CSI Compressco LP (CCLP) Management on Q3 2018 Results - Earnings Call Transcript

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About: CSI Compressco LP (CCLP)
by: SA Transcripts

CSI Compressco LP (NASDAQ:CCLP) Q3 2018 Earnings Conference Call November 7, 2018 10:30 AM ET

Executives

Owen Serjeant - President

Elijio Serrano - CFO

Analysts

Marshall Adkins - Raymond James

Michael Gyure - Janney

Selman Akyol - Stifel

Operator

Good morning and welcome to CSI Compressco LP's Third Quarter 2018 Earnings Conference Call. The speakers for today's call are Owen Serjeant, President; and Elijio Serrano, Chief Financial Officer. All participants will be in listen-only mode. [Operator Instructions] Please also note, today's event is being recorded.

At this time, I'd like to turn the conference call over to Mr. Serjeant. Please go ahead.

Owen Serjeant

Thank you, Jamie. Good morning, and thank you for joining the CSI Compressco's third quarter 2018 results conference call. I would 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 analysis 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 are cautioned that such statements are not guarantees of future performance and 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, adjusted EBITDA, free cash flow, distributable cash flow, distribution coverage ratio, backlog 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 measure. 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 as posted on our website, our Form 10-Q is planned to be filed with the SEC on or before November 8, 2018.

I will start with an overview of our performance, then turn the call over to Elijio Serrano, our Chief Financial Officer; who will provide more details on our financial results and projections. I am once again pleased to report significant sequential improvement in revenue, adjusted EBITDA, distributable cash flow, utilization on backlog. The progress the CCLP team has made to get better prices for our equipment and services, deploy equipment previously idle, and invest capital in high return opportunities is paying dividends as can be seen by our quarterly results. The market remains very strong for the compression industry across all of our business lines and we see no signs of it slowing down in the near future.

We have continued to focus on improving efficiencies in our field operations, at our fabrication facility, at our aftermarket distribution centers, and in the back office to not only capture top line growth, but also to continue to improve margins. We have seen no slowdown in any of our businesses in the compression market in the third quarter, nor are we forecasting any slowdown as we move into 2019. While some of the industry is struggling with permanent takeaway [indiscernible], our business is part of the solution, and we continue to see strong demand for our compression services and unit sales to address the issues in parking demand for some well sized services companies.

The rest of the North America market also continues to be strong, our customers are demanding more compression equipments and services from us, and we're directing capital at those customers that are giving us the best returns. I'll spend a few minutes on each of the individual lines of business and provide some perspective on how they are performing.

Our Compression Services business segments continues to be robust and growing. Our 2018 projected total capital expenditures are expected to be between $110 million and $120 million inclusive of $18 million to $20 million from maintenance capital expenditures. There is no change to our capital expenditure forecast from our last guidance given the lead time on some of the key items that build the compression sales equipment. Lead times for engines and compressors continue to stretch out, we are working on our 2019 capital investment plan and we'll share that with you on our next earnings call. Since the end of the downturn, we have placed orders for approximately 170,000 additional horsepower to be added to our fleet with approximately 100,000 horsepower scheduled to be delivered in 2018. About 85% of these additions are large gathering system units over 1,000 horsepower per unit.

All orders are customer-specific and our client commitments attached to them. We are not building any speculative equipment. We are only targeting new investment opportunities with return of 20% or higher, focused on high horsepower equipment in geographic areas where we have existing strengths and customers who continuously wants to partner with CCLP as a supplier with flexibility and the experience to offer compressor systems solutions. As we are adding more horsepower into existing classes of equipments with our marquee clients, our incremental margins are materially higher than the overall margins we are reporting for the existing fleet. We gain efficiencies with the mechanics and technicians given the incremental horsepower is going into an existing network. We remain very disciplined with our investments and identify projects for customers and in regions where we already operate to leverage our footprint and infrastructure and get the highest return. The strategy is working and we are pleased to see the returns as we introduce more horsepower into the market.

