoint, and have to look at <unk> carrying costs or something versus the yellow potential you know net present value the rental etcetera, yeah, it's a whole different deal, but right now we don't anticipate.
Or any impact from that you know at least for 2020.
Okay [laughter].
Okay. Thanks, Dave [noise].
And our next question comes from Steve Mcqueen <unk> S. M investments. Please go ahead Steve.
Hey, Steve Good morning, Uh Huh.
Well I'm doing fine. Thanks, you almost answered my question earlier, so I want to ask in a different way because.
All of us or hearing about drilling rig activity drop in 40% and completion activity dropping 40, and 50% in certain operators, saying, they're going to have a completion holiday.
But is it fair statement that their maintenance Capex is one of the last things that they try to touch and.
That provides ngs with a little bit better position in this downturn than.
If you were drilling contractor or pumping company is that a fair observation for you.
Yeah, No I think that's exactly right you know what I alluded to blow before being <unk> production side of course of drilling side, you know if Europe, if you're a driller or.
[noise] ran a frac company right now and you're singing the blues I mean, we're all you know.
Well, we're all going to be in you know tougher shape than we were but man. Those guys are you know it's rough.
Because you know number one you go out and recreate a revenue everyday right you've got a role with truck. Your revenue you got to drill a well to grow revenue and things like that and if you know number wells goes down number completions goes down there's no work yeah. We've got the advantage. Besides mail production side, you know rental revenue recurring somewhat annuitized, obviously it can flood.
<unk>, but you know.
I've never seen and go to zero, yet and you know won't I'm. So.
I think you're right Steve if you.
Look at the production profiles versus drilling profiles production is.
Drilling gets cut very very fast because it's it's quick you it's easy to cut my page that well go home.
Production.
You need to keep on and sometimes need to keep it on even when your cash cost might be lower because of yeah, well damages. If he showed in things like that but you've always got to have some revenue run through.
The operator companies or you know or <unk>.
There are a business right. So yeah, everybody focuses on production more so now and obviously, it's going be low cost production and that's where the.
You know the <unk>.
The tough times calm but.
I'd rather be on this side and that side any day.
Well, thanks for the answer and again, thanks for all the hard work that you're team's doing and I'll turn it back over to the operator.
Okay appreciate it.
And Steve at this time there are no further questions.
Okay. Ross appreciate it I think thank everybody for joining on this call. Appreciate your time this morning, and like for Division with you again next quarter.
Thanks.
This concludes it's conference call. Thank you for it.
[noise] those tests ended this call goodbye.