Q4 2024 Natural Gas Services Group Inc Earnings Call
February, July, March 19, 2014
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 Law I'd.
Investors are cautioned that forward looking statements are not guarantees of future performance and those actual.
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 statement, whether as a result of new information future events or otherwise.
Accordingly, you should not place undue reliance on forward looking statements. These.
These and other risks are described in yesterday's earnings press release and our.
Our filings with the FTC, including our Form 10-K for the period ended December 31st 2024, and our form 8-K. These.
These documents can be found in the investors section of our website located at Www Dot N G. S T I dotcom.
Should one or more of the 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.
A reconciliation of these non-GAAP financial measures to the most directly comparable measures under GAAP. Please see yesterdays earnings release.
I will now turn the call over to Justin Jacobs, Our Chief Executive Officer Justin.
Justin Jacobs: Thank you Anna and good morning.
I'll start by introducing the team.
Speaker Change: Joining me today on the call as Ian Eckert, our new Chief Financial Officer, and Brian Tucker, Our President and Chief operating Officer.
Speaker Change: I'm very happy to welcome <unk> to our team and I am impressed how quickly he has come up the curve considering he has been with us for Washington three months.
Speaker Change: I also like to take a second to thank all the employees of tends yes. These results would not be possible without your dedication and perseverance. Thank you.
I Trust by now you've had the chance to review, our fourth quarter and full year 2024 results, which we announced yesterday after market close we.
Speaker Change: We delivered another strong quarter of revenue growth net cash from operations adjusted EBITDA and operationally, we improved across the board, we continue to execute on our strategy and against our value drivers.
Speaker Change: Ian will cover our fourth quarter results. So I will focus more on a year over year growth as well as our comparison to two years ago.
Speaker Change: I've noted on previous calls that ngl's as a different business than it was several years ago I believe these numbers put this in context.
Speaker Change: I remain quite optimistic regarding our competitive position and our growth trajectory.
Speaker Change: Okay.
Speaker Change: We closed 2024 with almost 492000 rented horsepower compared to over 420000 last year and 318000 at the end of 2022. This is 17% growth last year and 55% over two years.
Speaker Change: Horsepower utilization has also improved to 82, 1% compared to 88% a 23 year end and 74, 8% at the end of 2022.
Speaker Change: Rental revenue in 2024 was $144 2 million up 36% compared to 23, and 94% compared to 2022, we've really changed the dynamics of our business upgrading and upsizing our fleet to focus on large horsepower compression with.
Speaker Change: Allergy and service differentiation.
Speaker Change: At the end of 'twenty 'twenty four more than 70% of our rented horsepower that's coming from large horsepower units.
Speaker Change: Rental adjusted gross margin of 24, 65% approximately 650 basis points higher than 23, and more than 1000 basis points higher than 2022, showing the transition in our fleet mix as well as higher pricing.
Speaker Change: On an adjusted EBITDA basis, we reported a $69 5 million and 24 compared to $45 8 million or 23, and $29 2 million in 2022. These are increases of 52% and 138% respectively.
Speaker Change: As I will discuss in my closing remarks remarks, when I provide guidance you should expect to see continued growth in 'twenty five and the 2026 and with the sheer volume of unit deployments planned entered 2026 as a significantly larger business.
Speaker Change: With respect to the market there has been a good deal of volatility in oil that'd be ti since our last call.
Speaker Change: Somewhat interestingly, it's around the same prices when we last reported earnings at around 67 or $68 a barrel. Although the there was a fair bit of movement in between our calls.
Speaker Change: Without making any value judgment regarding national economic policy I think the markets are a bit uncertain economic conditions, and the resulting impact on oil prices.
Speaker Change: This is of course, something we monitor very closely as do our customers and we're in constant discussions so that we can plan accordingly.
Speaker Change: As our unit deployments are pretty much locked in for 2025, we are really looking to 2026 demand, which as of now appears quite strong.
