Good morning, and welcome to CSI Compressco LP's second quarter 2023 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. Rob Price, Chief Operating Officer, is also in attendance. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touch-tone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I will now turn the conference over to Mr. Byers for opening remarks. Please go ahead. Thank you, Alan. Good morning, thank you for joining CSI Compressco's second quarter 2023 results conference call. I'd like to remind you that this conference call may contain statements that are or may be deemed to be forward-looking. These statements are based on certain assumptions and analyses made by CSI Compressco and are based on a number of factors. These statements are subject to a number of risks and uncertainties, many of which are beyond the control of the partnership. You're cautioned that such statements are not guarantees of future performance, that actual results may differ materially from those projected in the forward-looking statements. In addition, in the course of the call, we may refer to EBITDA, gross margins, adjusted EBITDA, free cash flow, distributable cash flow, distribution coverage ratio, leverage ratio, utilization, or other non-GAAP financial measures. Please refer to this morning's press release or to our public website for reconciliations of non-GAAP financial measures to the nearest GAAP measures. These reconciliations are not a substitute for financial information prepared in accordance with GAAP and should be considered within the context of our complete financial results for the period. In addition to our press release announcement that went out earlier this morning and is posted on our website, our Form 10-Q will be filed later today. Please note that information provided on this call speaks only to management's views as of today, August seventh, and may no longer be accurate at the time of replay. With that, I'll turn it over to John Jackson. Thanks, John. Good morning, everyone, thank you for joining our call today. I want to start out today with some overall macro comments. We've mentioned some of these in the past. I think they're worth repeating to reflect why we are so bullish about the future for CSI Compressco. First off, the market is tight, especially for horsepower over 600 horsepower. Utilization remains high, looks to remain that way for the foreseeable future. Customers are committing capital out through 2024 and beyond to ensure the compression they need will be available. In addition, the compression industry has been and continues to be capital disciplined. Generally, the players are interested in reducing their leverage. This may be through EBITDA growth, absolute debt paydown, or both. There has not been a significant new entrant into the market, deploying a significant amount of new capital in the compression space. The producers want to own less compression as a percentage of their overall compression needs. This is a result of many factors, including their own capital allocation decisions around returning cash to shareholders, underspending cash flow, and finding qualified labor to maintain the equipment. Deliveries of new equipment are stretching out well beyond the year as engine deliveries continue to extend, making it necessary for customers to plan further ahead. The speculative new build that has occurred in prior cycles is not happening this cycle, as the compression companies are able to contract new build units before committing capital. The terms of contracts have improved. This is reflected in the duration of contracts, inflation protection on those contracts, and better underlying terms. This has greatly de-risked the near-term redeployment risk for CSI Compressco and the compression industry as a whole. The cost to build a new large horsepower unit is up 40%-50% over the last 2-3 years. This has required continual adjustment to contract compression pricing for new build units, as well as existing units to reflect market rates. All the changes that I have described argue for a prolonged upcycle for compression. There's no excess new supply coming into the market. It is all contracted and generally for multiple years. The needs for compression continue to grow. The natural gas production and associated gas areas continue to increase, and with the pending construction of LNG facilities, potentially doubling the export capacity over the next few years, dry gas basins should also perform well over time. Overall, with this macro backdrop, we believe the future is bright for our company and industry. Since the beginning of this improving cycle, CSI Compressco has had goals of growing EBITDA in a disciplined manner, improving our operational execution to be cost-efficient while reducing our net leverage significantly. Our approach to achieving these goals relative to discretionary cash flow, has been to allocate our capital spending to be in line with our cash flow, thereby leaving gross debt materially flat. We have begun to shift our spending trend relative to expected cash flows down slightly over the second half of 2023 into 2024, as far as those relative cash flows, that