Archrock Inc (AROC) 2005 Q2 法說會逐字稿

Good morning. Welcome to the Hanover Compressor Company second quarter 2005 financial results conference call. With us this morning is John Jackson, President and Chief Executive Officer; and Lee Beckelman, Vice President and Chief Financial Officer. Earlier today, Hanover released its financial results for second quarter ended June 30th, 2005. If you have not received a copy, you can find the information on the Hanover website, www.hanover-co.com.

I want to remind listeners the news release Hanover issued this morning, the Company's prepared remarks on this conference call, and the related question-and-answer session include forward-looking statements. These forward-looking statements include projections and expectations of the Company and represent the Company's current belief. Various factors could cause Hanover's results to differ materially -- those projected in these forward-looking statements. Information concerning the factors which could cause Hanover's actual results to differ material from those in its forward-looking statements can be found in earners press release, as well the Company's SEC Form 10-K for the year ended December 31st, 2004, the Company's SEC Form 10-Q for the three months ended March 31st, 2005, and the Company's other SEC filings. [OPERATOR INSTRUCTIONS.]

I would now like the turn the call over to our host, Mr. John Jackson. Mr. Jackson, you may begin your conference.

Thanks a lot. I want to welcome everyone to our second quarter earnings call. And, initially, I'm going to cover a few, just, general topics and then move into the performance and outlook by area. But, overall, this is a good quarter for us, from a sequential improvement perspective. I think if you look at each large area of our businesses, that being rental, fabrication, and parts and service, each of those showed progressive improvement quarter-on-quarter, from last quarter to this quarter. And as we look ahead, we see a lot of opportunities to continue to grow into the future in each of these segments. We'll touch on that some as we go through the call.

We've begun to also receive some awards on some international jobs into 2006, so the booked backlog of rental jobs on the international front is beginning to build further and further out and get a little bit deeper. In fact, it is the deepest since I've been here, as far as length and depth and breadth. And we'll touch on that a little bit as we go through the call. The activity for all rental markets continues to be strong. The fabrication markets continues to be strong in all markets, I mean, Latin America, the U.S. and what we call the Eastern Hemisphere. So, overall, we're very pleased with the progression of controlling costs, improving our margins, increasing our returns, and we've been able to do this while improving our safety record year-on-year. Our severity rate and our lost time incident rate have come down dramatically this year compared to last year, while at the same time ramping up a lot business activity and asking people to be very focused on cost control. And we're very pleased with the performance of the employees on that front to date, as they've been able to be in a safer and safer environment while we've had this ramp up in activity.

Let's turn to the second quarter performance. And what I'm going to do, is I'm going to go through each segment and talk about it, not only in the quarter a little bit, but kind of what's going on in it, what we see coming up. So it's, overall, we had sequential improvement in EBITDA from forty -- 74 million to about 80 million. And that 80 million is burdened by about a $5 million Fx loss from the euro dropping fairly dramatically against the dollar during the quarter. In the U.S. operational side of the business, we had our highest gross profit in dollars since the first quarter of 2002, and it's the second highest dollar gross profit delivery we've ever had in the history of the Company.

Pricing continues to improve. We will have a price increase in the third quarter. It will be staged in by geographic business unit. It will take effect, in all geographic business units no later than September 1. We expect that to be about $350,000 a month. In addition to that, our price list on units in general is going up in the 3 to 5% range, so any new unit gets rented will get rented at a higher price. So the base churn of our fleet as units are returned to us actually drives a natural, ongoing price increase. We'll also have price increases on our consumables, liquids and gas that we consume and charge for, we're going up on that. So an invoice, we'll have base rental, oftentimes, we'll have a consumable charge. And that consumable charge is going up pretty strongly, because we haven't had an increase in that particular piece of our fleet in quite some time. So it's a small part of our overall rental rate, but it is a large increase on that piece.

