Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group Inc. Quarter 1 Earnings Call. [Operator Instructions] I would now like to turn the call over to Ms. Anna Delgado. Please begin.

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 laws. Investors are cautioned that forward-looking statements are not guarantees of future performance and those 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 statements, whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's earnings press release and in our filings with the SEC, including our Form 10-Q for the period ended March 31, 2024, Form 8-K, and in our Form 10-K for the year ended December 31, 2023. These documents can be found in the Investors section of our website located at www.ngsgi.com. Should one or more of these 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. For reconciliations of these non-GAAP financial measures to the most directly comparable measures under GAAP, please see yesterday's earnings release. I will now turn the call over to Justin Jacobs, our Chief Executive Officer. Justin?

Thank you, Anna, and good morning, everyone. Welcome to our first quarter 2024 earnings conference call. Thank you for joining us this morning. We appreciate your interest in Natural Gas Services Group. I'll start by introducing the team. Joining me on the call this morning is Brian Tucker, our President and Chief Operating Officer; Jim Hazlett, our Chief Technical Officer; and John Bittner, our Interim Chief Financial Officer. In terms of the agenda for the call, I will start off with some high-level comments on the quarter. After that, John will review the quarter in detail, and then I will finish our prepared remarks with our general industry outlook, our updated guidance and a recap of our growth strategy going forward. We will conclude with a Q&A session. I'm pleased to report that NGS had another strong quarter. And similar to the last call, we were happy with most areas of our performance. We had sequential growth in rental revenue, rental adjusted gross margin, and rental adjusted gross margin percentage. The growth in each of these metrics further validates our strategy of focusing new unit growth and high horsepower. Our first quarter adjusted EBITDA of $16.9 million exceeded our strong fourth quarter figure of $16.3 million. Similarly, our first quarter rental adjusted gross margin percentage of 61.1% eclipsed fourth quarter figure of 60.7%. The strength in these two metrics, combined with an overall favorable outlook on industry conditions, led us to increase our outlook for 2024 adjusted EBITDA. I also want to provide context for our strong growth. Our 2022 adjusted EBITDA was $29.2 million, and our 2023 adjusted EBITDA was $45.6 million. This is a growth rate of 56%. Looking forward to 2024, our outlook range implies a growth rate of 34% to 47%. These are very attractive growth rates, particularly considering the recurring nature of our revenue, the stability of the revenue as it is largely tied to crude oil production, and our long-term contracts. These organic growth rates are also far in excess of our publicly traded rental compression competitors. In spite of these higher growth rates, we maintain a lower leverage -- level of leverage at only 2.57x than each of these competitors. Putting my public equity investor hat on for a second, these are intriguing figures that I believe our existing shareholders appreciate and our potential shareholders find quite appealing. Considering our opportunities for further growth, I'm quite excited about what NGS can achieve in the coming years. With that, I'll turn it over to John Bittner to review the quarter in detail.

Thank you, Justin, and good morning, everyone. Let me jump right into the review of the first quarter results. Total revenue for the 3 months ended March 31, 2024 increased to $36.9 million, which was up $10.3 million or 39% from $26.6 million in Q1 2023. Our revenue was up from $36.2 million for the 3 months ended December 31, 2023. Rental revenue for Q1 2024 was $33.7 million, up from $22.7 million in Q1 2023, for a 48% increase year-over-year, and was up $2.1 million from $31.6 million in Q4 2023, a 7% sequential increase. Our total adjusted gross margin of $21.1 million in the first quarter increased approximately 90% when compared to $11.1 million in the same period in 2023. Sequentially, total adjusted gross margin dollars increased 4% from $20.3 million last quarter. Adjusted gross margin as a percent of sales for Q1 2024 was 57.2%, versus 41.8% for Q1 2023 and 55.9% in Q4 2023. This material increase year-over-year in margin percent was driven primarily by rental adjusted gross margins. Our rental adjusted gross margin dollars increased year-over-year to $20.6 million in Q1 2024 from $11.1 million in Q1 2023, representing an 86% increase. Sequentially, rental adjusted gross margin dollars increased from $19.2 million for a 7% increase. Our rental adjusted gross margin as a percent of sales for Q1 2024 was 61.1%, versus 48.8% for Q1 2023 and 60.7% in Q4 2023. Our rental adjusted gross margin remained well above recent levels for the second straight quarter. The incremental margin we've achieved on our newly set large horsepower units is quite high, even more so than we had expected. The increased revenue generated from these newly set units in Q4 2023 and Q1 2024 has created operating leverage for us, particularly in the areas of field…