Pricing is also increasing for our compressor services business as contracts continue to rollover on new contracts that are put in place. Some of the price increases implemented earlier this year with one year or shorter terms, we expect to have opportunity to revise pricing and push it up again beginning in the first quarter of 2019. We'll begin those discussions in the fourth quarter this year with our customers. The high demand for this equipment is driving price increases across most basins. We are pleased with the progress of price actions and see the real benefits as we put new high horsepower equipment into the field. Second, our new unit sales activity remains extremely strong. We received $71 million of orders for new equipments in the third quarter. Pushing our fabrication backlog, our third-party sales over $140 million.

Year-to-date through September we received nearly $170 million in new orders, many of which are filling up our 2019 order book already. This is a record for CSI Compressco, and we still have three months to go. Our peers [ph] would not be surprised if total year 2018 new equipment orders are around $200 million based on expanding closure proposals. Most of these orders are scheduled to be delivered into the Permian Basin, Delaware Basins, and South Texas to midstream operators that are investing to address takeaway constraints and to build regional gas processing facilities. While the Permian and Delaware takeaway constraints continues to worry some well-sized services companies, we're part of the solution to the problem.

As we sell new equipments, we also benefit in the future from selling parts and services to our aftermarket network to support customers through the life of equipment who purchased those compressors from us. The demand for new equipment sales is stronger than we expected, and we believe this trend will continue as companies are building out infrastructure and takeaway capacity in key basins. The industry continues to be short on large horsepower equipment and we are addressing this demand as fast as we can.

Thirdly, our aftermarket services had a very good quarter, growing at very strong 32% sequentially, to $19.9 million in revenue. We also increased our gross margins from that business as we capitalize on some of the efficiency initiatives we instituted in prior quarters. Our customers continue to capture upon previously deferred maintenance and are engaging those to maintain and support that equipment as they reactivate old equipments and add to that existing fleet. As I mentioned earlier, this business also benefits from New Year sales; at Christmas we purchase new units from us, often look for us to provide aftermarket services and spare parts. While not an immediate benefit in many cases, we look forward to servicing our new customers into the future.

The gas compression industry is going strong with each quarter similarly stronger than the prior year. The U.S. land rig count has stabilized, about 1,000 rigs with last rig count at about 1,046 according to the Baker-Hugh [ph] rig count. Our customers continue to have more demand for compression to deal with higher values of associated gas from the Shale Play drilling programs, and our business is directly benefiting from this. Our utilization for 1,000 higher horsepower equipment, folks on gathering systems is now on 96.6%, a significant uptick from 91.1% at the end of last quarter and essentially up for utilization. We deployed an incremental 31,247 of active horsepower during the quarter, increase of the amount of deployed horsepower to 963,714.

Overall, utilization for the entire fleet is 86.3%, up from 85% at the end of the second quarter, and up from 81.4% at the end of third quarter 2017. The vast majority of the increase is in the areas with the most activity and the amount including the Permian, Eagle Ford, and the SCOOP/STACK areas in Oklahoma, and in South Texas where approximately 70% of our operations horsepower is deployed.

With that, I'll turn it over to Elijio to provide some financial details on the quarter. And then we'll open up for questions.

Elijio Serrano

Thank you, Owen. Third quarter revenue increased sequentially by 15%, primarily due to continued stronger activity from aftermarket services and new unit sales. Compared to a year-ago revenue was up 61% with equipment sales improving 250% to $36.5 million. Aftermarket services revenue increased 109% from last year to $19.9 million, and Compression Services revenue increased 14% to $58.9 million. All three of our business line also increased sequentially.

Compression Services margins in the third quarter were 47.2%, an increase over the second quarter of this year of 100 basis points due to better pricing, and continued improvement in our efficiencies. Given the benefit of the recently stalled ERP system and are seeing the initial benefit of new equipment being deployed with 20% returns.