what we're going to do with it, for some absolute modest debt paydown. On the fleet side of our capital, we've been building large horsepower units and making our existing fleet ready and available for broader applications where it makes financial sense. Additionally, on the revenue portion of our business, we are continually repricing and terming out our fleet to reflect current market conditions as contracts conclude their primary term and are up for renewal. In addition, we have a lot of focus on improving our operational rigor on the cost as it relates to the contract compression business. On the AMS portion of the business, we have been pursuing high return projects, focusing on projects where we have expertise, increasing the pricing for labor to reflect appropriate returns, and improving attention on project management. As we look at the results for the second quarter of 2023, we believe our financial results reflect the impact of these efforts. This quarter continues the multi-quarter trend of increasing contract services revenue, EBITDA growth, and improving net leverage metrics. This quarter, our utilization was essentially flat as we sold our Egyptian operation during the quarter, which reduced our operating horsepower via the sale. As we continue to reprice our fleet to market as contracts come off term, we look to optimize the renewal of fleets where possible to achieve the highest return. This may mean a slightly lower rate in a lower cost basin or higher rates in tight labor market areas. The idea is to end up with the best return for those assets. We pursue longer-term, multi-year renewals on our large horsepower, but price our contracts to reflect the duration of a contract. This means if a key customer desires a shorter-term contract, we will work with the customer by offering the term the customer desires, but charge a higher rate to reflect the option value the customer is requesting. We are also using the opportunity to improve unit density where possible, by recontracting units closer to core asset installations. This is a long process with over 4,000 units in our fleet. We've made a lot of progress over the last 2 years and continue looking for ways to improve our operational performance. Our fleet utilization in the quarter at 87%, a slight contraction from last quarter, primarily reflecting the sale of our Egyptian operations and some units that are in transition between locations and customers. CSI's reciprocating horsepower, which represents over 80% of our fleet, has a utilization at the end of the second quarter of 93%, and our large horsepower fleet, that being defined as all horsepower over 1,000, is 95% utilized, up about 0.5% from Q1 of 2023. We do not include horsepower that is contracted but not revenue generating, as utilized in our calculation. We have additional horsepower contracted that is not yet deployed because of customer timing or make-ready work on the unit before being deployed. Finally, as it relates to cost, we have seen the rate of inflation come down quite a bit from last year. We see this in all phases of our cost structure, that being primarily fluids, parts, and people. This is not to say we are not experiencing any inflation, but it has slowed to a more modest pace. As we look to the remainder of 2023, we reiterate our full year guidance for EBITDA of $125 million-$135 million, and our year-end net leverage guidance of 5.2x-4.8x. We are currently inside both of those ranges on a 12-month trailing 12-month basis for EBITDA and a quarter-end net leverage. Overall, we remain bullish about the macro environment, the longevity of this cycle, and how CSI is positioned to perform over the coming quarters. We continue to focus on returns and deleveraging versus absolute growth. We will continue our focused approach to capital allocation by adapting the market and pursuing the best options for long-term value creation. We have made some significant progress on operational execution, and we have a lot in this area we will be focused on in the coming months. We believe this cycle will continue longer and stronger as we believe in the long-term fundamentals of natural gas, and especially our ability to perform at a high level as we go forward. I'll now turn the call over to Jon Byers. Thank you, John. For the second quarter of 2023, CSI Compressco reported adjusted EBITDA $32.5 million, compared to 26.4 million in the second quarter of 2022, a 23% increase. Our contract services revenue grew 10% year-over-year, from 64.3 million in the second quarter of 2022 to 70.5 million in the second quarter of 2023. This was driven by continued improvement in utilization and pricing, particularly among our large horsepower equipment. Year-over-year, our utilization increased to 87% from 82.8% in the second quarter of 2022. Our AMS revenue grew 31% year-over-year and was 22% higher than the prior quarter. Moving on to profitability, our contract services gross margins were 49%, up about 220 basis points over Q1, and our AMS business continues to perform well, with gross margins of just over 20%, also up a little over 200 basis points from Q1. distributable cash flow is 11.4 