CSI Compressco (CCLP) 10 Mar 222021 Q4 Earnings call transcript

Good morning and welcome to CSI Compressco LP's Fourth Quarter 2021 Earnings Conference Call. The speakers for today's call are John Jackson, Chief Executive Officer of CSI Compressco LP; and Jon Byers, Chief Financial Officer of CSI Compressco LP. Also in attendance today are Robert Price, Chief Operating Officer; and Michael Moscoso, Vice President of Finance. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. this being note, Please Instructions] event recorded. is [Operator conference Mr. will now to the turn I over opening for Byers remarks. ahead. go Please

Thank you, of to I'd Vaishnavi. CSI Good or call morning and thank that statements These quarter you this are results statements may remind contain Compressco's be you XXXX conference forward-looking. to made of call. are based to deemed risks a and number like factors. may that are conference be which the statements fourth Compressco uncertainties, for joining are a on certain partnership. control and number by assumptions of many of based CSI and subject These analyses are beyond on the

the statements and are results from may that such of in guarantees materially that statements. are forward-looking You actual performance future differ cautioned projected not those

the and we distribution In measures. non-GAAP gross flow, website the course to EBITDA, free call, utilization adjusted financial public flow, period. GAAP GAAP Please distributable financial which to a cash measures morning's of not are information ratio, of refer for our other of the margins, leverage press may EBITDA, release, cash this are financial on refer ratio, considered for addition non-GAAP the coverage nearest financial reconciliations These be within should in substitute accordance measures. and prepared results to with for context complete the reconciliations in our

went Form now that accurate replay. this March longer only Jackson. morning over as earlier note on our today and XXth may With on turn announcement and out at management's to call time week. website be be XX-K views will John In that the speaks call the of addition of filed release that, provided our to I'll posted this our no early of information press Please as next

joining today. existing overall equity reduce leverage entities, by positive We Compressco positioning to horsepower Thanks maturity, we utilization as call Jon, The fourth Thank fleet. Spartan's we thrive increasing bond was approximately XXXX and activity, a from operating of in issuing enter and to is purchasing the pricing XX,XXX while morning, XXXX. redeem did our deploying environment The this our XXXX CSI perspective. new our quarter customer pivotal you for and utilization as good everyone. and enter XXXX

or XX,XXX We primarily committed to to XXXX idle additional horsepower to electric during fleet currently drive have during to units will motor build throughout convert units any approximately fleet the this have At electric new number existing to contracts year. and capital be motor converting reactivating units of drive. point, dedicated on spending XXXX the a idle

operating process move ERP In on services in lot agreement and of necessitated the CSI increases platform dedication pushed employees by the System ERP CSI converted people continue for I early addition In X, to these with to we their compression balance we effort was XXXX. January transition. effective have and This of expiration quarter our thank during new the XXXX. and that TETRA conversions the work sheet throughout as and through fourth by accomplish a this require many all space improvements, been transition to the TETRA price want hard services system XXXX. contract, to a

continual margin. the as month-to-month gross improve as cost to evaluate our contracts an a to continue environment attempt We and well on in maintain basis

drive units see across we the demand fleet. for a addition, In growing motor electric

ranging units horsepower contracted orders XXXX for anywhere XXX-horsepower to some up from have We units.

has gas existing to and electric demand have quote market units. We units. new for drive strong still also very engine-driven motor interest larger horsepower and opportunity The

from purchased highest the with to to stay treating want through XXXX. and category. Given in Spartan is remained on will build they XXXX units the market our some returns. our structure, stable build capital capital horsepower be with allocation chase large but based and significantly The will capital-disciplined grow we new business grow could year demand, We modestly more expected gas all during this

to are equipment some We adding returns make fleet sense. our additional treating as capital the

compression will Spartan of continues the the capital. contracted committing treating in be Just some like We synergies believe additional gas before spent to any combination revenue. capital acquisition deliver for

have amine first plant in We deployed to XXXX in half the an customer. Mexico existing CSI an of

of the Additionally, revenue Spartan examples than individual on two the during with Chile whole are operating more the certainly to been in parts. pleased have ownership. We There enter side that we is well couple of have union. this together now hope extremely year existing of umbrella year. synergies we see These come one are a of contracted the the challenges an the into where organizations some how I've to the one operating compression as of are we customer. business just as making better