Speaker Change: With respect to natural gas, we have seen a better story.
Speaker Change: Around $3 on our last earnings call and at that time I noted the activity was muted.
Speaker Change: Natural gas now trades are around $4 and we see a more bullish market and that's a good side with that said we are taking a conservative approach I would say we are more cautiously optimistic.
Speaker Change: If they remain in this level or go higher could increase demand for some of our existing small horsepower fleet.
Speaker Change: We are also seeing incremental demand for large horsepower units. Although this is in the midstream area, where we do not currently have any units.
Speaker Change: Once again, we are closely monitoring the environment and looking for incremental revenue opportunities.
Speaker Change: I'd like to now shift to our strategy and provide some updates as it relates to our for growth and value drivers.
Speaker Change: First optimizing our fleet.
Speaker Change: Our monthly rental revenue per average horsepower, which was $26.28 for the full year 2024, representing a 10% increase over 2023 and a 30% increase over 2022. This number is calculated as fiscal year rental revenue divided by the average utilized horsepower divided by 12 months.
Speaker Change: The increase was due to a combination of the fleet mix as well as increased prices.
Speaker Change: We've been able to capture higher prices given the value we provide to our customers and it's not just the units. It's a combination of high run times, our equipment provides and a true service partnership.
Speaker Change: Additionally, we continue to make significant information system improvements throughout our business at the corporate level in terms of tracking financial and operational data and at the unit level in terms of monitoring and performance.
Speaker Change: Investment is driving even better service for our customers, which is a competitive differentiator, while helping us manage our business more effectively.
Speaker Change: With respect to the second driver asset utilization, which comprises converting noncash assets into cash and increasing the utilization of our existing fleet. We made significant progress this past year with even more opportunities to improve in front of us.
Speaker Change: Accounts receivable are a R.
Speaker Change: As a high priority target at the beginning of the year.
Speaker Change: We successfully reduced <unk> by $23 $6 million and are now stands at $15 6 million. This release nearly $2 per share in cash to fund our growth.
Speaker Change: Our Dsos went from nearly 100 day 100 days at year end 2023 to 35 days at year end 2024.
Speaker Change: Commend the entire finance and operations team for their tireless tireless commitment to improve the capital efficiency of our business.
Speaker Change: As I look ahead, we have other significant opportunities to improve asset utilization and our balance sheet. We have an income tax receivable of approximately $11 million. We are approaching the final stage and the refund refund process, which typically takes less than one year.
Speaker Change: We have opportunities to further reduce inventory and we have owned real estate, we will look to monetize in the near term.
Speaker Change: Collectively I believe the aggregate net cash creation opportunity is greater than what we've seen in 2024, and we hope to capitalize on a good deal of this in 2025.
Speaker Change: Lastly, I'll add that in terms of horsepower utilization, we're increasing every quarter and the vast preponderance of idle units are small and medium horsepower. We're continuing to review options for technology upgrades electric conversions and monetization to improve our utilization.
Speaker Change: All of this remains part of our central strategy to improve the cash flow capital efficiency of the business.
Speaker Change: The third driver is fleet expansion every quarter, we grew rented horsepower throughout 2024, and 2025 and into the first quarter of 2026, we expect to see significant increases in our large horsepower rental fleet based on contracts secured to date, including a material increase in electric motor drive units.
Speaker Change: Our guidance is based on planned customer deployment dates as I'll discuss shortly during my closing remarks, we expect a material ramp in the second half of the year continuing into early 2026.
Speaker Change: One additional point I'll make here is customer diversification.
Speaker Change: In 2025, we have a key customer that will grow throughout the year, ultimately, becoming our second largest customer with well over 10% of our revenue once all units are set.
Speaker Change: With respect to the fourth driver of M&A, we continue to evaluate the market for opportunities that could significantly improve our business competitive position and returns at the same time, we are focused on improving our existing business. We believe we are in a very strong position to continue to generate above 20% returns with our business and even more.