million, compared to 8.4 million in the second quarter of 2022, and we'll pay our second quarter distribution of 0.01 on August 14th, with a distribution coverage ratio of 8.1 times. Total liquidity, cash on hand, plus outstanding ABL capacity, was 44.8 million on June 30th, 2023, and as of August 3rd, our total liquidity is $51.6 million, which compares to 46.4 million at the end of 2022. Our capital spending guidance for 2023 remains 43 million-$48 million, and we anticipate exiting the year with a net leverage ratio of 4.2 times. We're executing on our plan to reduce our overall leverage while growing the business. Our net leverage continues to step down from our Q3 2021 peak of 6.8 times, down to 5.1 times as of Q2 2023. We're already within our net leverage guidance range for year-end 2023. If you annualize Q2 2023 EBITDA, we now have a net leverage ratio of 4.9 times. Most of our debt is fixed rate, and this has helped us in a rising interest rate environment, resulting in a minimal impact on our overall interest expense. As John said, in 2023, we plan to reduce our overall growth capital spend relative to prior years and to emphasize debt reduction, liquidity, and generating free cash flow. Our guidance for 2023 is unchanged. We'll now open the call to questions. We will now begin the question-and-answer session. To ask a question, you may press Star, then One on your touch-tone phone. If you are using a speakerphone, please pick up, please pick up your handset before pressing the keys. To withdraw your question, please press Star, then Two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Jeff Grampp of Alliance. Go ahead. Good morning, guys. Thank you for the time. Jeff, good to hear. Was the- Good to hear from you. Hello. Was curious, you know, the commentary on continuing to increase the amount of contracts that have, indexed to, to inflation. Do you guys have an estimate on within kind of the longer-term contracts, however you want to define that, what% are, are, are, indexed to inflation? I'd say, you know, just in rough terms, if you look at our overall revenue of contract compression revenue, we probably have about 25% of it that's subject to CPI. You've got to dissect that a little bit further in that you've got your smaller horsepower fleet is one year or less, a lot of times in your contract terms. You probably only have about 60%, give or take, of your revenue stream at any point in time, 60%-70% that has any term to it. Of that, probably 33% of that is one year or less. We're probably about 50% of our overall multiyear revenue, and I'm just, these are very round, rough numbers. Probably about half of our multiyear revenue is under CPI because we were only able to institute that in the third quarter, late third quarter, beginning of fourth quarter last year. We still have contracts rolling off, that as they roll off, we term them up, and we term them up. If we term them up multiyear, we term them up with CPI. I don't know of any case since we've started instituting CPI, where we have not been able to achieve a CPI inflator. Got it. That's a lot more than you asked for, but there you go. No, I appreciate the details. Is there, is there a reason why you guys would not want any new contract to have to be indexed to inflation? Is there a business case to be made that you'd want something that's maybe a bit more fixed, or maybe there's a predetermined escalator in there? Or is it your opinion that, you know, to the extent that customers are, are willing to acquiesce to that request, that every kind of new contract is, you guys are going to be pushing for that? Well, we're going to be pushing for it. You got to recognize all T's and C's so terms and conditions are all subject to a variety of gives and takes, and that could be your standby rates and whether the contract tolls, if they're putting it on standby, and all kinds of other things where it is. I guess, you know, there could be a case where someone says, I want a cap of some sort that we don't like, or some other modified CPI that doesn't that exposes us in a way. Our real goal is to reduce or eliminate the exposure to inflation on a multiyear contract, and we can get that a multitude of ways. The primary and the easiest way in our mind, is to get a CPI that generally reflects our cost structure changes, too. There could be a, there could be a case, I, I guess, but not, not generally that we're working on or aware of. Yeah, understood. Okay, that makes a lot of sense. Last one for me, just on the capital allocation side, and you guys hit a, a couple of times in the prepared remarks about kind of shifting the focus towards absolute debt paydown rather than, you know, kind of accelerating on the, the EBITDA front. How much of that would you, would you, attribute to, you know, these debt maturities coming up and, and wanting to maybe tackle those and, and reduce the overall debt levels? Or would you say that maybe it's a more kind of structural change in yourself and the industry's view of, of allocating capital? I wouldn't say it's a structural change in, in allocation of capital other than, one, we do have some debt maturities coming up, so that's