The utilization improved slightly in the year. Lee will take you through some of the specific numbers. Our focus has been in the last six months on chasing these international jobs that we've been awarded and getting units ready to go. As a result, what we've seen is a lot of our shop space in the U.S. be tied up with getting these units ready to move to these international jobs. So as that shop space has been tied up, getting those units ready, there has not been a lot of opportunity to take a lot of our idle fleet and repackage it or rework and get it ready for the U.S. market. As a result, we've taken an idled facility in Oklahoma and reopened that in the second quarter and are in the process of staffing that. And as of today, I think, so we have 20-some-odd people that are on the shop floor beginning to work on units. We have seven or eight units in that shop today, and we expect to be able to move a fair bit of volume through that as we move ahead. We'll be keeping that facility open for a long time as we take our idle fleet in the U.S. and repackage it and revamp those units for both the U.S. and the international markets.

As we've talked many times in the past, most of our growth capital has been designated for international markets. It is still is, but we are allocating some money now to repackaging units, because in the U.S. most everything we have ready is rented. So the fact that we're still at 78 or 79% in the U.S. has a lot of opportunity to move that up if we can get these units repackaged to fit today's market, multiple states units and so forth. We will be doing that fairly aggressively as we move into the third quarter and all the way through '06.

And, finally, on the U.S. side, we did sell a plant and compression package in the third quarter here, in late July, that we have been looking to sell for quite some time. It really didn't fit our idea of a rental unit for a long period of time. We had proceeds of approximately $20 million on this plant. Lee will take you through the numbers a little bit. But we lose about a $1 million of U.S. rental EBITDA from that. So with our price increases and our additional horsepower we hope to rent in the quarter, we're hoping to offset that. But we won't see a dramatic uptick in the third quarter because of the sale. But we did receive 20 million of proceeds on it, and we'll move from there. There will be a slight -- there will be some kind of gain on it. We'll work that out over the course of the third quarter.

Moving to the international side on the gross profit side, both our percentage and dollars continue it improve. We had the beginnings of some of our awarded projects beginning to be reflected in our second quarter results, primarily in Latin America, Mexico, Venezuela. We had one of our smaller projects in Nigeria come online part way through the quarter and saw some benefit of that. I'll touch on Cawthorne, here, in just a minute. We have, also, a number of new projects scheduled to come online each of the next five quarters. We have some third, fourth, first, second and third of '06. So these projects are now staging out there, and we have, probably, four -- four projects, at this point, scheduled to come online in '06 and several projects, as I mentioned, scheduled to come on late this year.

These are not just in Latin America. We have a fairly significant project in the Middle East. And we have a project in the Far East of a reasonable size that's embedded in those numbers. So the Latin America growth is still continuing to be very robust, but other parts of the world are very active at this point, too, for us. Again, continuing on the West Coast of Africa, but the Middle East and Far East continue to have a lot of things going on there. Bid activity is strong in all these areas. We have a large number of jobs that coming up for bid, here, in the second half of this year. Most of those jobs will allow us to use some idle equipment. Again, another reason for our Oklahoma facility to be opened up is that we'll be, not only packaging and repackaging units for the U.S., but for these international jobs, as we win our share of them.

On the Nigeria front the Cawthorne Channel barge is ready to go. We've been going through commissioning the last couple of weeks. We're hope to go get gas in the next couple of weeks from Shell delivered to the plant to begin making products. But it's our expectation we'd have about a half quarter's worth of revenue in the third quarter on this plant, and then running all out in the fourth quarter, to, just, normal operations continue into the fourth quarter. But it's ready to go and the gas is a few days away, is what we're told, from Shell delivering it to us.

On contract renewals, we did have a number of contract renewals come up in the front half of this year that we were successful in renewing and extending, and in many cases, receiving price increases on those renewals. We have some opportunity for renewals in the second half of the year, specifically, a large number of our contracts with PDVSA in Venezuela come up for renewal by year end. Those discussions are ongoing now, are going well. We expect those to be renewed at the end of the year, at or around the same volume of horsepower we have deployed today, perhaps a slight uptick, perhaps a slight downtick. But based on the discussions, we believe, at least, net horsepower we have in country today will be redeployed with PDVSA on the jobs they have today. We have good relationships with PDVSA. It's a very good working relationship between both us and them.

Moving to the fabrication front, on a combined fabrication basis we have the highest combined dollar margins we've had since 2001 on the fabrication business. So, again, that continues to improve. We still have room for improvement in that area. But we have continue to see margins move north quarter-on-quarter and overall in fabrication.