Aftermarket Services revenue of $19.9 million generated gross margins of 18.6%. We continue to see strong demand and growth in this area as documented by a 32% sequential revenue growth and the improved margins. This increase is driven by customers who continue to deploy more equipment, catch up with deferred maintenance, and rebuild our inventory in part [ph] in anticipation of higher activity levels. The equipment sales were $36.5 million with gross margins of 18.4%, this reflects a delivery of equipment from the backlog that we started building in the third quarter of last year. While we continue to make stride to improve manufacturing efficiencies and increase margins in this business line, the third quarter margins reflected cost associated with some new unit designs where the future units will benefit from those early investments.

We expect future margins to be above 10%. We also expect to see continued increases in equipment sales in the fourth quarter of 2018 and then to 2019, as a result of the $140 million backlog after receiving over $71 million of new orders in the third quarter. Also in the third quarter we a $600,000 non-cash expense to adjust the carrying value of the Series A convertible preferred units. Adjusted EBITDA in the third quarter was $26.5 million, up $3.2 million improvement from the previous quarter. Our coverage ratio was 1.07x, up from 0.65x in the second quarter. Distributable cash flow increased 71% from the second quarter.

In the press release that we issued this morning, we also provided guidance for the fourth quarter. We expect our fourth quarter adjusted EBITDA to be between $29 million and $31 million, up from the $26.5 million in the third quarter. The cumulative impact of price increases, stronger market demanding more horsepower, new investments coming online delivering 20% type returns, plus a continuous string of the aftermarket services are expected to deliver on the guidance. In addition, the backlog of equipment that is currently in the build phase that would be delivered in the fourth quarter and throughout 2019 would improve gross margins will also contribute towards this.

We expect fourth quarter revenue to be between $125 million and $135 million, and sequential increase of $10 million to $20 million of the third quarter. We expect part of the increase to come from additional equipment sales which we estimate will be between $45 million and $50 million in the fourth quarter.

Going back to the Investor Day we hosted in New York city earlier this year, we indicated that we expect our net leverage ratio to improve materially as the year progresses. We expect to deliver stronger earnings in the second half of this year with each quarter, continuing to get progressively better, and we're delivering on that commitment. Based on the fourth quarter annualized adjusted EBITDA, our year-end leverage ratio would be between 5.1x at the high-end of the adjusted EBITDA guidance to 5.5x at the low-end of the Q4 adjusted EBITDA guidance; this is a material improvement based on our Q4 run rate earnings from the levels that we're at to-date.

Additionally, on the second quarter call we mentioned that our distribution coverage ratio was expected to materially improve in the second half of the year, and provided guidance in the range of 1.2x to 1.5x for coverage ratio. As outlined in our press release, we believe fourth quarter distribution coverage will be between 1.5x and 1.6x with distributable cash flow in the fourth quarter expected to increase 49% on the low-end of the guidance, upto 62% on the high-end of the guidance. This is an increase from $8.6 million in the third quarter to somewhere between $12.8 million and $14 million in the fourth quarter.

And finally, our total year CapEx guidance for the year remains unchanged as we expect to extend between $110 million and $120 million for capital investments inclusive of $18 million to $20 million for maintenance capital.

In closing, we will continue to be very focused on returns in margins as we go and we will maintain a very capital disciplined approach that we communicated during the Investor Conference earlier this year in New York. We are focused on getting higher prices for all our services and products, continue to drive efficiencies throughout the organization, and improve our leverage metrics.

With that, we'll open the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today comes from Marshall Adkins from Raymond James.

Marshall Adkins

Elijio, you gave us some pretty explicit guidance from the fourth quarter and we appreciate that, that's helpful. A 30% to 40% sequential increase in EBITDA is without a doubt, the biggest increase of anyone in our coverage universe I can think of. Help me understand where that's coming from, help bridge the differences; is it improving margins, is it mix, is it aftermarket? Help me to understand where the -- what's driving that improvement?

Elijio Serrano

Just to make sure that the numbers you picked up Marshall are accurate; so in the third quarter we generated adjusted EBITDA of $26.5 million, and we're guiding $29 million to $31 million of EBITDA in the fourth quarter. So that increase is coming from three sources.