March. we We the and of remain that where The temporary and a to in remain moved our between The supply structure vendors. requiring and changes happens particular areas chain usually our it improve start group, begin we have sales, but of typical chain in group into good operations into February January shortage slow supply timing the or AMS parts cost our communication as on have part week-to-week nimble. delivery and to

industry that continues and as past our up. exacerbated are we In year with what we issues they challenges and but facing labor I typical and than spite to personally successful forward look accelerating industry grow labor stronger XXXX force to the going very to industry chain call company for these tighter over than turn of the past and market I'm Jon positioned environment better continue XXXX Byers. I'm as Our the These shift energized remains to and ramp challenges month. to accomplish given in tight and supply cycles activity are about today. the CSI and believe can overall, to optimism. being a the year we a have more than activity cycles each are business are exit

John. Thanks

it's a CSI mentioned, big for Compressco. quarter fourth John been As

million transactions million transactions debt in August to that transaction. large next our This the this approximately lien million in pushed redeem With unsecured November, equity of in were year. $XX bonds offering of XXXX. drop-down to second our us raised in entities operating acquired incremental, $XX enabled Spartan's announced an in due and These bond $XX we a maturity three

numbers, to get results. into XXXX quarter moment our take XXXX explain the to fourth I I'd to total a methodology like year Before accounting the present used and

included substantially the LP Energy XX% Going November Compressco and $X.XX XX Energy the as We distribution times. XX, distribution February Distributable million in of back we $X.X of just partner to CSI acquired well discussed in Then the Spartan acquired Spartan January LP. to under $XX.X compared announced financial on Spartan's Compressco was last about outstanding quarter of $XX.X CSI acquired XXth, the paid third as third that CSI transaction February LP of XXXX, that year the results XXXX. XXXX. words, was with of units. for Partners million the I the XX ratio Because to common million $XX.X on quarter Partners third reported Today, is performance quarter as are general of XXXX. control a CSI coverage revenue on other financial starting compared cash all quarter were end in Spartan we're million to financial of and XXXX, flow fourth of CSI operations of combined $XX.X presented EBITDA quarter of $XX.X Spartan January and adjusted months our of million Compressco In of Fourth in in the quarter of million compared Compressco's fourth operations XXXX. as results CSI XXXX. X.X the of the

million XXXX of our to the interest under the XXXX, This facilities XXXX Moving total reduction Xst. and our at bonds was our the $XX.X on made was on $XX.X at liquidity $XX.X $X.X from availability end our end last year-end million balance down million the sheet. year-end liquidity end reflects the third to of -- million. approximately October Cash the end borrowing total At $XX.X of hand of the quarter. rather. base credit year was This at on million, compares of payment at at mainly

X.X but is from forma the leverage Our X.X from prior down times third Spartan call the that Spartan up earnings times year-end we pro X.X This quarter for to the in reported acquisition. acquisition net was our the times.

quarter we’re continue EBITDA, balancing six to below our while and times opportunities. aim over Looking to leverage we at annualized XXXX reduce XXXX liquidity fourth and growth

lot. while infrastructure out our a bond Looking eliminated to questions. sheet we our near-term installing a investments a accomplished capital new our for to upcycle We system. parent, and and will XXXX We our strengthened continue worked now be Compressco, our accomplished prior balance back balance these and we a accomplish We'll goals. hard large as horsepower an corporate manage in improve to building separating The from call in own year XXXX, maturity, made the teams sheet. significant open fleet. pivotal growth this CSI to ERP

first Instructions] We will Brian now Our DiRubbio with question ahead. [Operator Baird. Please begin go comes the question-and-answer session. from

gentlemen. morning, you? are Good How

Good.

morning, Good Brian.

A of questions off, and positive be in to to switching your Maybe is of different The that Byers. Jon ERP a neutral topics. own January on couple to going starting few the XXXX? TSA exiting or EBITDA system, for

down on you were the look $X year. the about over ramping the if at we We TSA So, of spent TSA. course million XXXX, support

benefits We we of So a own same to worked built way did At month infrastructure. company about time, $XXX,XXX month having and down at TSA scale of we some our charges. being of larger started the about lose in $XXX,XXX organization. corporate the a our the a up

I we're to closer that So, move be numbers. closer we from our going you at to would But say, if or I XXXX would expect -- I XXXX, neutral. look compared would to to SG&A XXXX XXXX generally, from expect, would much

it. Got

just what these given times getting price just Okay. traditional new motors and lead premium then, the -- that like the is gas That understand And demand driven? Perfect. and/or the for you're gas looking equipment? for help that us And surge oil versus what prices, in Jackson, now John are electric-driven helps.

