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

Thank you, Ross and good morning, everyone. Please allow me 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 risk and uncertainties, which may cause Natural Gas Services Group's actual results in 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 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 cash and 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 to Mr. Stephen Taylor, who is President, Chairman and CEO of Natural Gas Services Group. Steve?

Thank you, Alicia and Ross, and good morning everyone. And welcome to NGSG's third quarter 2019 earnings review. This morning, we report our third quarter 2019 results. If you had time to review them, you'll see that we had growth in all revenue streams and improvement in all our sales and rental margins. Rental revenues grew 20% compared to the same period last year and 6% compared sequentially. Both led by robust performance in our large horsepower class. Our compressor sales continue to be strong, with the gross margin percentage this quarter being the highest since the first quarter of 2018. Cash flow from operations for the quarter was $14.2 million, or 68% of revenue. Now balance sheet cash level remained solid at $19.5 million.As we continue through the call, I'll further discuss in detail these financial results as well as include operating and market comments. From a non-operating perspective, we do have various non-cash non-recurring items in the quarter which we will review shortly. And a special note, we announced the retirement of Larry Lawrence, our Vice President and Chief Financial Officer last night. I'll comment on this at the conclusion of these remarks.Looking at total revenue, NGS reported total revenue of $20.9 million for the third quarter 2019, a 27% increase compared to the same quarter of 2018. We expect an increase in all revenue streams for the 49% increase in sales revenues, 20% in rentals and 32% in service and maintenance when compared to the same quarter 2018. Sequentially, total revenue increased by 5%. Rental revenues increased 6% sequentially, or sales revenues increased slightly from an already robust level last quarter. In the comparative 9-month year-to-date period our total revenues increased approximately $9.4 million or 19%. Total adjusted gross margin for the 3 months ended September 30,…

[Operator Instructions] Our first question comes from Rob Brown from Lake Street Capital. Please go ahead, Rob.

Morning, Steve. Maybe just go a little bit further into the high horsepower business. It's been doing well over the last few months and you're seeing revenue growth there but also order growth for the rental equipment. Maybe you have some color on the market environment. Are you seeing a market environment improvement? Is it share gains and what's really driving the growth?

Well, of course, the primary part of it is a couple of big contracts we got a little over a year ago. We've been building those out. And also, installing those so that's been the primary source of the revenue growth and course the CapEx growth too. Just pushing that equipment. So that's it but we're also we started placing some equipment with some other customers. We've been pretty well tied up on those major orders from a fabrication standpoint up to this point. We're starting to see some light at the end of the tunnel. So that relates to the speculative units that I mentioned. Only 3 of them so nobody needs to panic, but we do need to have that stuff in the queue to be able to rent it. So we've seen a couple of other customers start to come into the fold on that. Generally the markets -- obviously that's all penetration because we weren't in this business probably 3 years ago so we're making market share gains on that. We're making penetration. The industry is expecting somewhat of slowing in 2020. There's probably already a little bit of it. Some of the certainly the upstream or more the drilling orient guys have seen it are saying providers, pumping companies, drillers, things like that. As you've heard before, in the past, we typically don't see slowdowns till after the drilling piece out with us be on more of the production side. But we're uniquely positioned, I think, very well-positioned from the point that we were still building equipment that's been contracted. That's going at a good range. So we still see another quarter or 2 of growth and just completing the contracts we've got, and then we'll have another quarter to add to that of increasing revenues from that equipment being installed. We're a little anomalous to what the market looks like right now. But if it does slow to more of a -- or less activity and what we've seen and what we're continuing to build out, as I mentioned, the only bad thing will happen to us, we'll start generating a bunch of free cash. So I think we're in good shape. I do think the mark -- obviously, the overall market is slowing. I think that will impact production side somewhat but the good thing about the production side is when the drilling side slows down, that's the only thing bringing money as production. So we tend to be hit less and certainly the big horsepower is on long term contracts. So the contracts are a sense of link that will carry us through any anticipated slowdown that we may even see into next year. Somewhat irrespective of the market worse we're a bit insulated from things right now just based on our contractual obligations we're fulfilling right now.

Great, thanks for that color. And then in the mid-horsepower business, I think you talked about it being mixed but there were some opportunities by year-end. Could you just give us a little color there?

The mid-horsepower, in 2018, it did really well; 2019, it's been a little slower growth on it. We're seeing incremental, pick up a little every quarter. And we're actually setting -- increasingly setting more and more of the smaller units or the mid-horsepower units each quarter. But the turn is keeping up and so we're getting back a number of those too now. We're -- our net between what's said and what we get back is growing. So that's forgetting the incremental gains but it's just not what we typically see in a somewhat of a recovery mode or a decent market. So 2018 being the decent piece of that and course now it kind of moves into the big horsepower being a decent piece. But we see some competitive openings from the point of others not having good servers -- maintaining good servers and things like that and operators wanting to make some changes there. So, that's what we're saying and they tend to be more than 1 or 2 or 5 or 10. They tend to be the 20, 30, 40 unit sort of packages people are looking at. So we don't have those, we're bidding them. We're in the midst of marketing that stuff and selling that and hopefully close [indiscernible]. For successful on some of those we'll see a little more incremental pick up in that medium horsepower range.

Okay, thank you. I'll turn it over.

[Operator Instructions] Steve, at this time there appears to be no further questions.

Okay, Ross, appreciate it. Thanks, everybody for joining me on the call. Appreciate your time this morning and we're look forward to visiting with you again next year.

This concludes today's conference call. Thank you for attending.