Marshall Adkins

Sorry, I've mentioned the 30%, 40%; I was talking about the -- I meant to say the distributable cash flow. I apologize.

Elijio Serrano

Okay, perfect. So this will address both items. Number one, we build up a nice backlog of new equipment orders that we are delivering, and you heard me say earlier that our new equipment sales were $36.5 million in the third quarter, and I'm guiding $45 million to $50 million for the fourth quarter in 10% EBITDA range, that will contribute a nice amount of incremental profit. And one of the things that I want to emphasize is, equipment sales bring profit without any capital investments, so the recurrence are incredibly good knowing that we don't have capital tied up and we also get upfront and progressive payments for our customers, so this business actually generates working capital through the process, so that would be one contributor.

Number two, we also continue to build the backlog of equipment of aftermarket services to rebuild customers equipment and deliver parts to those customers; we expect that that will continue to increase. And then the last one and the most important one because this one has the more state power; is we've started delivering a lot of equipment that we've been building, and that equipment is going out as we've mentioned several times a 20% type margins. And then in addition to that with the existing fleet we're seeing the cumulative impact of prices coming across and that will have the full fourth quarter of the entire fleet at the new prices that we've been implemented through the entire year. You add up the sum of all those and you're seeing a significant fall through to EBITDA and distributable cash flow as we move through the process.

Marshall Adkins

So the follow-on to that is, you're looking at -- obviously, next year everything seems to be in place for ongoing improvements. Given what you're seeing in pricing and obviously, the enquiries on newbuilds and whatnot; how should we think about next year with what you know right? Should we think about sequential improvements into Q1? And then through the remainder of the year, you did refer to that I think for '18 in your commentary but I'm really more concerned about '19.

Elijio Serrano

I'll start and then I'll turn it over to Owen because the market is at a point right now that our ability to capture price increases is quite attractive. As we went through the downturn, all the contracts that we had in place rolled over and they are getting one year evergreen renewals. So when we started renewing some of those contracts in late Q4 of last year, Q1 and Q2 of this years, they are rolling over again in 2019 and we get a second vibe at the apple [ph] or price increases in this process, and we intend to take advantage of that opportunity and continue to push pricing again. Then, the other thing is we've mentioned that the 100,000 horsepower that we've ordered and is getting delivered this year, plus the total of 170,000 horsepower that we expect to be delivered next year will then come online and that too the revenue and the profitability.

So the combination of -- the equipment is now arriving and getting deployed, we're pushing up pricing and we're going to see a rollover of contracts that we pushed prices up this year that we'll get a second adjustment on that one.

Owen Serjeant

Elijio has covered the points but what I would add to that is on the -- sort of third leg of a stool on the new unit sales. Our backlog we report that $140 million, and we still expect to see ongoing activity in 2019 from an incoming order standpoint and orders associated with that pipeline activity and process plant activity to relieve some of the constraints on the Permian. But with those still higher gas flows come out from these wells, and still some anticipation that that activity will continue into next year, as well Christmas are looking to deploy equipment from other parts of the country into -- this would be equipment that's already in utilization back into the Permian to help some areas; and that will only be cycled through an aftermarket center out of all that [indiscernible] and for some type of reconfiguration on the compressor side.

So you know, that the signals from the markets and what we're seeing still anticipates that compressor services new units in aftermarket will still have strength as we go into 2019.

Marshall Adkins

Based on all of this it seems like clearly, you're going to be generating a lot more cash than you're currently distributing; just remind us all what's your priorities there? Is it paying down debt, applying that excess cash to more growth or is it distributions or something else?

Elijio Serrano

We've laid out our priorities on May 31 in New York City when we meet with our shareholder base in the sell side community, and priority number one was to invest in high return projects. We've got existing customers learning to add more equipment to their current clusters of equipment; so that's where all our capital is going. We anticipate that as long as that demand is there and the prices are there, that will be priority number one. Priority number two; as we committed to strong balance sheet and we committed to improving our leverage ratio, that will be priority number three. And then the last option would be looking at any distribution changes as a recommendation to our board, recognizing that that decision is ultimately a board decision but management makes recommendations. So while we can achieve 20% type margins, that is the priority.