Speaker Change: With the contracts we secured on deployments that are scheduled we have seen some consolidation believes there will be deal flow in the coming year or years.
Speaker Change: We'll remain opportunistic and at the same time discipline.
Speaker Change: I have more to discuss after Ian highlights our fourth quarter progress and it's now with my great pleasure to introduce our new CFO Ian Aker.
Ian Aker: Thank you Justin and good morning to those joining US let me summarize the financial highlights of our fourth quarter and full year results.
Ian Aker: Revenue for the quarter of $40 7 million was up year on year, when compared to the fourth quarter of 2023 by 12%.
Ian Aker: Flat sequentially when compared to the third quarter of 2024.
Ian Aker: Rental revenue of $38 2 million was up year on year and sequentially by 21% and 2% respectively. Reflecting continued addition of large horsepower compression packages.
Ian Aker: Total adjusted gross margin for the quarter of $23 million increased year on year and sequentially by $2 7 million and <unk> 1 million respectively.
Ian Aker: These results included a year on year and sequential decline in sales adjusted gross margin of $1 1 million and $3 million, respectively. This was driven by our fabrication and assembly operations.
Ian Aker: As we continue to shift our business away from fabrication of new compressor packages as reflected in the announced termination of fabrication and assembly activities at our Midland Texas facility.
Ian Aker: Total adjusted gross margin percentages continue to expand both year on year and sequentially.
With 56, 5% as we continue to see rental adjusted gross margin percentage above 60%.
Ian Aker: Net income for the quarter, a $2 9 million increased year on year by $1 2 million or 68% driven by rental adjusted gross margin.
Ian Aker: Resulting in 23 of diluted earnings per share.
Ian Aker: Sequentially net income decreased by $2 $1 million.
Ian Aker: Primarily driven by the inventory allowance and decrease in sales gross profit both of which relate to the closure of our Midland fabrication operations, along with the intangible asset impairment.
Ian Aker: Additionally, SG&A expenses for the quarter increased slightly compared to $5 5 million in the third quarter, driven primarily by stock based compensation expense.
Ian Aker: Adjusted EBITDA in the quarter of $18 million an increase.
Ian Aker: Year on year of $1 7 million and roughly flat sequentially.
Ian Aker: Okay.
Ian Aker: Rented units on December 31, 2024 represented 491756 horsepower.
Ian Aker: $424 32.
Ian Aker: Horsepower and December of.
Ian Aker: 2023, an increase in total utilized horsepower of 17%.
Ian Aker: Similarly horsepower utilization increased to 82, 1% in the fourth quarter compared with 88% in the prior year.
Ian Aker: Turning to the balance sheet.
Ian Aker: We ended the quarter with 170 million outstanding on our amended and restated revolving credit facility.
Ian Aker: And looking at the two financial covenants contained in our credit agreement our leverage ratio in the fourth quarter of 2024 was three point.
Ian Aker: Our $2 36 up slightly from two to five years as of the third quarter, our fixed charge coverage ratio for the quarter was 2.44, meaning that we are comfortably in compliance with both of our financial covenants as of December 31 2024.
Ian Aker: Accounts receivable on December 31, 2024 were $15 6 million.
Ian Aker: $23 6 million decrease from the prior year. This reduction reflects a material decrease in our days sales outstanding statistic for accounts receivable and as a result of our continued efforts to monetize noncash assets.
Ian Aker: We generated cash flow from operations of $66 5 million in the year, our capital expenditures in the year totaled $71 9 million, which can be broken out to $65 million of growth Capex with the remaining $11 4 million related to maintenance Capex.
Justin Jacobs: With that I'll turn it back over to Justin to discuss our guidance and closing remarks.
Justin Jacobs: Thank you Ian.
Justin Jacobs: Simply put 2024 was a record breaking year for natural gas services and I believe the future will be even better.
Justin Jacobs: Over the past few years, we've made tremendous strides to solidify our already strong competitive position.
