CSI Compressco LP

Q4 2022 Earnings Conference Call


spk_0: the morning and welcome to see as i compressed go out piece was quarter and year and twenty twenty two earnings conference call speakers for today's call or john jackson chief executive officer of suicide to prescott opie and john buyers chief financial officer see the site and bustle lp lucky to ski vice president of operations is also the tendons all participants be in listen only mode you need assistance peace in the not a cop special that the starkey followed by zero as today presentation a big opportunity to ask questions to ask a question of as starting on your touchstone some to try question please post starting to please note this is that has been recorded out and cops are to mr buyers for the opening remarks
spk_1: he's got it
spk_2: peggy anthony good morning and thanks for joining see if i can press gets fourth quarter and year and twenty twenty two results conference call i like reminded this call may contain statements are deemed to be forward looking statements are based on certain assumptions and analyses made by see if i can press go are based on a number of factors the statements are so your to a number of risks and uncertainties many of which are beyond the control the partnership he cautions that such statements are not guarantees a future performance and that actual results may differ materially from those projected and the forward looking statements in addition in the course of the call we may refer to either die gross margins adjusted ebitda free cash follow distributable cashflow distribution coverage ratio leverage ratio utilization or other non gap financial measures please refer to this morning's press release or public website for reconciliations of non gap financial measures to the nearest gap measures these reconciliations are not not a substitute for financial firm mason prepared in accordance with gap and should be considered within the context of our complete financial results for the periods and edition or a press release announcement that went out earlier this morning as posted on our website or form team k will be filed early next week please note that information provided on this call speaks only to management's views as of today march tenth and may no longer be accurate the time a reply with that on i'll turn it over to john jackson
spk_3: thanks sound good morning and thank you for junior color they were said to speak today about our fourth quarter twenty twenty two results and the optimistic outlook we have between twenty three so start off with the results for the fourth quarter twenty twenty two this quarter continues the trend from last quarter of improving activity translating into increased revenue neither does we've experienced improving activity for several quarters but the effect of inflation earlier in the cycle lead to increasing revenue that marginal incrementally but of fall through as the cost of arm and stabilize we've seen the financial results improved over the second half of two thousand twenty two or contract services aftermarket services import sales all continue so strong activity and he would ah improvement as it relates to our fleet or contract service business use a sink continued to improve quarter over quarter for the seven straight quarter price increases on the existing sleep deployed have begun to close the gap of the effects of inflation this is translated and increasingly revenue quarter of a quarter for a consecutive quarters three trains are improving our forward visibility first are billion term up equipment on expiring contracts secondly redeploying existing idol equipment
spk_2: and third deployment of are large horsepower you build yeah it's a multiyear contracts with marquee customers
spk_3: or sales team has worked hard to improve contact durations but a place to equal importance on improving contract terms of our customers simply building inflation protection using cost inflated for contacts with terms longer than twelve months we are pursuing prices improvements as we continue to move our fleet to market pricing
spk_2: pricing in the middle large horsepower segment of the market has been changing rapidly over the course of the last year
spk_3: this been result of the last remaining idol units in the mid enlarge horsepower ranges that are owned by contract impressions companies that have been contracted
spk_2: almost all additional horse power and these categories now has to come from new builds as very few units are being returned by customers the transition the market rates takes time as many units are under term contracts as a contract terms expire we will look to turn out the unit and move price in the market this will continue to occur throughout twenty twenty three like a didn't twenty twenty two
spk_3: always seem effect of inflation stabilize er costs and grammar of a second half or twenty twenty two will contingency labour party cost increases at this time respected those be much more modest than those in early twenty twenty two and in line with normal annual increases up to any improvements relayed exist related to our macready costs roughly as we deploy the bulk of our remaining idol reciprocating fleet in the first ever twenty twenty three we would expect our make ready close to reduce given that most diverse of getting fleet units will be out on contract the aftermarket services and parts business or am as business performed well and twenty twenty two with increasing revenues improving margins we have a strong pipeline of a as activity both and current contractual work out any bids and current customer requested proposals while the first quarter typically a bit slower with our sales name a awards coming out of the holidays we've seen strong pipeline of activity expect wait twenty three to be another strong year we expect over the course of twenty twenty three to transfer some of our people and shop space that have been making see us i own fleet is ready for deployment over into the a mess business potentially creating more up day for growth year over year