Operator

Our next question comes from Jeremy [ph] from JPMorgan.

Unidentified Analyst

I think you mentioned briefly about -- wondering if you gave a little more color on [indiscernible] currently time is going to set expectations into 2019. And then kind of more importantly, any pricing pressures for manufacturers; what you're kind of seeing there? And I guess, your ability to flow this through to customers -- I understand that you're going to start pricing discussions with customers as you said in next year, so just kind of general commentary there.

Owen Serjeant

I'll take that, I'll take in two parts, the first one on lead times. You can't throw a blanket over the whole -- of what we supply in terms of lead times are stretching out, you do see on the high horsepower units, you still see lead times that are generally longer than what the industry has experienced over the last few years. You get into this sort of low-mid range of over 1,000 horsepower, 1,500 horsepower units; and they are still reasonable if you like; I have not seen too excessive movements over the last 12 months ago. But what we also have on the new unit side is that, a lot of the horsepower supplying has got electric motor drivers on it and that's a completely different set of dynamics from a lead time standpoint compared to carbon engine.

So the other part about all that is, I think what we're trying to do more effectively is pre-planning, is looking out of the sea what that forecast is going to be over the next 12 months to 18 months and then working with some of those key suppliers that may have constraints so that we can get ahead of the curve in terms of placing some long lead time items on order quickly so that we can take them off the critical path. So I think we're managing what those lead time challenges are but definitely from a high horsepower and you will see more challenges in the mid-range. And again, on the unit side with a lot of electric motors, it's a bit of a different dynamic.

In terms of price inflations, obviously, no news about [indiscernible] and things like that, and again, just -- what happens unlike the pyramid [ph], we know there has been some inflationary issues around resources, and yet that happens, but again -- I think the effective supply chain management can alleviate some of that, work information -- how we manage our resource pretty effectively, and attempt to bring people in from outside the industry, train them, develop them and put them to work as quickly as we can. So certainly operational things we can do to combat that but again, where we do see inflation and where all can't be alleviated, we will put that back through into our contract negotiation with customers. So, I don't see that as being detrimental to margins but it's all managing the issues as we go forward.

Unidentified Analyst

And then also large horsepower utilization; I think the last two quarters we've kind of talked about how it just keeps creeping higher and higher, I mean -- it feels like it's got to be pretty much tapped out at this point. And a lot of your investment is in large horsepower; so just any color there. Are you squeezing anymore out there?

Owen Serjeant

I think if you look at the 500 horsepower and you know, 96% it's hard to get any more out of that. I think the team has done exceptionally well in taking it from 94% at the last call upto 96%. I wouldn't expect to see, it's already having much dramatic change from that. But in essence, you know, the horsepower -- we're redeploying, that's 170,000 horsepower, that's in process have been deployed and don't know that -- it's all in the high horsepower range and that's where we're focusing a lot of attention because that's where the demand is currently.

Unidentified Analyst

You obviously spoke a lot about your permitting activity and benefits that's paying; any commentary I guess outside of that basin? And thinking and looking forward to 2019 and beyond.

Owen Serjeant

So the two major areas where we have the major part of our activity up about is southeast Texas, looking to scoop stock. We still have activity in the out west, until [indiscernible], but sorry about the SCOOP/STACK on southeast Texas. First of all, southeast Texas is still very buoyant, we are deploying some horsepower after that but again, it's a slightly different dynamic on the Permian. On a new unit sale standpoint, it's moving, nothing much going out there. And then we go to the SCOOP/STACK where we're taking advantage with some of our smaller horsepower units again, different sort of gas slipped hydro-election is compared to the Permian lower flows etcetera.