Justin Jacobs: Today, I believe our technology and service can compete against anyone.
Justin Jacobs: We'll continue to invest in innovation building, the appropriate infrastructure and driving outsized returns for shareholders.
Justin Jacobs: As we look ahead to 2025, we are guiding to adjusted EBITDA in the range of <unk> $74 million to $78 million, which at the midpoint represents just under a 10% increase over 2024.
Justin Jacobs: Our expected range for 2025 growth Capex is between $95 million to $120 million.
Justin Jacobs: Almost all of this capital will go to new large horsepower units essentially all of which are already under contract.
Justin Jacobs: At the mid point of the growth Capex range of $107 5 million.
Justin Jacobs: Our growth capital increased by approximately 75% over 2024 and will be the second highest total in the company's history.
Justin Jacobs: We had previously guided growth capex of $90 million to $110 million for 2025.
Justin Jacobs: The increase is based on contracted new orders for 2026 deployments, where some capital will be spent in 2025, along with some slippage of planned 2020 for growth capital that will fall into 2025, which is purely due to timing at year end.
Justin Jacobs: The new orders for 2026 are substantial and quantity. They are all large horsepower and pre contracted with large existing customers.
Justin Jacobs: I would further note that a substantial majority of the units are electric drive as we continue to build on our success in this area.
Justin Jacobs: It is my view of the 20th 26 will be another year of significant growth and new unit horsepower.
Justin Jacobs: As we noted in the earnings release, the timing of new unit deployments will be very heavily weighted to the second half of 2025 with some units likely getting deployed in early 2026. This is in response to customer timing.
Justin Jacobs: While we do not but we do have units getting deployed in the first half a very significant majority of the horsepower will be thereafter.
Justin Jacobs: As we are still several quarters for many of these deployments it is difficult to put too fine a point on the timing, particularly when many of these dates straddle a quarter or the year end a week move in either direction can push the period in which the unit is deployed.
Justin Jacobs: Once all units are set we are very confident and the increased earnings power of the business as.
Justin Jacobs: As noted in the release once all the units are deployed the rented horsepower would be up 18% versus year end 2024.
Justin Jacobs: Once all of these units are deployed and we get a full period of EBITDA. We believe our adjusted EBITDA will increase at a rate well in excess of 18% horsepower increase.
Justin Jacobs: To confirm I'm, comparing this increase to our $18 million of adjusted EBITDA in Q4, I know many of you will ask what does well in excess mean.
Justin Jacobs: I'd frame it as significantly above 18%, but less than double the group growth rate I hope. This helps our investors understand the magnitude of the EBITDA growth.
Justin Jacobs: In many ways. This is very similar to 2023 when significant capital was spent poor EBITDA increased materially while not exactly the same in terms of timing I do see a similar story playing out history does Ron.
Justin Jacobs: I Trust, our investors will refresh themselves as to our 2020 results both from a financial perspective and in terms of shareholder value increase.
Justin Jacobs: Our outlook for 2020 for maintenance Capex is $10 million to $13 million or $11 5 million at the midpoint.
Justin Jacobs: The majority of this maintenance Capex as previously noted will be related to our rental compression units with smaller amounts for field equipment, including trucks and other equipment.
Justin Jacobs: Modest increase versus 2024 reflects the continued growth of our fleet.
Justin Jacobs: In terms of return on invested capital for growth Capex, our target remains at least 20%.
Justin Jacobs: In closing we delivered in 2024, we fully expect to deliver in 2025 and the opportunities for meaningful growth and value in the years beyond are there it's up to us to execute our plan and I am confident in the team we've assembled and the path that we're on we will continue to improve the capital efficiency of our business, while delivering for our customers are.
Justin Jacobs: Balance sheet remains strong we are growing organically and I believe we're taking market share.
Justin Jacobs: We continue to add new customers grow our large horsepower compression fleet and enhance our offerings and we've improved our relationships with capital market providers to continue to finance, our organic growth and M&A opportunities as they arise.
