Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group first quarter earnings call. [Operator Instructions] Your call leaders for today's call are Alicia Dada, IR Coordinator; Steve Taylor, Chairman, President and CEO. I will now turn the call over to Ms. Dada. You may begin.

Thank you, Erika, and good morning, listeners. Please allow me to take a moment to read the following forward-looking statement prior to commencing our earnings call. Except for the historical information contained herein, the statements in this morning's conference call are forward-looking and are made pursuant to the safe harbor provisions as outlined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements, as you may know, involve known and unknown risks and uncertainties which may cause Natural Gas Services Group's actual results in the future periods to differ materially from forecasted results. Those risks include, among other things, the loss of market share through competition or otherwise; the introduction of competing technologies by other companies; and new governmental safety, health or environmental regulations which could cause -- require Natural Gas Services Group to make significant capital expenditures. The forward-looking statements included in this conference call are made as of the date of this call, and Natural Gas Services undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include, but are not limited to, factors described in our recent press release and also under the caption Risk Factors in the company's annual report on Form 10-K filed with the Securities and Exchange Commission. Having all that stated, I will turn the call over to Steve Taylor, who is President, Chairman and CEO of Natural Gas Services Group. Steve?

Thank you, Alicia and Erika, and good morning and welcome to Natural Gas Services Group's First Quarter 2015 Earnings Review. I'll start off by saying I'm pleased with our performance in this first quarter, especially the growth we achieved over the year-ago period, where we saw improvement in all segments of our business. On a sequential quarterly basis, rental revenue held up, but as we anticipated, quarterly compressor sales slowed down. Our rental gross margins continued strong this quarter, and our EBITDA and net income metrics, with respect to revenue, grew. Cash flow from operations was exceptionally strong this quarter, and we anticipate appreciable growth in free cash generation throughout the year. Looking forward, 2015 will be a more challenging year. And while we expect pricing and utilization pressures, we're focused on our cost and maintaining our service response to our customers. I'll comment in more detail as I review the financials. Starting with total revenue and looking at the year-over-year comparative quarters. Our total revenues increased 11% or $2.4 million from $22.3 million in the first quarter of 2014 to $24.7 million in the first quarter of 2015. We had strong gains across all product lines this quarter compared to the same quarter last year, with rental revenues up 10%, sales revenues up by 17% and service and maintenance increasing 16%. For the sequential quarters of the fourth quarter of 2014 compared to the first quarter of this year, total revenues were down almost 9% or $2.4 million from $27.1 million to $24.7 million. Rental revenues were up marginally, but compressor sales are the major driver to this quarter's change in revenue with a $2.6 million decline. Moving to our total gross margin and comparing the first quarter of last year to this current quarter. Total gross margin was…

[Operator Instructions] Our first question comes from Joe Gibney from Capital One.

Just a quick question on cost. I'm just trying to strike a balance between differentiating by maintaining service quality and what you can do to control direct expense. So what do you nibble out on the fringes as to try to do that? Specifically, just trying to do -- get a better understanding of kind of how you control cost or whittle it down a little bit at this point.

Well, the standard things -- you certainly -- start coming back on, field expenses first from the point of what's the overtime running, how can we cut that down or can we be more efficient there. Certainly, we are trying to share the fun with our suppliers and going back to them and seeing whether they can help us to reduce some of our costs. We've had some natural reductions with oil coming off. Obviously, our lubricating and oils are also down somewhat. So some of that you get just as a function of the slowing market and lower commodity price. We look at all different things. We -- as in the past, we'll cut the small and large because a lot of smalls add up to large stuff. And I won't go into all the details because some of them, we think, are not proprietary, but we think are unique in how we're approaching things. But the main thing we do, we get our costs down. And I think you can see from the last downturn, and certainly starting into this one, that our margins are holding up well. But we -- the thing we won't do is sacrifice the service response to the customers. So we know going through a downturn like this, that's a very tempting target and something easy to do, maybe you load up your field guys a little more. Now certainly, we'll be much -- we'll be as efficient as we can in that respect, but we're not going to overload people from the point that starts impacting downtime, that starts to impact some of the customer's ability to produce what he can produce, et cetera. So we look at anything and everything and along with suppliers and certainly our work with the customers would go through [ph], but we intend to maintain the service response at the same time.