And so those three areas also have activity, aftermarket is across the three of them, new units sales are predominantly driven by Permian. Obviously, the compression services, application of new horsepower is dominated by the Permian but we still have new horsepower going out into southeast, Texas and scoop stalk as well.

Operator

Our next question comes from Michael Gyure from Janney. Please go ahead with your question.

Michael Gyure

You guys touched a little bit on, I guess the backlog and sort of the makeup of new customers, existing customers. Can you talk about I guess your ability to look to deliver some of that backlog; how we feel about mechanics and technicians, and the availability of viewer staff to deliver on that backlog?

Elijio Serrano

Michael let me start and then I'll Owen incremental feedback. One of the benefits that we have is that we've got a very strong customer base and we've got a significant amount of their market share in the field that they are operating. Most of our customers have one, two or three of our existing pieces of equipment in their fields, and when they're calling us, they are asking us to add another or two more units to an existing cluster of equipment. So today we have our mechanics and technicians already driving to that site to provide maintenance to those pieces of equipment on a routine basis. So they are not making the drive in this, they are providing maintenance for three units, we're going to be providing maintenance for four or five unit, all at the same site without a new drive to a different physical location. That's why we're getting much higher margins, that's why we're getting the 20% type returns, that's why we do not have to add mechanics and technicians on a one-to-one ratio with the amount of horsepower coming online; and that's why we're being able to continue to drive better margins through the process.

So simply by or continuing to expand our business with existing customers in existing fields and existing clusters of equipment is allowing us to be able to keep up with that volume without a lot of headcount additions.

Owen Serjeant

So Elijio told there about compressor service, I'm going to talk a little bit about aftermarket and a bit about new unit sales. So new unit sales obviously with a model being vertically integrated, we can -- we perform that activity in our Midland facility where we're able to note a ramp of folks that arrive to support the backlog that we have there. And in addition to that, we have a couple of really outstanding third-party that we use -- who we've developed over the last couple of years that can support us. So we feel very comfortable in those managing that large backlog we have on the new unit sales.

On the aftermarket side again, because another beauty about the way we modeled is that a guy working on aftermarket energy and compared to [indiscernible] compressor services, quite agnostic. And we have the same suite of skills that can flow from our aftermarket activity to our compressor services activities need be which helps from a resource modeling standpoint. So as we conclude in terms of the sort of three areas, we feel comfortable that we have the capacity to manage that backlog as it continues to grow on the unit side, activity in aftermarket, and as we deploy equipments into the field for compressor services.

Michael Gyure

And then, maybe if you could touch a little bit on the smaller equipments, gas lift type products; I guess we're seeing as far as demand there?

Owen Serjeant

So on the [indiscernible] gas lift units; the smaller research is quite highly utilized. The small gas lifts are 40 to 45 horsepower. We've seen utilization through the cost of the year increase, and while there might be some softness in terms of some basins which are predominantly gas related, we've been able to start deploying and seeing some good activity in oilfields, oil applications where we marriope [ph] a small compressor with a plunger pump to improve liquid recovery. And so we're quite excited about that actually going forward, we've been working with some plunger pump companies who see that opportunity and customers who would have taken advantage of that in place that don't quite have the volumes that you get in the Permian or maybe southeast Texas but in all the oily basins around the country where this quite a unique application from a small compressor with a plunger pump.

Operator

Our next question comes from Sharon [ph] from Wells Fargo.

Unidentified Analyst

So growth CapEx looks like it's going to be roughly in the $100 million range this year. Just based on your conversations with customers, what's your outlook for 2019 and your plans for financing expenditures?

Elijio Serrano

Today we're focused on meeting the existing demands that we have. We did a successful bond offering early this year that we've allocated those funds to our growth capital for commitments that we have. We're evaluating the cash generation capabilities of the business to make some commitments to fund some of the incremental demand. Anything beyond that, we're not yet committing to and we'll evaluate that over the next coming months as we build our 2019 plan and we expect to announce our CapEx plan for 2019 on our next earnings call.