Okay.

on So around It may five now. in day. moves for at some, by Caterpillar in new the let's take time engines or give very call the the the it, side gas is every -- just XX, XXs weeks, probably be It XXs, lead volatile.

to I'll here. you nine say it VFD engine. a now, components that electric months get goes the -- On right and key with relative anecdote or get I'd take, got an it's engine an probably side, you've gas give give just So is probably to to the

today be totally we out unit, up. motor yet are XX convert hung they're delivery be to sure, could go existing us exactly drive get an the build We components because the weeks, to can't the being try and going because we're from to tell told much supplier an not how anywhere electric or to when XX

saying, on X and between our -- X So customers, based can we're working we Y or vendors. it in with deliver our

new today, very something supply if going before pretty because at wide. is say, going the get year it's of you're the and to of try it's be commit way it's to just building I'd to So working. the earliest, going to done chain the end

of So going what other asked what's And piece on, on that side it. was about I the that's price increase? you think

of Just some are premium, because with -- your a you obviously -- you're the upgrading getting

able economics Yes, we're Yes, going also yes, important getting the we're spend at term ramping I about be rapidly fleet right capital, drive to in not us to yes, the fairly pricing to is, now term If into getting we're We're growing getting motor premium. motor high-end same redeployment. things is, what yes. I But we're longer want worry we're our electric. we're getting electric the but up think would to initial that have and for time, term -- on with electric now. a new that's to -- out go we right say, get US, doing drive, an

we're think, rate. So term, getting I getting we're

The you as thing electric cost and drive down, with other capital don't happens have same that comes maintenance as overhaul. is because your the motor the structure far

to work the maintenance got do you've later overhaul in same the cycle, where kind thing. do have don't of got You you've to an engine that

over So the bit cycle comes too. you your cost full for structure down a

work helps, for the economics So that us. all

it. about so, excited very And we're

our gas some and older to The And very be on standard. the efficient upgrading putting doing the side those that, on. in to an basically our our we is engine We're we're electric off by drive emissions-wise. engines taking doing thing be with newest fleet, have motor older drive vintage our other and electric from we're that, capital, able then fleet while latest

our good rates, combination but in utilizing getting basically So it's also re-vintages way of good equipment, a existing a term, that fleet.

Got it.

Does that sense? make

on now. that No. just And Are really better? seeing gotten relief you the does. on quarters that's I it's tight for a front? any in headwinds been labor It Has helpful. any of know particular. very And couple that

I think, this it's at seen it it. -- see I I point. wouldn't a relief on I've accelerating, say, don't

Right.

the last same it's been you... four months. Rob, the think three or I for

right. exactly That's No.

flat. would I think, say, I it's

Yeah.

we've we increased and and it's as tax …Hard like. of try focused some been see efforts our on on, fill schools from to focused and recruiting efforts the the boys,

Yeah.

We have constant openings.

been I think that able pockets but think and maintain face to force, hard places accrue the a us on. are of are all in to. to turnover there areas fairly just we've some stable that labor industry There's, I high

demand more there. have people You for people live than

got people they've for bring area So there and rotating a exit they move want basis that new a to for a and going to they and on while then into or the to work you're may while in. do

but on it's a not it's accelerating a So you're constant us. treadmill -- chasing,

notes. what are flow, par? capital picking on to that. into it with the especially of through Lien plow the questions like business? you to no thought allocation, to That's given as Just cash And we the just year just fair. it's that Is priority? finally, the generation free that, reduce get Okay. of longer on Byers, just maybe is Is Second confirming some there, And back go trading of that below process it the some the two then, Jon it

Yeah.

the for elected we pick, not the pick. on to time So, first have

So that. interest proud and one we'll payment. excited April our be We're about cash paying

we cash will achievable but the can a to think where this year trying On actually point XXXX year, where something side, probably something is not is capital refinance entire that That's that, able if a this to our we're in we're to structure. happen perform. get flow we

we're to the we -- meet of the is between what's at EBITDA, Buying where our and getting going growing the so be to the our look that our the can balance but everything, not we return growing being company being all liquidity, of to it this the on And terms options off table, point to dollars, structure. in the our striking year but fleet, other capital context obligations refinance managing make able so. a actually invested would debt, in able

Yeah I would add that. to

right look And about. now growth on and decisions talking through capital group a have at what parse of think, I our spending down really allocation we capital. all just sit you're

Our debt to close par par try if to it. trades now if not you at execute right, really

know be. return what incremental So, would be. we then, know spent and what capital is And that dollars that yield our would we

at. looking definitely we're So,

conditions and shifts long-term So those right happens now underpin the good returns, the good think the floor market's shift with strong. And we we weekly, rates, as those kind But buying are very something returns. high can and to decision. terms to where it year capital get management we with that a for Board. If be and daily, discussed frequently. dollars pivot the market can't reducing debt we'll discussed the during it's our off spent monthly We entire of We market. it the efficiently, then

Understood. you all Appreciate color. the so Thank much.