Justin Jacobs: I believe 2024 was an instrumental year and setting the company up for continued great things in the years ahead.
Justin Jacobs: At this time, we're ready to open up the call.
Justin Jacobs: <unk>.
Speaker Change: Ladies and gentlemen at this time, we will conduct a question and answer session. If you would like to state. A question. Please press seven pound on your phone now again that seven pound and you will be placed in the queue. In the order received you can first seven pound again to remove yourself from the queue.
Justin Jacobs: We are now ready to begin.
Speaker Change: We currently have four people with questions starting with Hale.
Speaker Change: Go ahead please.
Speaker Change: Hi, Jonathan Congratulations on a good quarter and more importantly on the transformation of the company over the last couple of years. Thanks.
Speaker Change: I appreciate the color.
Speaker Change: Just to clarify I know you came at the guidance and you don't want to put too fine a point on it given.
Speaker Change: The difficulty in predicting when units actually get set which I totally appreciate but you.
Speaker Change: You gave guidance.
Speaker Change: That I'm coming out a little differently.
Speaker Change: I show Q4 run rate EBITDA of about $72 million.
Speaker Change: And assuming you put 100 million of capital to work with a 20% return.
Speaker Change: That gets us kind of in the low to mid Ninety's of EBITDA I understand that probably won't occur until maybe first or second quarter of 2026, but.
Speaker Change: Just wanted to make sure I'm thinking about that correctly.
Speaker Change: I think thats.
Speaker Change: Without putting kind of specific numbers and I think thats generally a reasonable way to think about it.
Okay, great well congratulations to you and the team. Thank you. Thanks again.
Speaker Change: Thank you very much. Our next question comes from Mr. John Daniel Daniel Energy Partners go ahead. Please.
John Daniel: Hey, guys. Good morning, Thanks for including me on the call.
Speaker Change: Jonathan Thanks for calling in.
Speaker Change: Oh you bet you noted the strong demand in 2006 I'm just curious at what point would it make sense and also have long lead times for equipment. When does it make sense to start placing orders for second half 'twenty six maybe 27 deliveries.
Speaker Change: So the orders for 2006 that we've received are throughout the year in.
Speaker Change: In terms of.
Speaker Change: The timing of orders.
Speaker Change: Orders with our partners I mean, we're really in the process of placing all doses were getting the contracts and so it really depends on the deployment schedule that the customers asking for US we haven't hit into anything in 2007 at this point, it's really focused on 26, but it is throughout the course of the year 2006.
Speaker Change: Okay and just.
Speaker Change: Sort of a dumb question for me, but trying to understand the contract negotiating cycle.
Speaker Change: When would you expect those customers to start making the inquiries about stuff for 2007.
Speaker Change: Okay.
Speaker Change: So.
Speaker Change: You know we saw for 2026 orders.
Speaker Change: We were starting to have conversations with some of the larger customers who are planning pretty far out.
Speaker Change: Really in the fourth quarter.
Speaker Change: And <unk>.
Speaker Change: Starting to see coming to contract terms really in the in the first quarter of 'twenty five.
Speaker Change: So it's not universal in terms of customers looking that far out.
Speaker Change: But we're looking at.
Speaker Change: 12.
Speaker Change: 18 months in advance of need.
Speaker Change: Needs a deployment.
Speaker Change: Just kind of a rough rough sense.
John Daniel: Yes, that's fine just looking for a ballpark. Thank you very much for including me absolutely. Thank you John.
Speaker Change: Thank you very much. Our next question comes from Selman <unk> with Stifel go ahead.
Tyler: Hi, Good morning, this is Tyler on for Selman.
Speaker Change: Good morning.
Tyler: Morning.
Tyler: Dollar per horsepower basis are you guys, starting starting to see things flatten as most contracts is sort of already gone through.
Tyler: That inflationary cycle and people are re upping and we're now sort of coming to the end of that role.