Unidentified Analyst

Owen, I was just wondering if you've noticed, I guess a change in the competitive landscape with the consolidation of two of your large compression peers last quarter?

Owen Serjeant

Yes, obviously, we're very attentive to what's happening in the overall marketplace but what I would suggest is that we have our Top 10 customers and some overlap with other companies and -- but CSI has a strong history, strong legacy of performance, and with those customers we still maintain a high level of market share, and we're doing all we need to do to make sure that their demands are meet because of all the reasons Elijio referred to. The close proximity of units to reassure that -- making sure our distribution centers are aligned with those needs. So yes, it's still competitive out there, it will always be the case but as long as we are attentive to our customers -- our top customers, I feel confident that we can continue to grow this business.

Elijio Serrano

I would suggest Sharon that we're not given up existing customers and their demands, we're not out there having to compete for new customers and then get into a price competitive environment to do so.

Operator

[Operator Instructions] Our next question comes from Selman Akyol from Stifel.

Selman Akyol

I appreciate your comments on pricing and that you still think there is room to grow. I was hoping you can put some bookings around that, is it sort of like 0% to 5% is what you think you can get or is it above 5% as you go forward?

Elijio Serrano

I think you got sort of past often to areas of the -- sort of new equipment that's being deployed and contracts that offer renewal. So new equipment being deployed, just to say we're now higher than what we were going back into the highs of the market; so we've seen some of that 20% plus in terms of from the low points of the 12 months ago; so what's new equipment that's being deployed on the new contract. I think we were very successful this year on contracts that were being renegotiated and we thought about on a higher horsepower units, that's about 15% plus range at one of the calls we have this year. Taken those, as we renegotiate them going forward, it might be -- it's kind of a stress to get to those numbers again but certainly no reason off to suspect no high single-digits, double-digits on renegotiated contracts as we go into 2019.

Selman Akyol

And then, I'm just trying to think about the cycle and I appreciate how you guys say, you're part of the solution to the constraint environment. And so as you start looking beyond 2019, I would think your compressor would be yes, longer contracts there but I'm trying to think about equipment sales in the aftermarkets; does that -- do you see that sort of softening beyond 2019 or do you have any just sort of where we are in the cycle and sort of your outlook for that as well?

Owen Serjeant

I'd say again, first of all it's often to get -- we know that but talking to the suite across the midstream who are buying this equipment, they still see anticipation of future developments going into beyond 2019 and 2020. We think about -- we look at the CAGR growth of cash production coming out of the Permian as an example, while northeast might consider to dominate in terms of overall flows, it's rate of growth is a lot less than what you see out of the Permian, these wells tend to get more gaseous overtime as well. So we anticipate a lot more production of gas going forward, the liquid market, the NGL market is still quite strong and strengthening with the ability to get end-markets maturing and ethylene tracking capacity in the likes -- so -- yes, we do anticipate that, we continue to develop beyond 2019, the extent to which that is -- and the length of that is difficult to predict but what customers tell us as we're working with them, they continue to hold the cause and make sure that we have the way withal project management capacity and the likely to support them going forward.

Selman Akyol

And then in terms of your backlog, if you didn't have any more orders come in, how long it would just take you to work through that? Is that all going to be delivered in 2019 or does it extend beyond that as well?

Owen Serjeant

With the current backlog we have, it would all deplete by the end of 2019.

Selman Akyol

Can we get the cash and debt balances at the end of the quarter?

Elijio Serrano

The cash balance was $26.2 million at the end of September. And the debt balance is only the bonds that we've got out there, 2.96% on the unsecured bonds, 3.50% on the secured bonds and nothing drawn on our ABL revolver.

Operator

And ladies and gentlemen, at this time we've reached the end of the allotted time for today's question-and-answer session. At this time I'd like to turn the conference call back over to management for any closing remarks.

Owen Serjeant

Thank you. We appreciate your interests in CSI Compressco. And we thank you for taking the time to join us this morning. This concludes our call.

Operator

Ladies and gentlemen, this does conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.