spk_2: kappa spinning for twenty twenty three will be focused on deploying additional idol fleet units converting some years from natural gas driven to electric motor drive units and funny large horsepower new build units they're currently on order or overall goal we to generate a modest amount of free cash flow after a growth kept x to reduce absolute that mounts and improve liquidity
spk_3: most of our customer discussion ceramic capitals began to shift to twenty twenty fours lead times remain long and customers are planning well in advance avoid compression needs being a constraint to their ability to produce natural gas and poodle
spk_2: our guides as a from reflects opportunities for additional financial improvement this comes from a combination planes remaining fleet building new units improving pricing and reducing our make really exhaust without a significant inflation response on the remainder of our core structure
spk_3: one item to keep in mind when looking at our guides for twenty twenty three is it in december twenty two we had an international contract expires to it's natural course as of december thirty one twenty twenty two the contract has not renewed currently management is having ongoing conversations with the customer over renewal or extension and our guides reflects know renewal this contract it that contract is renewed in whole or in part we would update or guidance at that time if the contract terms wanted a revision to our guidance
spk_2: overall were bullish about the macro environment and the longevity the cycle we've seen a consistent focus on returns a cycle across the spectrum despite recent lower gas prices we believe in long term me for natural gas this is every both an increasing production and consumption that for guess the u s
spk_3: throughout the course of twenty two and into twenty three and as our industry remains focused on returns this discipline we believe will result will result in a longer more stable multi year cycle what's that about the overall improving results and afford activity levels that are constructed given the overall macro backdrop we expect to have it continually improving year and twenty twenty three
spk_2: in summary we continue see a strong demand environment for our products and services setting in the twenty three three and we will remain flexible as we navigate the rapidly changing environments position ourselves for success or what we believe to be a longer and stronger cycle in the years ahead we're looking for the study twenty three for industry and specifically for see like a briscoe ah melton the column and john bars they shots for the fourth quarter of twenty two suicide compress go report is adjusted ebitda thirty two point four million compared with twenty six point four million in the fourth quarter twenty twenty one or twenty three percent increase this was driven by increase utilization in pricing in our contract services segments particularly among our large horsepower equipment or contract services revenue was up sick get to see guy up to sixty point six million from sixty one man in the fourth quarter twenty twenty one a twelve percent increase your rear wheels asian increased from eighty six point eight percent or two eighty six point eight percent compared to eighty point eight percent of the and twenty twenty one or aim as business performed very well in the fourth quarter and for the four year twenty twenty two compared to fourth quarter twenty twenty one a mess revenue was up fifty two percent to twenty point seven million compared to thirteen point six me for your aim as revenue was up to seventy three million from fifty three point five million and twenty twenty one a thirty six percent increase distributable cashflows thirty million compared to nine point nine million in the fourth quarter twenty twenty one repair fourth quarter distribution of one said on february fourteenth with a distribution coverage ratio of nine point two times four year twenty twenty two distributable cash flow is forty two point four million implying it yeah per unit of approximately thirty secs at year and our total equality cash on hand was outstanding a b o capacity was forty six point four million on december up on december thirty first weights at twenty two which compares to thirty two thirty two point seven million at the and twenty twenty one of forty two percent increase in liquidity we're executing on our plan to reduce overall leverage while growing the business or net leverage ratio peaked at six point eight times in the third quarter twenty twenty one dropping to six point two times a year and twenty twenty one now we said at five and a half times if you analyze the second half twenty twenty two even doc we haven't that leverage ratio five point two times our focus and twenty two has been reducing leverage while balancing liquidity and growth looking forward to twenty twenty three is john mentioned we plan to reduce overall growth capital spends relatives that to twenty twenty two and emphasize that that the reduction and liquidity today we announced twenty twenty three guidance with an adjusted ebitda range of one hundred and twenty five to one hundred and thirty five million dollars growth capital decline year over year to the range of twenty three to twenty five million as you increase or focus on strengthening our balance sheet we anticipate axes the year exiting twenty twenty three with and that leverage ratio of between four point eight and five point two times since joining as two years ago our mission hasn't changed are focused on balance and growth and liquidity as we work towards simplifying our capital and organizational structure which will position see aside to thrive in all phases of the energy cycle well now open the call the questions
