Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group 2016 Fourth Quarter Earnings Call. At this time, all participants are in listen-only mode. [Operator Instructions] I now welcome you host, Alicia Dada. Please begin.

Thank you, Donna and good morning listeners. Please allow me a moment to read the following forward-looking statements 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 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 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?

Okay. Thank you, Alicia and Donna, and good morning and welcome to Natural Gas Services Group’s fourth quarter 2016 and full year earnings review. Apparently we had some trouble with the phone number this morning. So hopefully everybody got in that needed to. As everyone is well aware, this past year is one of the toughest on record for the energy industry. Crude oil set a low price of $26 in February and the rest of the year reflected a continuing slowdown from that collapse in commodity price. NGS however continued to have positive earnings throughout the year and delivered an enviable flow of free cash. We preserved our margins, maintaining relatively better pricing and stringent cost controls. It appears that utilization is bottoming. We continue to think that our production oriented business will continue to see pricing pressure in the mid-year. Well I'm fairly confident that we're seeing early signs of recovery it won’t be without it's fits and spurts. Longer term and over the next couple of years in particular, NGS is well-positioned in markets that should prosper and along with our expanded product offerings we think we can deliver notable incremental earnings. Additionally and we'll talk to the details later, this fourth quarter had a couple of extra moving parts in it, primarily the retirement of some rental fleet equipment and inventory adjustments due to lower cost in market and obsolescence reviews and a positive tax rate. Now with all that said let's move to the financials. Starting with total revenue and looking at the year-over-year competitive quarters, our total revenues decreased by $9 million from $25.8 million in the fourth quarter of 2015 to $16.7 million in the fourth quarter of 2016. Rental revenues [ph] were off $5.1 million this quarter compared to the same quarter…

Thank you very much. [Operator Instructions] Our first question is coming from Jason. I am opening your line now. Please state your question.

Hey good morning Steve.

Hi Jason.

Appreciate all the commentary, was just curious again, I think the rental business is going quite as you had expected. The product sales side continues to do very well and you kind of walked through the numbers of the backlog. Could you maybe just talk about are you just continuing to see a lot of domestic demand, or is that changing as well or is it mostly still kind of International stuff that you’re working on, on that side of it?

That’s a combination of both, as it has been for the last couple of years. As I mentioned in the past we’ve got a couple of legacy U.S. customers are continuing to buy through the downturn and then we have been able to capture some International business, primarily Mexico and Argentina. We’ve had a couple in the Mediterranean also but it’s not the same as what we’re seeing, combination and it varies percentage wise quarter-to-quarter where it’s 50:50 or two-thirds or one-third, domestic/international but that backlog is probably about half and half the same as we've seen in the past.

Okay and then one on the rental side, with what we seeing in gas prices of late maybe kind of to real-time freeze it maybe common but are you seeing a resurgence of the pricing pressure discussion, just [indiscernible] that the year seemingly started out pretty strong specifically on gas but for both commodities and obviously this week included we’re starting to see some concern on the prices or is that probably too soon to tell from your aspect?

The gas price line is you are talking about moving targets. And a couple of calls ago I don’t know if we talked about - I don't know if it was just you and I or just on a call or you all have some discussion with investors and of course everybody got really excited three, four or five months ago by gas price and yeah, I wouldn't be excited about too much anymore as far gas price go and certainly it went away pretty quick. The price pressures we are seeing are actually from competitors and not as much from customers. Obviously the customers are the ones asking for because the competitors continue to go out into the market with low pricing, and we talked about this before, a little I think, most of our competitors are MLPs and they have got high distributions, high debt loads and cash is king to them and we still are [ph] on net income. So we’re still seeing that pressure from the market, but again it's more from competitors with some high cash requirements and lot of equipment in the yard, and we have got lot of equipment in the yard too, but we’ve chosen to more so just like the last downturn taking more of a margin and profitability approach to this than a market share approach.

Okay, and then if I can sneak one more in. Steve, just I think current facility I saw it went current and obviously you don’t have much on it. Could you just maybe talk about the plans there as far as your re-upping it or even letting it expire given your cash balance?

Yeah, no, It's going to be renewed. So they are part of many plans - I’ll say the plans are part of the same as last six to seven years we have had it. It's nice to have, we don’t anticipate any the current requirements obviously with our cash position, but you never know, this market takes off quicker or some other opportunity becomes along but no we intent to maintain it.

Great. I’ll turn it back. Thank you.

Great, thanks, Jason.

Thank you very much. Our next question is from Rob. I am opening the line now.

Hey Steve.

Hey Rob.

You mentioned the high horsepower market seeing some additional CapEx spending in that business. Could you just give some color on how that business has ramped up and what kind of demand drivers were there?