Tyler: I assume you are speaking about revenue correct, yes, yes, yes, I think I've mentioned this on one of the previous calls clearly we had there was a significant increase in prices over the last several years that curve is certainly flattening relative to <unk>.
Increases that were well into double digits.
Tyler: I'd say theres still.
Tyler: I think I mentioned in the previous call an upward bias to prices, but but nowhere near at the rate.
Tyler: Which we saw at the last couple of years, which clearly you wouldn't see those types of percentage increases continue.
Tyler: Yes.
Tyler: Understood.
Speaker Change: And you had mentioned M&A earlier than possible deal flow in the next year or two is that across all geographies is that Permian specific sort of where people looking to sell.
Tyler: I don't know that it's specific to any.
Tyler: Particular, geography and to the extent the Permian has evolved just because that's where the production is so.
Tyler: Most players have.
Tyler: I won't say all but most players are going to have at least some exposure, but not material exposure Permian. So I don't see it as a particular geography.
Tyler: More of a.
Tyler: Companies that I think are going to be.
Tyler: Coming to the market over in some form in the coming year or a couple of years.
Tyler: Understood. Thank you.
Tyler: Sure.
Speaker Change: Thank you. Our next question comes from Mr. Jim Rollyson with Raymond James Go ahead, Sir.
Jim Rollyson: Hey, good morning, guys morning jumped up and one of the things throughout 'twenty four.
Jim Rollyson: Got to see with your numbers a result, obviously was margin performance.
Speaker Change: You guys talked about earlier being up 650 basis points year over year I feel like every quarter you had a great quarter, and then kind of guided more conservatively not sure. It would repeat itself and it generally kind of stayed in that 60 plus percent range for the most part as you look at your guidance in 'twenty five and as we get all of this new units delivered in 2006.
Speaker Change: Maybe how you think about the margin profile kind of that of that business as well.
Speaker Change: New prices.
Speaker Change: Et cetera, all of us.
Speaker Change: So I think the the rate of increase that.
Speaker Change: I quoted earlier in the call and you just referenced.
Speaker Change: We're not going to see that that level of increase going forward.
Speaker Change: As you look at the fleet mix and I quoted this earlier more than 70% of the rented horsepower as of year end 2024 isn't a large and so just the magnitude of the fleet mix shift is going to not be high of a rate of change.
Speaker Change: So I think that there as we add horsepower there still be some bias up.
Speaker Change: The flip side is labor is not getting any easier.
Speaker Change: Any cheaper.
Speaker Change: So have we been conservative I think we've been appropriately conservative.
Speaker Change: And our goal is obviously to try and beat but just the magnitude of the change I don't I don't see that.
Speaker Change: Paying anywhere near that rate of increase.
Speaker Change: Understood curious if if you've also mentioned.
Speaker Change: A majority of your new horsepower on order being electric drive if that has any impact in your mind on the margin or if thats really kind of agnostic.
Speaker Change: In the in the shorter term.
Speaker Change: I think it's more a function of it it's all large horsepower.
Speaker Change: And so will it have slightly higher margins.
Speaker Change: It may.
Speaker Change: But it's really the fact that we're looking at all kind of large horsepower weather natural gas driven our electric motor.
Speaker Change: Gotcha, and then last one for me you also mentioned some of the.
Speaker Change: Unlocking of cash this past year was working capital, which you guys did a fantastic job with as you look into 2005, you mentioned the tax receivable Bull you also mentioned the real estate and capturing a portion of that any sense of kind of how much of that you think you could actually get accomplished in 'twenty five.
Speaker Change: I think on the income tax receivable are I will say that we're cautiously optimistic that we get that in in 'twenty five.
Speaker Change: There are obviously, a fair number of changes happening in different.
Speaker Change: Our government regulatory agencies, and taxing authorities and can't really speak as to the potential impact there other than it's probably not helpful. But that being said I mentioned, we're approaching the final stage.
Speaker Change: We're hoping will happen sooner than that.