spk_0: we will now begin the question and answer session to ask a question you request other you to from people speaker phone please pick appearance of the purpose of the keys to retry question please post started to at this time the pokemon with your that last roster or first question will cook some brian the repeal with feared he may novel
spk_4: the morning helmet
spk_5: born
spk_2: couple questions feel ah i guess for salsa the job eyes just please help us understand how much you spent last year on make ready costs
spk_6: are you are you asking about make macready capital costs or gorgeous dog or bar on expenses are on the expense side
spk_2: i'd say given the fact that we went to the system that version and stars a year with a lot of
spk_5: that's a people understanding how to put things in the right spot so we can understand it's our our belief is it somewhere between two and three main doors a quarter okay
spk_7: that helps this as a general guide yeah it and it is it varies widely based on what's going on and how much what you're doing capital or for expense work but it's in that ballpark
spk_2: got it
spk_8: and as we think about utilization rate what do you think is the fact of utilization rate that you can head over the next two years
spk_3: while i believe if you
spk_5: so i think we talked about the look before on our calls that are fully consistent three three big buckets mets reciprocating gas jacks and rubbery screws sauna reciprocating fleet which represents a plus per cent of our fleet
spk_4: i'm will be approaching the upper nineties the sheer ninety six ninety seven percent default if we put the rest of our equipment others contract it and we don't get much back we're going to be in the upper nineties our gas jack reciprocating as we our gas jack and rotary screw fleet is enough fifty to sixty percent rain so when you play dollars
spk_3: together you get nine years as as as a composite sleep but when you compare the reciprocating component you'll be upper nineties okay that's helpful ah on that in that just eat bugs in a little baby any color on you know how long it's you're seeing it's taking to get a new high horse power equipment pod deliver a know there's still some backlog with caterpillar during some at there's is backlogs she's been with some the fabrication shops and he does simpler there would be really helpful i think it remains in the same kind of general categories we've been talking about your sort of and that fifty to sixty week category for caterpillar engines i think the frames from aerial have a shortened up a bit you can get them maybe half that time
spk_2: hum
spk_4: and then when you think about electric motor unit shoot you that the elect the drive itself maybe thirty four thirty forty weeks but the of
spk_3: the the of the the barrel frequency drive depending on how many ordering if you want one or two you might be able to get him in thirty five forty weeks if you want twenty or thirty
spk_2: kids as we get him will get him to you sir can be forty five weeks he'll be fifty five weeks and that's where experiencing that right now on some of the electric units we've installed the the of the we were given delivery date and then it slides two months so you have the unit install the of everything regular you waiting and to be of the such that's what says the biggest unknown they can get
spk_3: you a target date for a be of the but it may or may not even come close to that that on the electors such it's a bit different than the caterpillar and aerial or lot tighter on their quota deliveries
spk_8: undeterred final question for me to see how much your fleet is would you describe is on current market pricing or current record vs you know or regards to your wall
spk_2: well the markets moving pretty rapidly every month so i would say what we thought was market in the fourth quarter of twenty two is probably now
spk_3: by person out a market in twenty twenty three so if you if you if you take that perspective i'd say very little of our fleet is that market know how close is it to market it's probably within you know maybe other long as an amd when i'm talking about this now i'm really talking about mid the large horsepower the smaller horsepower we can get surprising here and there we've been able to move prices up to reflect our costs structure but
spk_2: that the really really really tight segment the market is the hundred horsepower not there's just nothing idol available out there in the in the market as as that pricing is moving up to reflect that so i would say them the market has moved a lot and the last six months up so with that in mind what we've turned up in the last three months would be quote unquote at market and while we're talking about as weeks then new existing contracts moving into throughout this year will move that the market but very little that market
spk_5: understates moon is moving is moving rat me it's it's changing every three months or six weeks as you you were were frankly we're working with our customers a lot people i was says are slow to change and optimize their fleets but given the environment there and they're like well a lot of times you think our gotta thirteen hundred or
spk_0: in it but i'm not production is declining i really need to move it down but there's no russian soldiers over time it happens but with pricing changes it's forcing people to think about optimizing sooner says a little bit more charting the fleet's that's positive in a way because you're taking a unit off it's gonna come back and six months and you're moving to add to your three year term