Okay, helpful. And then just in terms of your short horsepower mix. What's going on in the market? And how -- so you referenced, obviously, this move into the 300-plus-horse tranche and getting some traction there. In terms of stop activity, customer pushback on pricing, is it -- it almost sounded from your comments that there's sort of a barbell, where the higher-end equipment that you're putting out is still executing well and there's still demand on the VRU side, it sounds like, maybe you could update us on that. But is there more pressure in sort of the -- more your standardized sub-200-horse kind of units right now? Or is it sort of generally across the board, but you still -- you have some traction on the higher horse side? Just curious how that's kind of parsing out as the market unfolds a little bit here.

Yes, it's a -- it's across the board, pretty well. We're not seeing -- now this is more oil-oriented, which you would figure with oil coming off. Gas, as we all know, has been flat for 4, 5 years now. So we're not seeing a whole lot of impact there. In fact, it will be interesting to see how it goes through the year as to what gas may do. Because there's -- although you get the oil coming off, there may be some glimmers of hope on some gas pricing going through because, obviously, you're reducing the associated gas in the market also. So it's across the board. It is more impacted on the oil side, though. And I think, naturally, what we would expect is most of the oil growth has been driven by these 200-horse -- 200- to 250-horse units that we've put out primarily on gas lifts. So that is where we're seeing most of the impact because that's where all the growth has been in the last 4 or 5 years. So it's not unusual we're seeing it there, I don't think. You're getting -- you're just getting a lot of movement in the market. Customers, as will happen in these periods, pendulum tends to swing pretty hard back and forth, just like it was -- price went a little too high last year and now I think we're probably going to swing a little too low going this year. But we're seeing various reasons why wells -- some wells are getting shut in, some wells are getting delayed. The growth profile going forward has certainly slowed down. The name of the game right now is maintaining what you have out there or at least mitigating or trying to minimize utilization pressures. So summarize that answer, pretty well across the board, certainly focused on oil more so. And the gas lift units are seeing some impact.

Our next question comes from Rob Brown from Lake Street Capital.

On your utilization rates, you talked about -- I think March was sort of a weakening and a low point. Does that mean things have improved since March? Or what's the kind of trend there? And how do you see it playing out for the rest of the year?

Well, you don't know a low point until you get a few months down the road, right? So -- I think that's what I said in March. I'm not -- is that a trough? Or is that just the beginning of a tougher trend? It's too soon to tell. I -- we don't know. We just noticed that January, February seemed to be fairly flat, and then March really took a drop. Now we've had more strengthening in oil price since then. And so again, I'm not predicting. I'll let you call it how you think that might go. But certainly, that wouldn't be a negative going forward. So I expect continued pressure on utilization from a couple of perspectives. Number one, just the market. That's just how the market's going to go. And again, operators are not just cutting but slashing, in some respects, their expenses. And compression is one of those. And then secondly, from the point that we will tend to try to maintain our pricing much more than what I've said the general industry does in that perspective. And that's going to have some impact on utilization. Now again, we try to balance that. We're not going to just stick our head in the sand and draw a line and say, "No, we're not going to go past this or that." But we do look at every job individually, price according to where we think we have strengths or weaknesses and go from there. So it's -- again to summarize that, I guess, I do expect further pressure on utilization. Whether it accelerates or mitigates, it's hard to tell right now.

Okay, great. And then you're generating a nice cash. What's sort of your thoughts on the uses of cash through the downturn here?

Well, right now, we're going to hold them very close to our chest and not let it go. But much like the last time -- being in a cyclical industry, as we are. And these cycles tend to be -- maybe it's just me, or they tend to be getting more frequent. About every 5 years, we seem to go through one just to shake us up. But we -- when you come out of these things, you always need to be able to react to the market. Put equipment in the customers' hands, grow as required. And that takes cash, with capital equipment like this. So right now, I mean, we've built it up certainly pretty quickly here the last couple of quarters. It'll continue to build. We're just going to put it in the bank right now, preserve it as we go through this downturn. Certainly, we're in excellent shape from a -- essentially, a no-debt standpoint, not really needing cash from the point of having to survive or exist, but knowing that you need it coming out of these downturns. And I -- I think this oil -- when you have an oil downturn, the most recent ones -- now you can go back and find a contradiction to this in some other places, but they've tended to be pretty well down and pretty well up. Unlike gas, were pretty well down and just stays down. We don't really get a -- we don't get a V or a U or anything. We get a kind of an L, I guess. I mean, I'm -- I think we're going to start to come out of this one. I think this year is a rough year. But I think -- '16, we start seeing a little bit better pricing, a little more activity and things like. So I don't think we're into this thing where we're going to be conserving cash for 2 to 3 years. I think we've got a year that we can build it up, and then we're ready to address the market as we need that cash.