something to take a look at. We also have to look at where everything trades and what the best return is. At the moment, just based on rising interest rate environment that we've been in, our bonds trade-off relative to where they were trading a year ago. We committed all of our capital a year ago into this year, primarily. We have a little bit of free cash flow left this year, and then we go into next year. We've undercommitted a little bit of our capital for next year, but mostly committed. Now as we think about that delta wedge of what's left to commit, right now, it's a much more attractive return to either, either build liquidity, but more importantly, buy bonds off the market, if available, at a 15% to 25% to 35% rate of return. Looking at it, if you can get a 25% or 35% rate of return, I think we're going to take a hard look at that relative to building a new unit. Yeah. It's really capital efficiency. Absolutely. That makes a lot of sense. I appreciate the time, guys. Yep. Thanks, Jeff. Our next question comes from Selman Akyol, from Stifel. Please go ahead. Thank you. just wanted to step back for a moment and going back to sort of the index to inflation, and, and I heard you say 50% of your multiyear fleet, fleet is under CPI. I guess, how, how much of your fleet is then 1 year or less, should we be thinking about? How much of our fleet is, has term of 1 year or less? Correct. Right now, we have about, it's about probably 60%, 40%, 60%. We have probably a little over 40% of our fleet has over one year left on its term on a revenue basis, revenue dollar basis. Okay. Then when you- If you were to look at that in the context of, on a spot basis, how much has term left? Over 70% of our fleet, revenue-wise, is under term, but only 40% of it's over one year. Okay. We've got a lot to, a lot to tackle over the course of the coming 12 months, is what I'm getting to. Got it. Got it. Then just to be clear, when you talk about your fleet, are you talking about it in terms of horsepower or units? I'm talking about this in the terms of horsepower. Okay, great. Units would be wildly different. Okay. Because we have so many Gas Jacks that are small. Got it. nice improvement on the gross margin, and I'm wondering, is there much more to go there? Well, we think we'll continue to see repricing of our fleet to market, so there's a little bit there you'll get. As I kind of alluded to in the comments, that the operational execution is really where we've been spending time over the last... Not that we haven't been focused on that, but it's been a very, very busy year and a half, putting a lot of equipment out, building a lot of new equipment, electrifying units, just, turnover, high levels of turnover, coming out of COVID, retraining new people. All that is all very interesting, but we've now been able to, over the last four or five months, really focus in on planning and executing our day-to-day work. That has begun to reap some dividends, but I don't think we're there yet, as far as what I'd say is smooth monthly execution all the way across the board. We've got all kinds of metrics we track internally, whether it's doing our PMs on time, or what kind of operational upsets we have, or what's going on, and we're seeing a lot of improvement over the last few months, but we're not at nirvana yet. We're not at the promised land. I say all that to say there's more to come, but if I was to step on my operating guys and ask them, they're gonna not give me a number. You know, that's just the way, that's just the way it is, but I believe there's more to come, and I can't give you a quantification of that, but we're pressing hard on that. Got it. Then also, very nice sequential growth in aftermarket services, and I know you characterize this as, you know, longer and stronger for the cycle. Should we continue to expect aftermarket services to continue to increase? Yeah, I believe so. This is.Rob Price Yeah, this is Rob. Yes, we're extremely focused on project execution in the service business, chasing appropriate jobs, as John referenced, that fit within our expertise, skill set, and really trying to eliminate lesser performing jobs from, from our run rate. We, we have a lot of focus on, on chasing profitable jobs and executing efficiently. I think the backlog, at least what we're seeing, the quote backlog is, continues to be pretty robust, isn't it? It does. As, as, as John referenced in the contract services space, that, that customers tend not to want to own their units, because of lack of manpower, trying to identify manpower. That gives us an opportunity, the units they do own, to perform services to, to those units and perform overhauls and maintenance activities and restaging. Generally, those are a little bit higher margin jobs that we're chasing and focused on and, and project managing better. Got it. Since you talked a little bit about manpower, I'm just curious, we had heard of sort of bringing people two weeks on, two weeks off. Are you guys seeing anything of that trend, bringing in labor from other parts? Yeah, absolutely. In the bases that are growing and deploy more horsepower, there's not a local population to draw from. The