Speaker Change: Final stage, our understanding as typically happens in less than a year. So we're hopeful we'll get that in 'twenty five.
Speaker Change: The real estate side, we're actively working and have been working on that.
Pretty significant in the past couple of quarters.
Speaker Change: There may may require some modest investment there to get monetization. The exact timing is a little bit difficult to predict there other than I can say that.
Speaker Change: We're not in real estate business were in the rental compression business and Thats, where we want our capital.
Understood I appreciate all the color. Thanks, Thanks, Kevin.
Jay Spencer: Our next question comes from Mr. Jay Spencer go ahead. Please your line is open.
Jay Spencer: Jay Spencer with Stifel.
Jay Spencer: Thanks for the call and congrats on a good quarter can.
Speaker Change: Can you just elaborate a little bit on the lead times to get components.
Speaker Change: Are there still long lead times for engines and what about the electric drive side.
Speaker Change: Can you talk about the lead times there.
Speaker Change: Sure so.
Speaker Change: The three parts of that or partners that I look at in terms of lead times.
Speaker Change: The drives where engines really arent getting any shorter I mean youre still looking.
Speaker Change: Generally somewhere around kind of the nine month range plus or minus electric.
Speaker Change: Drivers are going to be shorter that shorter than that at least for us.
Speaker Change: The compressor frames.
Speaker Change: You're talking about kind of six to nine months.
Speaker Change: And then the fabrication capability.
Speaker Change: As I think is proving to be kind of the long pole in the tent and that kind of at least nine months and that's.
Speaker Change: What we've communicated to customers is ensuring that that fabrication capability you want to make sure you have that locked in to get deployments when you want them.
Speaker Change: So we're not seeing that move materially in if anything.
Speaker Change: At least as long as it's been.
Speaker Change: Gotcha, Okay. Thank you and on a related note so the growth capex of $95 million to $120 million in Capex.
Speaker Change: How should we think about how that is.
Speaker Change: Spent over the course of this year.
Speaker Change: So heavily weighted towards the back end along with deliveries or just what do you expect generally the pacing of that debate.
Speaker Change: It's going to be more heavily weighted in terms of the capex.
Speaker Change: To the back half of the year, although Capex is spent in advance of deployments and so it's not as as heavily weighted we also had some slippage from as I referenced in the fourth quarter into the first quarter. So we're looking to see exactly what that number is going to be so it is.
Speaker Change: It is more ratable over the year, although still heavily weighted to the second half.
Speaker Change: Okay.
Jay Spencer: Alright, well, thank you and I appreciate your time thanks Jay.
Speaker Change: Thank you very much again, if you have any questions. Please press seven pounds. So you can queue up.
Speaker Change: Our next question comes from Mr. Rob Brown Lake Street Capital go ahead. Please.
Good morning.
Speaker Change: First question is on just the overall demand environment comments, you had about about oil.
Speaker Change: Sort of stabilizing and Youre seeing demand are you are you really seeing demand come back or are you seeing get booked for.
Speaker Change: 26.
Speaker Change: Set for 25.
Speaker Change: So.
Speaker Change: Good morning, Rob Thanks for calling in sorry.
Speaker Change:
Speaker Change: So.
Speaker Change: The 25 is more a function of just lead times that as we've communicated customers will have some one offs here and there not saying we can't get a new unit fabricated within the course of calendar 2025, but being in March and just seeing the lead times that.
Speaker Change: That's really kind of driving.
Speaker Change: I look forward to 2026 is there's not enough time to get a material amount of units in this year other than what we already have contracted.
Speaker Change: So the 26 is really a function of.
Speaker Change: Explanations customers of if you want new units. This is the timeframe you need to look out there I don't know that I would say there's been a material, although there's been a material shift in oil prices over the past.
Speaker Change: A couple of quarters.
Speaker Change: Wouldn't say that there's a material difference in demand we're continuing to see.
Speaker Change: Strong demand for compression.