Brian. Thanks,

Yeah.

Please Selman next from Stifel. [Operator Akyol ahead. go Instructions] question with The comes

guys. morning Good you. Thank

morning. Good

questions, little can increases. maybe you couple or you price there? just more you so, A Can shed bookends any around put about a that, of guys light talked

vary don't versus and -- Well, -- to but the by not term, contract I it's the market. contract going contract rate current term

you We I have can -- this. give

I year about of we fleet think term. as the our is exited half contracted

left months two XX more it's So, XX months. or more some X on months term it whether or

changing obviously year-end. So, every roll can't as term. there's you off about touch always as fleet you of It's your half month

And rate but half on and go in fleet basis of -- we're we we've that. and I'd basis, these evaluating We on say can do. have So, a we're price about to each get to at We're to customer that we a that situation that doing gone your on and month trying market increases at capture every so look where looking out you can. -- them increases. have a price those

increase dollars customers little -- higher, customers we're offer want if So, a if term of bit a One offer here's a our out. be of I higher to think than sell price is a options. our X month-to-month, we you going we you to it's usually, couple

then turn we online. it give want to taking here get don't with the unit move in year come that's attached back rate out now money and to that done we'll time term and spend for have a you around price escalator it, offline and slightly we'll If to a it and and lower you and a put

of macro kind occur. seeing started level, how would getting that's spring just about equipment, idle fleet last a on about philosophically our So, we And on more last it. go into supply I a cost versus summer. the the market, customers how there's the say of think to industry increases ready you and if move was increases we reenergizing price late lot excess say let's still costs

happens environment as started getting So, modest in last price cost have the cost cost increases price you that. that during the the we But our compression you and has up now follow than we increases will what now summer late the and as first, you we say space increases is hope I because spring more through price year. as move increases getting minimum XXXX, keep just We enter our expect we're a increases have would changed. the at year, with

ahead go Rob. So

was that a bit is price sort of we add I'd increase months in modest say of the market. were The very I of getting in range six targeted ago, tight would equipment other that supply color to

are months operating up seeing to Now, is to getting price and six with expanded fleet cost. sizes the the all what keep increased increases applied later we're of

acknowledging that cost have those that's accepting environment -- and to customers been price increasing increases. So, helped more the open and

than to applied a ago. not price, expanded was volume larger it's percentage dollar number or terms in it's of months only units of six also but it So, of increase

But of can maybe It you it's tenor you I'm an what sure and sounds around kind average on I that? the out. just to Do any parse Very mean helpful. say is? fleet guys hard Thanks. have thoughts Can you like--

tenor you on contracts on as is as a left blended duration What basis? average far mean

Yes. Yes.

I would the say the electrics at end. horsepower most to years of other front than contracts are the two very generally one large

get the trying to larger the -- to Now, on we're depending three horsepower we're getting five on situation.

average So, horsepower contracts Maybe lower around blended of saying year. I'd most you say year. one to some go probably if XX% given end are the I'm fleet, category, the a it's on

sitting the to so you XX if duration is you're fleet, is But go there the the out as some sense. it's go contracts months. now, that you you average to a So, of give to and to getting the higher end right year average probably probably XXX-horsepower down six duration months just one-year

Okay, I appreciate that.

You talked kind just substantial a continue in be everything aware or bit should of, operations. -- treating little guys a business. you I mean Is of of treating I'm approximate that same? the there margin curious about And blend to the it for does we as -- those gas difference

higher business. financials a The provided We the margin treating X-K is business for Spartan. in

has of So, But a that you sense a XX% about give the historically margin it. yes can been business. treating business

change treating cooling the as that as the the we're -- in is everything it's on similar -- far see side, business seeing very don't to business compression tight We supply. very

idle bulk then of those now -- contracts this from more being both units, we on we're or want in -- are right quoted a it's to In side, but out accounted that don't why some fact have pretty units It's for. bit various the adding and cooler committed US. lot the fleet and But We built or amine it our whatever somewhere essence or contracted fleet. where is. that's build it is in in that into at the a little all internationally potential idle to point either --

to don't that where have an equipment things and on up. So, maintenance the are and environment better keep we goes stronger the cost it's then

that our monthly on we are a therefore, a higher So bit drive fair basis than compression. margins to