spk_9: now while the customer gets right sized on equipment but the canada that is i gotta find that equipment to right size with so it's it's there's a push for going on with some of this on the right sizing where people are turning out maybe equipment they they don't need quite as large a unit but they need something so we're trying to work with our testers and figure that out but were also saying you know the units we have this is the market price for the unit and want maybe oversized eating your were trying to optimize you down to small unit or move that unit after someone else that that once that larger size unit and
spk_10: frankly i think the things we put in a year ago your wheat we probably average price increases last year on the guinness we touch we probably was about ten per cent price increase somewhere twenty five thirty some were five but we probably every ten percent on the and we touched i would expect to see the same kind of change this year on the units we touch
spk_3: that's very helpful i really appreciate all the color thank you or next question of suleman a few weeks before you mean ago
spk_2: thank you good morning i'm just following up on them line of questioning and thinking i'm lisa how much eight hundred horsepower buggy has coming up or he contracting this year
spk_11: what i can tell you is that we have
spk_12: i don't have it mm slice that way in my head but i'll tell you that right now we have
spk_9: seventy last year this time we had our fleet was month to month versus had some terminals fifty fifty this year at year and seventy two percent were fleet has some terminus of that twenty six percent of our entire us lee has term longer than a year so if you take that seventy five percent our fleet can be touch this year
spk_13: and i would say that's on a proportional basis it's probably in line with are large wars powerfully to given given what we have some maybe it maybe sixty percent of our lord for powerfully can be touch this year is what they are on multiyear contract at said someone at range
spk_8: that help i'm
spk_9: in in when you renewing your contract see i assume you you continue to as inflation adjusters in there
spk_3: are you having to do those subject to cap or said the environment strong enough that you just saying we're just going to pass through your variables
spk_14: and you know no caps cetera
spk_13: it's customers by customer specific and what
spk_9: what we're doing so some up kept some the it really just depends on the situation and what it's a it's a you gotta look at everything is in totality right what's the term what's the ray what's the stand by right what's and had a cpr factor is that so there's a lot of given take that we have a combination of with and without caps
spk_3: got it
spk_2: i'm in how much here fleet is an electric right now
spk_9: it's about two plus percent two and a half percent something like that i'm you called out
spk_15: in international contract
spk_2: it's not it's not in guidance on how does the did it would be incremental gains gauges say how much it was of twenty twenty two the i assume you highlighted it because it would be you know came back in it's entirety be meaningful so i'm just trying to
spk_8: the exit could remain for the came back in it's entirety yeah but i think given the nature of how it
spk_3: changed over the course the geared it's embedded in other operations in that country we we we really rather not since it's not in our numbers and nutter guys were really rather not talk about it but it is it isn't a millions of dollars that's all for her
spk_2: okay i'm done any talked about the aftermarket services and be by strong pipeline and who knows he didn't
spk_3: is there backlog there is early you can maybe help quantify or how we should be thinking about them
spk_2: yeah i don't have
spk_3: i don't have a numeric backlog for you at this time i've out that a good question and and we do think about it that way we do have a backlog of business it's outside the aim as business typical backlog duration is forty five days or sixty days because these these contracts this work maybe maybe takes that long you know maybe takes forty that is a maybe maybe a contracting works is going to come in and forty five days so i think what we've really spend our time on over the last four to six months as we've seen our fleet use get reach this ninety seven percent use they should give or take maybe it will have as the in the queue are you to on a reciprocating fleets that we're going to have shot space available and we've been very much focused on filling that shop space up with amos work where possible that good quality work the reality as the aim as business is driven largely by a lack of labor get our our labor what do you have it or don't is was you get the worked on get the parts generally you can get all the shops by potential but you have labor
spk_9: it's a waste of time so we focused primarily on our fleet first and amos second and now we're shifting that as we have a shelf space so
spk_3: by que one will see if we can get some work visibility to you on backlog numbers like a quoted backlog but right now it's it's still going to be relatively short duration we've thought more about a pipeline of activity so we have existing backlog in the built in the book then we have quoted backlog that there's a hard cold out were waiting on a response and then there's what i'll call or fps are are things that were working on directly with a direct source to a customer that has a lot of activity so segmenting those pieces out and seeing that activity levels kind of how we think about it is is it really busy or is are open gaps in the shop spacers open gifts and are bidding and right now we're not seeing much that right now we're seeing where we can be pretty selective on the work were actually choosing not to bid on certain jobs and certain certain types of jobs were not as