Our next question comes from Jason Wangler from Wunderlich.

Just maybe turning over to the sales side. Looked a little stronger, I think, than maybe, at least, I had expected. Are you seeing anything different there? Where there a couple of one-offs? And then obviously, the backlog in pretty good shape, too. Just how you maybe see that playing out throughout the year?

The sales thing is really hard to predict, as I say every quarter, and everybody's probably tired of me saying that. But it really is hard to say, especially in a market like this. It's almost impossible to say how thing are going to go. You get a backlog, that really only stretches 1 or 2 quarters, doesn't give you much visibility. So I am happy with where the backlog is from the point of -- in the past, I think the past 2 or 3 years, we've always said that we were aiming for our sales revenues to be $10 million to $15 million. And those were in growing years. But we were managing to that level from the point of not wanting to have that sales getting too large because of, just, we're concentrating on the rental side of it. Now again, we will let it go if -- we're not going to turn away a job just because it messes up the percentages of revenue. But -- but generally, that's where we've been holding. So -- so far, the backlog is running about that rate as in a good year. Now I do expect it to come off. And we're starting to see some indications that, that backlog will start to fall a bit. But again, we've got a fair amount of proposals out that we try to evaluate and risk as far as what we think the revenue potential of that may be. And then we've taken a little harder look at the risking part and reduce the number that we think may happen. But there's still a fair amount of potential backlog out there. Let me say that. But I'll also hasten to say, don't anyone think that this -- the sales is going to be going up or anything like that. I fully expect sales backlog to reduce through the next couple of quarters at a minimum and come on down. But we're happy it's held up so far the last couple of quarters, a little better than what I expected.

Okay, great. And on the rental side, obviously, kind of slowing the pace there. But just curious, you talked about March being a tougher month. Can you maybe just comment on where you're seeing the weakness, whether it's in price, whether it's in utilization, just where you're seeing those tougher areas, given the changing dynamic?

It's mainly utilization. As I mentioned, our pricing still are holding up fairly well. And even if where we've had to negotiate some discounts here in the last couple of months, it's been a lower level of deals we've had to negotiate than I would have expected. And we're very happy with what we've been able to negotiate. We've been able to exchange some discounts for some additional work and/or added terms or things like this. So most of the pressure we're seeing is from utilization, primarily just -- and some of this is -- I mean, there is -- we look at these jobs and see when we're getting them back and what can we do to mitigate that. And some of this stuff is just -- as I mentioned, customers have just really slashed a lot of expenses and try to really pull down some stuff. So at $100 oil, where you might have had maybe a little more equipment out there than you really needed, but you didn't want anything down, you wanted standby capacity because of $100 oil, you don't need that now, $50, $60 oil. So some of that stuff comes off. Some of the shales are getting to be 4 to 5 years old. So you're seeing some natural decline, and we would've seen this even at $100 oil. You're seeing some natural decline in some of these wells. Not only the oil is declining, but the gases associated with that wells are declining. So gas lift tends not to be the preferred method of producing that well, after 4 or 5 years, start getting more into the depletion piece of it. So there's all kinds of things going on, but it's mainly utilization pressure right now that's flattened it out.

And one more, if I could, just on that. Geographically, are you seeing certain areas that are more affected than others? Or is it pretty much just kind of, like you said, it seems everything's kind of getting cut right now and you're just kind of seeing it from different areas at different times?

Yes, we're -- probably about half of the areas are being impacted and half aren't. I think I read yesterday or the day before, I think that the -- out of the 5 major oil shale basins we've had, Niobrara, Bakken and the Eagle Ford already start to roll over on production. At least, I think, as in April. Yes, we'll see what the months going forward do, but you would expect that to continue coming off -- production coming off, which is obviously something we want. You don't necessarily like it from a business standpoint, but it's part of that phase we're going to go through to get pricing back up and it's start activity back. And the 2 areas that have -- actually have increased production have been the Permian and the Utica. And we're seeing the same thing. We're still having good luck in the Permian and the Utica, and we're seeing pressures in these other areas. So it's pretty well along with what the industry is reporting from a production standpoint.

[Operator Instructions] At this time, I have no further questions.

Okay. Well, I appreciate everybody joining us. And Erika, I appreciate your efforts. So I appreciate your time. We'll -- we're looking forward to visit you again next quarter, then. Thank you.