use of rotators for, week on, week off, 2 week on, 2 week off type schedules is absolutely mandatory. Got it. Got it. I know it's early to be talking about 2024, but I was just kind of curious in terms of the CapEx, should we, and more just directionally, down from here, sort of flat? Just the other question on that is, this year you have sort of $3 million-$4 million related to technology. Should we expect that still to see dollars in 2024 being allocated there as well? Yeah, that is, so that 3 million-4 million is, is, some technology, as well as, as well... I mean, I guess it could be lumped in there as well with telemetry and some shop move cost consolidation. I would expect that to come. I think our growth capital will be in the range of where we are for 2023. Got it. All right, that does it for me. Thank you so much. Thanks. Our next question comes from Brian DiRubbio from Baird. Please go ahead. Morning, gentlemen. Hey, Brian. few questions for you. Morning. Just when we think about the change, the sequential change in the size of the fleet in terms of horsepower and the horsepower and service, obviously, you had the sale of the Egyptian business, and you said you had some movements of units. Can you quantify maybe, or just give us a general idea of, you know, what the impact of those two were? The Egyptian sale was just shy of 6,000 horsepower, and it was three, what we would call large horsepower units, over 1,000 horsepower, and one that was a little bit smaller. The, the customer just exercised their purchase option there, and we negotiated a little bit of an early exit there. That just came out of our large horsepower fleet, and we were still able to grow that in. As far as the, the horsepower that's moving, we've made a conscious effort to try and get our horsepower with the right customers in the right place, the way they want them and the way we want them. What I mean by that is, we have customers that a contract will come up for renewal, and they'll decide, I just want to renew for a year, I just want to stay month to month. If it's larger horsepower in this market, we want to, we want to chase duration, and we want to chase density. We want to get it longer and closer where we can. We've made a very conscious effort to try and price our product in a way that forces the customer to determine if they need this long term. I don't mean that as a negative to the customer, but if they just need it for six more months, we want to know. The way we find out is by saying, "Here's a three-year rate, here's a two-year rate, here's a one-year rate," and we find out where they are. We, we price the three-year much more attractively than one or a month-to-month rate. We've had some customers, let's say, resize their fleet. Maybe they're, maybe they're building electric, or maybe they're saying, "Well, I really don't need a 1,300 horsepower. I need a 7 or 630 horsepower unit coming up, so I'm going to do this short duration and pay you higher, and then we'll work out a transition plan." With that, and we've been doing that fairly actively over the last six months. With that, we've had some churn in our fleet that's not really not contracted. It just goes off revenue for three months or so. It may come off the unit of the site of the customer, we take it to the shop, have to do a little bit of work to it, get it back out to someone else's site, or we ship it to a site that's just not on revenue for a month. Again, probably a lot more than you want to know, but when we look at our large horsepower fleet, I'm trying to give you a quantification. I don't have a good quantification of where we sit at a spot moment in time at June thirtieth, but we've probably got another 10,000 to 15,000 horsepower easily that's in transition, that's large horsepower at any one point in time, that we're moving off one site to another, that's not on revenue. We expect that to kind of settle out over the next six months to eight months or so and be less disruptive to the utilization numbers than we're seeing right now. This is all, we call it positive churn. It's all positive churn in our mind because we're able to get these things termed out with someone who really wants them for the next three to five years, not the next three to six months. Actually, that's helpful. No, that, that's extremely helpful because it shows that you're basically upgrading, upgrading the fleet in terms of customers and region. Yes, indeed. So that, that- Longer term in one spot gives you the ability to plan the work more, which gets back to raising operational margins. Yeah. This is a short-term disruption in make-ready. People, staffing, parts, inventory, just knowing what you're going to be doing, dealing with is, is very helpful, and that we're, we're trying to use this environment to, to really figure that out with customers. Got it. Nope, got it. I know this is just temporary, but these transition, this 10,000-15,000 horsepower in transition, are we going to be then experiencing some make-ready costs during this three to six to eight-month time period? We still are, yes. Okay. Then I think we-- make-ready's come down some this year compared to last