The other thing that we like is that our backlog, especially, on the compression side, we believe the quality of that backlog continues to improve. We've really become disciplined on the type of jobs that we pursue from the standard-type compression packages and production and processing equipment packages we bid and build. Those are building in our backlog quite nicely. The high-spec units that we've had in the past, we've really tried to either shy away from or spec out very tightly and bid with very strong margins. And the quality of our backlog continues to be more on the standard product than the high-spec product. And as a result, the margins should continue to have opportunity to improve there.

The long-lead items continue to be an issue on the compression side, both for engines and for frames. Those are in the 30- to 45-week delivery at this point. So, the producer today, to the extent that they want to buy equipment, if it's larger horsepower, a lot of that equipment can't be delivered for close to 9 months to a year, today. So it's very long lead times, which, in our mind, gives us an opportunity for our idled rental equipment to go to work even faster, and we believe that's an advantage that we have over others, the fact that our utilization is not where we'd like it, but the fact that it's not gives us the opportunity to chase speed to market faster than anyone else, because everyone else is having to pursue new engines and new frames. It's just going to take a lot of time. So our job is to get equipment ready, packaged, and rented. And we think we have a good opportunity over the coming quarters to see that happen.

In the parts and service business, we had solid margins on the base business. The installation work, we had some installation work in Latin America in the quarter. We have more installation work in the pipeline. It does get recorded on a percentage of completion basis, so it is choppy as far as when it comes in. It's a little hard to predict when you're going to finish some of these projects. We have two or three more installation projects in the pipeline over the course of the next year or so that should come in and hit our results.

So, overall, in summary, our efforts that we've had over the last year or so are beginning to be reflected in our results. We have further opportunity to extract more value from our existing assets, and we're aggressively attacking that opportunity with the repackaging approach here with our idle facility being reopen. Our international rental project backlog is strong, and the opportunity to grow that is very strong. We have some great opportunities second half of the year to pursue some more projects and our -- really, our opportunities around the world are more constrained by capital than anything. And as a result, we're being very selective and trying to move our returns up, so that when we win a job, it's going to be a very solid rate of return.

So, in summary, we're pleased with the progression and we're really excited about the future and the growth that we have. So I'm going to turn the call over to Lee, now, and let him take you through some of the numbers.

All right. Thanks, John, I will be going over the second quarter financial results, and I'll be mainly comparing to the first quarter results. Overall in the quarter, revenues were up 14% sequentially, to $345 million, which was a record quarterly revenue for Hanover. Looking at the various business segments, starting with the U.S. rentals, revenues were up slightly, about 1%, and gross margin improved from 61% in the first quarter to 62% in the second quarter. Margins benefited from our continued focus at the field level to manage costs and improve operating efficiencies. And that helped improve our margins in the quarter. Overall, utilization improved to 79% at the end of June, from 77% at the end of March. That's from a combination of both increased horsepower in the U.S. On a contracted basis, we had about 10,000 additional increase in contracted horsepower in the quarter, and also, the continued movement and transfer of idle equipment to international markets. We transferred about 16,000 horsepower to international markets during the quarter.

Looking out to the third quarter, we expect revenues to be down slightly, with margins continuing to be in the 62 to 63% range. As John discussed we did sell a rental gas plant in the U.S., which had monthly rental revenues of approximately 600 to $700,000 a month that will impact us in the third quarter. We do anticipate regaining some of that lost revenue through the price initiative later in the quarter, that John discussed.

Going onto international rentals, revenues were up 3% sequentially, to 56 million, from 54 million last quarter, and gross margin improved to 69% from 68%. We had a couple of smaller projects come online in Nigeria and Mexico. And we had lower repair and maintenance expense in the quarter. Overall utilization was maintained at around 98%. Looking out to the third quarter, we expect revenues to be in the 57 to $60 million range, with margins consistent with the second quarter.