Speaker Change: Significant portion is related to oil.
Speaker Change: Okay, Great and then and then maybe the electric.
Speaker Change: Demand.
Speaker Change: Youre seeing the electric drive demand, what's the market dynamics happening there and I think you said a majority of units are now electric drive.
Speaker Change: Just elaborate on what.
Speaker Change: What's happening in the environment.
Speaker Change: That is.
Speaker Change: I think really driven by availability of power for the customers are they going to have.
Speaker Change: The electricity to be able to power those units and in some cases the answer is yes and in many other cases the answer is no.
Speaker Change: And this hasn't happened to us, but I've heard stories in the market where customers thought they were going to have electricity and then.
Speaker Change: Found out.
Speaker Change: As they were starting to deploy or in advance of deployment that in fact.
Speaker Change: They weren't going to have the required amount of power and so.
Speaker Change: That's really the kind of big <unk>.
Speaker Change: Factor as it relates to electric drives as availability and clear.
Speaker Change: Clearly if you're reading the press and the demand for electricity is is increasing materially relative to.
Speaker Change: The recent past and the ability to get the power for these types of units, which require up to getting large horsepower you're talking about significant electricity demands that needs to be there 24, $703 65 to make sure. These units are running properly and there's just a lot of uncertainty around that and so it really goes back to conversations we have with our customers and ask them.
Speaker Change: What they want and we're letting them drive the decision between natural gas.
Speaker Change: Engines and electric Motors.
Speaker Change: Okay, great. Thank you I'll turn it over thanks.
Speaker Change: Thanks, Rob.
Speaker Change: Thank you and our last question comes from Britain needs to the maximum.
Speaker Change: Hi, good morning, congratulations on very well.
Speaker Change: My first question has to be Alright, your Tulsa facility do you plan on expanding even more with more capital expenditures.
Okay.
Speaker Change: And after your question Whitman fabrication facility.
Speaker Change: Yes.
Speaker Change: Good morning, and thanks for calling in.
Speaker Change: In regards to <unk>.
Speaker Change: Tulsa, we do not have plans to expand that.
Speaker Change: The incremental third fabrication that we're doing for the new units is going to third parties. We are fabricating a at the Tulsa facility.
Speaker Change: For some of our rental fleet, it's typically the.
Speaker Change: Smaller and of our large horsepower units in terms of size and Thats just constraints that are.
Speaker Change: Is that are.
Speaker Change: Inherent there at that facility or the size of unit that we can we can currently do we won't expand that to do the larger.
Speaker Change: End of <unk>.
Speaker Change: A large horsepower units.
Speaker Change: Just because of the amount of capital that we've spent with third party starting.
Speaker Change: Going back to 2023, which is a huge capital spend year for US 20 floor, a significant year end 'twenty five as I mentioned that would be the second largest in our history, we're actually one of the larger.
Speaker Change: Purchasers of.
Speaker Change: Of rental units from third party fabricators, which is <unk>.
Speaker Change: Positions us quite nicely with them and.
Speaker Change: And so to the extent that we're growing at faster rates.
Speaker Change: We'll go to third parties too.
Speaker Change: To build most of that for us.
Speaker Change: Okay got it and just since Youre doing more outsourcing factoring what would be the potential margins.
Speaker Change: Or is there any sequential margin.
Speaker Change: If it is it's not so much really on the margins because that's driven by our rental rates in our ongoing operating costs, which are all internal or mostly internal cost. It really has to do with the fabrication of the capital of which at this point in the north of 1000 horsepower, we can fabricate that internally anyway, and so it's just <unk>.
Speaker Change: On tracking with with third party fabricators, that's what drove our capital costs.
Speaker Change: Our margin.
Speaker Change: Okay got it okay. That's all for me.
Speaker Change: Great. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you very much and we have no other questions.
Speaker Change: 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 and thank you again for your time.
Speaker Change: This concludes today's conference call. Thank you everyone for attending.