Thank you, John. Turning to the overall compression market. Our perspective is positive as it was on the last call. We continue to see significant demand for our rental equipment with attractive pricing and contract tenor. We see a favorable environment for potential growth in new high-horsepower units over the near to medium term with some customers looking to contract new units as far out as 2026. Approximately 75% of our active fleet is located in oil and liquids-oriented basins where activity is primarily driven by crude oil prices. Oil prices remain relatively steady, which should continue to drive activity. Activity and forecasts continue to show stable to increasing production levels for the near to medium term. We remain reasonably confident in the oil markets for the near term. The natural gas markets remain relatively weak with reduced production, significant supply, and low prices. While natural gas prices have rallied the last week, we do not currently see natural gas production as a growth story. While the overall environment can be described as favorable, we remain vigilant that commodity markets can change to the negative in a hurry. As such, our growth plans include an appropriate margin of safety to withstand any potential downturn. I'll turn to our 2024 outlook with an update to guidance provided on our fourth quarter earnings call. For a written summary of our outlook, I would point you to our earnings release filed after the market closed yesterday. And I would also remind you of the disclaimer provided at the beginning of this call, which addresses forward-looking guidance. Our current outlook for 2024 adjusted EBITDA is $61 million to $67 million. This is an increase from the guidance provided on our last call. We've moved our range up based on the data from 2 quarters…

[Operator Instructions] Our first question comes from Mr. Rob Brown with Lake Street Capital Markets.

First question, you addressed it quite a bit, but the gross margin sustainability, I think you assumed some, some retrenchment. But what's the sense of how that normalizes? Are you -- still need to get some data, or do you feel like you'll have a higher level of gross margin with the high horsepower mix increasing?

So I would say that, after we've seen now 2 quarters of higher levels, we're certainly getting more comfortable that we're going to have a higher level. And we expected with the high horsepower that they would have higher margin, which in fact has been the case. I think over the coming quarters, we'll certainly gather more data. And our target, our kind of general view is I would say that we've been pleasantly surprised that we are seeing numbers with the 6 on the front of it. We're expecting something more with 5 on the front of it. And that's still our general view as we go forward. But we hope to be able to keep it in the 6s.

Okay. Great. And then the demand environment, you talked about a fair number of discussions. Are you still seeing interest -- big interest in the high horsepower and good pricing? And then maybe just some color on kind of the demand environment and what it would take to kind of look to, I guess, 2025, '26 capital spending at the current levels.

So speaking generally of the environment, we're only looking at contracting new units in our high horsepower range, and we are seeing still a strong demand environment in terms of a lack of availability of equipment, in terms of the pricing that we're able to get and in terms of the length of the contracts. So really, it's quite similar to the last call, we're still seeing quite a favorable environment in terms of demand for high horsepower.

Okay. Great. And then you touched a little bit on kind of the electric drive conversion. How much opportunity is there? What's the capital per unit on that? And how is that market looking at this point in terms of demand?

In terms of looking at the electric conversion, it's still early days for us. As you look at the unutilized portion of our fleet, this is small and medium horsepower. So the average unutilized unit, if you look at our numbers, about 150 horsepower. So this is the small and the medium. So the capital cost for conversion there is, on an absolute basis, a relative small dollar per unit. Now the -- if we are successful in converting and getting those placed under contract, the return on invested capital is quite attractive. But in terms of opportunity there, it's still too early for us to give any sense of what the magnitude of that could be in terms of converting units and putting them out in the field.

Congratulations on the progress.

Our next question comes from Mr. David Locke with Old Mammoth Investments.

Of the -- about $9 million in year-over-year incremental gross profit dollars that you generated, could you just roughly split that out between how much of that came from the new units that you've put on in the last year and how much of that came from pricing on the existing fleet?

So I would say that I won't break it out in terms of specific numbers, but just give a sense. The majority of that is going to come from new units. But there is also a substantial contribution, but obviously, less than majority that's coming from price increases.

Okay. And how much opportunity is there for pricing in the pre-existing fleet? And to what extent is the lack of availability of new equipment and how expensive new equipment is informing that pricing on your older stuff?

So I would break it into the high horsepower and then small and medium. In the high horsepower, you can look at our public competitors and see that utilization is exceptionally high. Our story is no different there. And so in terms of the lack of availability, that certainly is informing the price environment. In terms of more of our small and medium, even there, it really depends on the basin and what the operator is producing. Is it gas or is it oil? But we're seeing, in certain basins still significant cost inflation. And as a result of that, we, along with others, are necessary for us to increase our prices to maintain margin.

Okay. And when you say maintain margin, are you just talking about like daily gross profit dollars or percentage? So that if you get some more revenue, there's more gross profit dollars to the company as well?

So it is a mix, although we're typically trying to target, maintaining the margin percentage.

[Operator Instructions] I see no other questions. Mr. Jacobs.

Okay. Thank you, Luke, and thanks for all of your questions and participation on the call. We sincerely appreciate your support. I want to thank all of our employees who delivered these results for shareholders. I also want to thank our customers for trusting us with their business. We look forward to updating you on our progress in the next quarter. Thank you.

Thank you, everyone. This concludes today's conference call. Again, thank you for attending.