If we move forward to parts and service, revenue for the quarter was up 51% to $51 million, from 33 million with margins improving to go 28% from 25% in the first quarter. Overall, we had increased activity, both in our base parts and service business and in installation and used rental equipment sales. Base parts and service increased to 39 million in revenues, versus 31 million last quarter. And margins improved to 27% versus 26%. We had activity improvement in both the U.S. and international markets. On the installation and used equipment side, we had revenues of 12 million and a 32% margin, versus 2 million at a 7% margin last quarter. Expectations going into the third quarter, we expect the base revenues, parts and service revenues, to be flat with margins in the mid-20% range. As John highlighted, we did have the sale of the plant in the third quarter of about $20 million, which will flow through revenues in the third quarter. And we're still finalizing. We will have a small gain, but we're still finalizing what those numbers will be.

Going onto compressor fabrication in the quarter. Revenues up 26% sequentially, to $41 million, versus 33 million last quarter, and margins improved 11% versus 9%. Revenues and margins benefited from strong market activity and continued shop efficiency improvements and higher margin jobs running through the shops. Overall, our backlog was at $68 million, which is the highest backlog we've had in compressor fabrication in three years. Looking to the third quarter, we anticipate revenues being in the high 30 million, low $40 million range, with margins in the 11 to 12% range.

For production and processing equipment, revenues were strong, up 15% sequentially, to $104 million, versus $90 million last quarter, with margins down slightly to 11% versus 12%. We had solid backlog levels at the end of the quarter of $193 million. Again, good activity, both internationally and domestically. Looking into the third quarter, we anticipate revenues, again, being in the high 90 million to low $100 million range, with margins in the 11 to 12% range.

If we look at some of the expense line items, SG&A increased slightly in the quarter to 44 million versus 42 million in the first quarter, and we anticipate it being in the 45 to 46 million range in the third quarter, with the increased business activity we are seeing some increasing in sales commissions that goes through SG&A as well as international taxes that go through SG&A as well. As John alluded to, we had a foreign exchange loss in the second quarter of approximately $5 million. This is primarily related to our remeasurement of our international subsidiary dollar-denominated intercompany debt and the strengthening of the U.S. dollar relative to the euro during the quarter. Also in the quarter, our interest expense was down slightly, to 35 million versus 36 million. And we anticipate that being relatively flat in the third quarter. Depreciation in the quarter was flat, at 45 million versus the first quarter. And we expect depreciation to increase slightly in the third quarter to 46 to 47 million, primarily related to as new projects come online and we begin depreciating them.

Going onto taxes, we did have an additional tax expense in the quarter in the range of 8 to $10 million for valuation allowance due primarily to our current deferred tax asset position and our expectation of continued U.S. tax losses and losses in foreign -- foreign tax jurisdictions. This is a little higher than previous guidance, due primarily to the foreign exchange losses that flowed through some of our international subsidiaries. We estimate that for the next quarter, we'd expect to have additional taxes spent in the 6 to $8 million range, excluding any impact from foreign currency gains or losses. We also had a benefit in the quarter in taxes from the reversal of approximately 3.6 million in tax contingency reserves that was related to specific events in the quarter, and we would not necessarily expect this to be recurring in future quarters.

As John discussed, EBITDA was up 8% sequentially, to $80 million versus 74 million in the first quarter. This improvement was driven by a sequential improvement in operating performance and that was led by improved gross profit dollars in all business segments. If we look at our liquidity. We had 77 million outstanding on our revolver at quarter end. We had to utilize the proceeds of the plant sale to reduce our revolver outstandings to approximately $50 million currently. At quarter end we had -- at June 30 -- $105 million of LCs outstanding, that's up slightly to $107 million currently. And today, we have approximately $195 million of availability under our revolver with no current covenant limitations.

Finally looking at capital expenditures in the quarter, CapEx was up 28 million versus 26 million in first quarter. Of that 28, 11 million was for growth capital, 14 million was for maintenance, and around 3 million was for other. We anticipate to be at the high end of our guidance range this year of 125 to 150 million for CapEx for 2005.

And with that, I think that's our prepared comments, and I'll open up for questions.

[OPERATOR INSTRUCTIONS.] Your first question comes from Terry Darling, Goldman Sachs.

Thanks. Good morning, guys.

Hi, Terry.