spk_2: good at executing that kind of work so i'm rambling around a bit to sell have a number for you but i think we've i graded the work were doing and the backlog were building so that we have a much better chance of continued executed a high level and that's probably not answering your question but also have some to forty bucks you wanna new numerex but we're still working on that are so got a break in and it i appreciate all that i really do so thank you for that arm
spk_16: but if they also heard you say didn't really can be ultimately limited by the amount of labor you can can get and it sounded like you are trying to maybe moose and people from one segment to the other
spk_9: let's ride with dead zelda look at that are that's right largely because largely because if you think about how much worse in our utilization mood of for points or so and twenty two mean twenty one it moves up six points in twenty two it's going to move up if things go like we hope you're not going to move up a little bit more as we just talked about in this corner two three points into a going to move up
spk_3: twelve thirteen percent you've touched fleet units that were idol that were sitting in your yard you always have charm a union it comes back you may have to do some work on it do an overhaul on it may be reconfigured ship it back out but
spk_8: repositioning taking fleet to sitting in yards last couple years freaking up to covert enact getting it out there was a major effort and our shops across the one as a sense once it's out running you have less running through your shop this is all getting termed as you're gonna be working on it more in the fields in in the shop so that shop space which is large lee driven by just people is now freeing up a bit that's why we think we have more opportunity to drive a a master using those same bodies we already have on our payroll and just shifting their work from what i'll call a call center to shipping them to profit center and that's why we think are make ready combination of that and am as business creates a
spk_3: profit opportunity for you
spk_13: getting them just last one on this and
spk_17: it is and listen to louisiana just a service existing customers or do you think you'll actually be able to return bring new customers him because he's got capacity that other people may not have
spk_0: i think it's yet what we're not just servicing i'd call our existing sleep customers were servicing people that we have
spk_18: with a lot a longstanding relationship with that so first off people that we have a good relationship with that i think
spk_19: we trust and work well with each other we know what their expectations are that's who are working with burst but certainly there's additional business that's coming our way that people are asking us to quote on that we're working on so yeah we can expand our customer visibility our customer segment their i think as we expand the shelf space availability grape proceed all the car thank you for the time thanks our next question
spk_2: himself with millennium
spk_8: you may never had
spk_19: hi i have two questions the first one is i noticed great quarter in terms of adjusted he but ah but in that task provided by operating activities that was a reversal from very large cash generation him to three to a small cash utilization and to for was wondering if that
spk_3: result of that building some inventory or is it i'm late pay on accounts receivable what is the
spk_8: now if it if it's a little it's a little bit of a build in working capital take the inventory as we work through some the supply chain as she's the biggest differences the fact that we pay our bond interest on a semi annual basis so october first we enter twenty three million dollar interest pain
spk_2: it was relieved of a payable and in that resulted in net net cash outflow
spk_19: okay thanks alot and then the second question is when they're talking about am m s business that's a mean unit business and i was wondering whether
spk_2: you're planning to market your a mean units to natural gas processing plants that wanna do carbon capture of the the those are actually two distinct businesses for us we do have the a mean business
spk_20: the a mess business actually uses an acronym for aftermarket service so it's where we work on third party believes that we have the a mess business were trying to grow but the your question the a mean is good we do have some idol a mean equipment that we seen a pick up an activity on that quoting ab
spk_0: and you know by definition the aiming plane as a carbon capture type piece of equipment it's did what is the customer do with that after a do they do the vid that to the atmosphere do they rejected and right now most of our plants are on sites where to customers chosen to vent it however we
spk_3: i would love to engage with our customers on ways to dispose of that in a way says not flared the at are are not and up in the atmosphere so that opportunity does exist and we do talk to customers a lot more about that now
spk_0: good quality but the the in place and reduction act basically makes it much more economically viable to capture the c o two and to dispose of it generate the forty five que tax credits or your are these data processing plants contacting you to see if you can deliver them more amy noon and sorry that

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