Yeah.

in to maintenance lower think on significantly you that's the the is of nature I hit would an is treating compression. important fleet than the just see point what Spartan capital

where and small of bit is it see it's growing little maybe Thank now fleet relationship how and horsepower? sure you And the can a then it and -- I'm electric you. terms overall, in Helpful. in about talk but you

Sure.

think so, of of and we CSI's the smaller fleet on think acquired we I almost GP down entered XXX-horsepower when or exclusively as year -- the generally. was It ago about end X.X% electric. I fleet a was the

But one about just to converted to expect now right And we year so today, probably another -- motor horsepower have we gas of contracts a year, and X% we now. convert between right next our to fleet, to last fleet that XX,XXX was unit over electric XX,XXX X% drive. of electric our engine

have or various in going new We conversion other either motor electric of on inquiries builds to sizes. relative a lot or drive whatever

conversion. we're to what we're So talking We've quote XXX, right now. XXX, opportunities X,XXX horsepower X,XXX. electric got on That's X,XXX working

in So than I we'll bigger see had think based are in customers on some with XXXX conversations XXXX. we we that conversion a

think of we're to is electrify in have a customer The infrastructure the got to what put about the happened have in to step-down can thinking XXXX I the horsepower. place, they units larger to move you part start They've as them. so get bringing you issue transformer. you to has

I You today. you bit about in equipment, can build delays little supply about getting chain a or we so electric. issues talk convert our told

I market delayed think or more. the as just is transformer

I will percentage electric. X% think XXXX I I And to Like more don't see reiterate you'll in gas our large we we be see to fleet year, are the a still high fleet. would of we'll to to like had I engines next But electric think you'll then want I of of demand. side probably horsepower we'll from in the be can this Not gas deploy I much ago it conversion. XXXX -- go accelerate. So that the us say driven engine today And all. think end bigger year from be that -- addition will a closer conversion, X.X% move

want run side and where a and electric by or lot side. the So a it's enough it a real electric of is stable gas to need handle gas combination to -- off They of people grid both. There's some of the large lot there areas electricity?

can electric you one, still you if versa. the lose lose your production you So run power, vice if

but what March get fact take more think the XXXX, going are. to in or in to to to can it's accelerate convert So going from where given probably XXXX XX we we're weeks get it's close XX we done and I us to we're equipment in

second our drive of So electric because this just will but maybe on most the you we'll half the waiting components. we're year in year, do of more convert that's... than That's wanted

it. No, no, appreciate no, mean, I and part the that's you into. a it's don't of lot look growing I of get business

just So other I of the fuel for for answer. the is paying appreciate there. conversations detailed kind And along those the cost lines with my understanding is responsible customer

That's correct. Correct.

Same.

I of that's so sort Okay, standard it. throughout. got

yeah. Yeah,

Yeah.

to flipping be that XXXX in there of just So thinking front moment would be that like from it going I about should market seemed a stepped me. have in back Anything the quarter. the third a But on onetime for and up G&A there? don't we right

Yeah.

I I IT, as guess capability Brian, shared services all back that's we mentioned off HR functions. with accounting, So the building were office. our corporate tax, own of and moving different the TETRA

spent at million there's $X look XXXX, million in in was million about of PSA, costs. transaction and about Spartan you with $XX if million So $X $X we that About SG&A.

$XX all back said us that's two. it that shouldn't out, compared get but used, million the definitely $XX you we XXXX. you you And of some some I obviously of why all TSA to probably because to the out range between expect was overlap million, I can there think if So to of that back back and

guys. for Okay. That's me. you, it Thank

Thanks.

Thanks, Selman.

back question-and-answer Officer to session. any Chief closing turn conference like would for This the over Mr. to John Executive remarks. I our concludes Jackson,

you. All right. Thank

We're I'm -- dynamic And right grateful how But lot of now, I It's pieces. all everyone think appreciate a a about XXXX. It's excited we're doing. at I the here in about moving -- joining. for quarter call for and I forward work very -- as the you Thanks at the year. CSI. joining to a you today. everyone for and beginning, we're that to said environment there's telling we're everyone very excited the look we talking

you for now has Thank presentation. attending concluded. The conference today's

disconnect. may You now