It looks like, John, you got the ship sailing a lot more smoothly, here. I'm interested to follow up on your comment around potential for U.S. utilization to go higher. Sounds like that is where the incremental capital is being deployed, in terms of moving to the high-end of your budget range. But can you talk a little about where you see that utilization number potentially going by the end of year?

Let's talk about the two pieces you just brought up. We will deploy some capital there we didn't originally have allocated to the U.S. So, yes, that moves us to the high-end of our range. And we have won a couple of projects internationally that the timing of that spending, whether it's this year or next year, depending on some of these '06 projects we've talked about could swing us to the very high end of the range, or it could drift into early next year. So that -- just to give you clarity on that, that there's a little bit on both ends of that.

The second thing is relative to utilization, is as we're just -- we hope to be close to fully staffed by the beginning of the fourth quarter up in this Oklahoma facility. We're ramping up people fairly rapidly there and getting units there to overhaul and repackage and rework. So I wouldn't expect to see much change in the U.S. utilization in the third quarter from this activity. We still expect it to continue to move up a little bit. But I would expect more of it to begin to happen in the fourth quarter. And based on the volume of what they could put out and how much we win on these international jobs, I could see it moving up a point or two by the end of year from where we are today in the U.S. But it's pretty iffy at this point just because it's a matter of staffing and a it's matter of, is it international or U.S. work. What I would expect more of an impact to really be reflected in '06, as we really put volume to through this shop.

Okay. And the third quarter guidance assumes what on U.S. utilization, then, 79% your exit rate from June?

Yes, pretty much. Because we've sold some -- if you look at what we sold, we're actually going to sell some units that were on lease, and then we're going to have to replace that. So to stay at 79 implies that we're going to rent net horsepower in the U.S.

That's helpful perspective.

Okay.

And, then, on the -- your point around the price increases on the base rental. I think I missed that number. I think maybe I heard you say --

350 a month. By the time we get it spaced in, we have a piece coming in, about half of it coming in August and the other half coming in in September. So we won't have the full quarter impact of 350 a month in the quarter, but it will be happening during the quarter. And then we'll have our price list change effective in August, so as churn begins then, we'll begin to see some of the that price impact late in the quarter.

Okay. And, then, the split between when you think about the ticket description you gave, what percentage of that ticket, generally, is the consumables piece?

Oh, you're talking 5%.

Okay.

5% of rental, probably, is consumables. We're talking about going up 25%-plus on consumables.

Okay.

So you get a -- maybe a 1% net movement on consumables if you see what I am saying?

Yes, I do.

Okay.

Quick question on the cash flow picture. And, then, one strategic. The cash flow, Lee, could you give us the delta in receivable -- or working capital delta in the quarter?

Well, our overall cash flow for operations for the first six months of the year is around $28 million. And so we did have a little pick up in working capital in the second half as we ramped up the fabrication, also with the activity and installations, we do have some installations that are coming on second half this year and later next year. And that builds up in working capital as well because those are accounted for on a completed-contract basis.

Okay. Lastly, John, was just sort of hoping to get an update from you as to how you're feeling about, sort of, your international leadership team. We've brought on a new gentleman from Schlumberger. But I think I'm looking for just a broader perspective in terms of are we in the -- kind of the fourth inning or the eighth inning of that process for you?

I'd say we're probably in the seventh, eighth inning. I'd say the senior team, the guys running Latin America North, Latin America South, Europe and Asia, and then the guys above them are the guys we're going to get it done with. There's a lot of movement going on underneath that as we have growth in certain areas. So we're still looking to add people to the team to run certain areas as the growth expands, and that does stretch us thin at an execution level. And that's the -- that's the kind of guys that we're still trying to find, guys that can go run the new project in the Middle East, go run some products and Egypt and Oman and Pakistan or wherever these projects come along. And that's, really, I think, what bringing this, like, Norrie in from Schlumberger and having Steve Muck focus on Latin America can do is that they can go out and pursue this talent. And we're -- it's a very active program we've got going right now to try and balance our talent around the organization and attract more talent in at the medium and lower levels so that we can add to the growth. But I'd say, for what we have today, we have the guys in place today to run what we have. We just have to add more to expand with what we're talking about doing here.

That's helpful. Okay, guys. Thanks.

Yes.