We - when we first introduce that product you'll recall, we introduced the 400 horsepower in the year right, 2015 and then we introduced the 600 horse last quarter, actually in last call. So last half of the year. All of the equivalent we have is rented. So I’ll point out that’s a 100% utilization, but it’s only 10 to 12 units. So we’re building more, because obviously in this market you got to have this stuff in inventory, nobody waits. Down market like this with as much surplus equipment around there, nobody waits around for equipment. So you don’t have to. So we are building up some more 400 and some 600 horsepower units, so that we have got them in the year ready to go and put them out. And I said $5 million I projected $5 million to $10 million capital spend in 2017. We have already committed to half of that, 5 million of it and it's all that 400 and 600 horsepower.

Thank you. And then on your fleet size you took some out of the fleet this quarter, how do you characterize that fleet at this point, is there any more of that kind of older underutilized equipment left, do how much of that like gas equipment is still avail?

Yeah, I mean we think, I’m going to sound like broken record probably for everybody. I don’t know if everybody got a long enough memory. If you remember back Q2 of 2015 when we did the first write-off and that was that $4.4 million. So we took a lot more equipment out of that 250 units back then. And I think you have the same question. Of course at the time we thought that was adequate. Now little more now we have two more year's downturn and this was relatively minor as far as dollars go and this is essentially a 95% of depreciated value. So we’re comfortable with the fleet and think if we are in an upturn that we will start to see this stuff go back out. This equipment is just like the stuff we retired in 2015. It's rentable equivalent there is nothing mechanically wrong with it. but it's been chronically idle, dry gas equipment and we’re into seven or eight year from that gas downturn and away to 10 roughly. And that mortgage has not come back, just like Jason mentioned. Gas prices just teases everybody every year. So to shorten the comment, we control the fleet right now. I don't anticipate any more especially for - heading into a recovery period which we think we are - or we think [indiscernible] that we are we think we're probably adequately situated.

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

Thanks.

Thank you very much. [Operator Instructions] Our next question is from Tate, I'm opening the line now.

Just a little more on the expected life of your equipment to following up that comment. I think you said the equipment you retired had a 14 year life, is the useful life for most of your equipment 15 years?

Yeah. Well, yeah perhaps confuse that a little. We do book depreciation of 15 years. This had an average this stuff we retired had an average usage of 14.2 a year. So essentially 95% of the book life was used.

And then I mean if you don't have any more write-downs get with recovery, I mean will you depreciation and expense meaningfully dropping recovery, well I guess the extra equipment you're adding will more -

Yeah. You'd like it to be of course, takes a long time, everyone 15 year. So we saw little drop last year with the equipment last year. This is a going to be pretty negligible, it's not that much to lower $500,000 like I mentioned, especially three times or a 1% of the net book value on the books, so again I can see much, much positive impact from it, one to appreciate it anyone.

Okay. And then I mean with $64 million of cash on your balance sheet five to 10 at CapEx in 2017, I mean how have you talked historically about looking to initiate a nominal dividend through the cycle, I mean I would imagine that opens you up to more potential investors to?

Yeah. We're actually considering all these options as far as cash goes. We're going to take a look at how quick the market drives recovery, here the next couple of quarters. Again, I don't think we'll need $6 million over next couple of years, to advantage of it, but just go back to 2010, 2011 we're come out last one, in those two years and those were just starting years into recovery, we spent $20 million to $30 million. So it can go pretty quick, but we are actually considering uses of cash as far as whether fleet grows. Of course that depends on the market or dividends or whatever it may be. But as I mentioned, we think products in next 18, 24 months, we won’t need appreciable capital to participate in the - in any upturn that comes up. So there is plenty of cash there and maybe some other opportunity comes along, that we don't anticipate right now. But we're looking at all those avenues.

Okay. Thank you. And then a couple of ones I think your K will probably come out here but can you comment ahead of that on your customer mix in 2016, did it change meaningfully. I think in 2015 you identified Devon and Oxey [ph] is your largest customers?

Right, right now that, it essentially stays the same, if you look back our five years you get some movement in there but year-to-year, those guys are still going to be our biggest players, where it's rental or sales and unless something else comes up, but we'll - I imagine this couple of years we won’t see much change in those.

Okay. Thank you very much, Steve.

Okay, thanks Tate.

Thank you very much. [Operator Instructions] There are no more questions.

Okay, well, thanks Donna and thank everyone for joining me on this call. I appreciate your time this morning and look forward to visiting with you again next quarter. Thank you.

This concludes today’s Natural Gas Services Group 2016, fourth quarter earnings call. Thank you for attending.