year, a little bit, but I would expect that to continue to abate as we get this done. You're always going to have units that are coming off and moving around on your midsize to smaller horsepower, but we're really trying to put our large horsepower fleet largely away. You know, when you think about coming out of COVID, and you had an enormous amount of horsepower that sat around for a year and a half, and then all the make-ready to get that out over a year or so, a year and a half or so, and now trying to optimize where it is and with who it is, that's taken a lot of dollars. I expect that to, towards the end of this year, early next year, get to normal. Well, I say status, steady state. Got it. No, that, that's very helpful there. Just as, as we're thinking about the fleet today and, and going back to some of the comments you said, you know, before, you know, 70% of the fleet is under term, with only 40% of that greater than one year. Just rough numbers, you know, what percent of your total fleet, in terms of horsepower, do you think is on, you know, on a price card within the last, you know, generated in the last three months? You mean coming up over the next three... I'm not... No, 3 months or last 3? You know, how much of your fleet has been repriced over the last 3 months? Ooh, well, we, we have probably 20% or so of our fleet revenue, I would say, of our revenue, not our fleet. When I think about revenue, we have some significant customers that had, that had a lot of units come up for renewal that just got renewed effective July 1. So when you, when you put all that in, it's probably 20%, 15%-20% of our fleet just got repriced in the last quarter. In theory, we should maybe start seeing an acceleration of revenue per deployed horsepower? Correct. Yes. Okay. Perfect. That what I was looking for. Just final question for me, just, SG&A costs up, you know, 12% year-over-year. Anything there that's notable? No, I don't think so. it, it was really, you know, timing of costs between, between the quarters. If you look at, you know, first half last year to first half this year, we're, we're pretty much in line. We're up $200,000. I, I don't think there's anything notable there. Perfect. Appreciate all the colors always. Thank you. Thanks, Frank. Our next question comes from Jay Spencer from Stifel. Go ahead. Thank you. Thanks, guys, and congrats on a good quarter. You know, some of my questions have, have been addressed, but, you know, just, just taking a step back and looking at contracted but not revenue-generating part of your fleet. I mean, it sounds like naturally, you're always gonna have some that's in transition. You know, utilization of 100% is just, you know, not achievable. You know, when you think about that 87% utilization rate, you know. Mm-hmm. If we were to include contracted but not revenue generating, what would that utilization rate look like? Is it over 90%? I think it, I think it gets close. I think the, the other thing, it gets right around 90, because we have a, we have a fair bit of horsepower that's contracted but not out yet. I, I think the other thing that you have to think about with us, relative to our competitors, is we have about almost 100,000 horsepower that's rotary screw, the utilization's in the 50s, 55%, give or take, and we have about 90,000 horsepower that's GasJacks and V-Jacks. We have 2,400 of those units that are 46 horsepower or less per unit. That utilization sits in the low 50s and has really come down over the last two quarters from near 60. That probably drags our utilization a little bit. Full utilization for us, when you factor in those two components of our fleet that make up maybe, you know, what? 200,000 out of 1.2 million, give or take in round numbers, it's, it's always gonna drag you a little bit to the 90% versus 95. When you look at our reciprocating fleet, we're well over 90%, and our large horsepower is over 95% right now, 1,000 horsepower and up, which is kind of in line with what you would see from the other public company peers. That's just a little bit of color I wanted to give you there. That is the reason why we view full utilization as around 90, because of the rotary screws and the GasJacks, just not going to hit 100% or 95% utilization. Great. Thank, thank you. you know, when it comes to your guidance of finishing the year with leverage of 4.8-5.2, what are some of the key variables you think about, you know, that, that would, would lead the company to be on either side of that guidance? I, you know, I think probably the, the key variable is going to be, you know, managing our working capital, to, to our, net debt number. You know, yeah, obviously, EBITDA is a big component of it, but that's, that's one of the areas focused on. Gotcha. Okay, thank you. That's it for me. This concludes our question and answer session. I would like now to turn the conference back over to John Jackson for any closing remarks. Appreciate everyone being on the call today, look forward to speaking with you next quarter as we continue to march ahead and delever the company and, and grow profitably. I appreciate your time. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.