Your next question comes from Thiru Ramakrishnan, Simmons & Company International.

Good morning, guys.

Good morning, how are you.

Good quarter.

Thanks.

Just so we're clear on the U.S. domestic side on the rentals, what is effective utilization if you back out stuff that's idle that needs to -- that CapEx needs to be spent on in order to bring back?

That's already at 79%.

79%. That idle equipment's in the idle number today.

That's in the idle number.

I know. Backing out that idle number, is it, effectively, like, 100%?

Oh, yes, if you back -- if you said what's idle, what's sitting on the yard today that if someone called we could rent it tomorrow, it's got to be 2% of our fleet, 3% of our fleet. Every yard I go to, it's, like, if we rent that, we need to do work.

It is very highly utilized for what could be rented today. It's well into the 90s.

Well into the 90s.

Yes. I mean, I don't have a perfect number because we haven't tried to look at it that way. But there's, obviously, the typical churn that happens. You get a unit back, it's sitting on the yard or whatever, and it could be rented, but that's just -- you're going to have the normal churn. I think getting into low 90s is probably going to be full utilization just because you're always going to have units moving. We probably have $500,000 a month of billable revenue that churns through our fleet on average, in the U.S. alone. So that's a lot of units moving every month. But we don't have -- we hardly have anything sitting around that's not rented.

Okay. And that's helpful. And sticking with domestic, given the improvement in gross margins for the quarter, does that improvement factor in, kind of, fixing all the problems that were with that one specific GBU.

They've made a lot of progress. That GBU has made a lot of progress. But they are still not where they think they can get to, and we've had a lot of conversation about that. So we still think there's opportunity in that GBU for them to move up because they're -- they are not yet performing at the level of the other two GBUs, but they have moved up markedly, and we're very pleased with the progress they've made. But there's still opportunity there and it's not all embedded in these numbers, no.

So there's still some upside to the margin?

Yes.

And, then, on parts and services, really strong quarter there, given the activity levels in compression worldwide, I mean, is there any reason to see why that can't continue?

No, I think we did have one installation in those numbers that did jump the numbers up a fair bit. And like I said, we have some of that activity in our backlog as we look ahead. So that will continue, it'll just be choppier. The biggest issue, I think, in the parts and service business today, like many people are facing is finding enough qualified people, especially in the U.S. to do the work out that's out there to get done. So we could ramp our U.S. parts and service business up from where it is today pretty rapidly if we could get all the people on board we're looking for. So we, again, we got an active program on that. We're focused on that, both from HR and operating recruiting perspective in trying to build the pipeline. But right now, it's just -- it's constrained by people more than anything. And to answer your question, I think we should be able to see continued strong parts and service performance as we go ahead. The growth rate is going to be bottlenecked by people. And we hope to break through that over the next few quarters.

Last question and this kind of speaks to previous guidance, John, and, Lee, I mean, given results today they were pretty strong, the outlook appears to be pretty strong. This isn't a one-time quarter in any way. Are you guys inclined to rethink your previous EBITDA guidance for '05, especially on the low end.

Well, I would say without changing our guidance, I'd say we would expect to be at the high-end of our guidance, clearly, and recognizing that's burdened by $5 million of Fx losses to date. So we're not changing our guidance range, but we're certainly not telling anyone we should be to the mid or lower part by any means.

Great. That's all I had. Good quarter.

Okay. Thanks.

Your next question comes from Ken Sill, Credit Suisse First Boston.

Yes, good morning, guys.

Hey, Ken.

On trying to figure out the numbers going toward, the $20 million plant sale is going to go through the used equipment line?

Yes, it will flow through parts and service.

Okay and you had, like, 11 million in that line this time. So could that be, kind of, a 25, $30 million parts and service on the used equipment sales this quarter?

Yes, potentially.

Potentially. I mean, that's the --

Yes.

And you can't really -- it sounds like you're really not quite sure what the margins are going to be on that. Because that was actually pretty good this quarter, obviously, one of the best quarters.

On the installations piece, no, it really depends on how much used equipment sales we have from purchased options and with those margins were negotiated on those. So it's hard to give any real predictions on the installation and used rental equipment margins

Yes. But the service margins should be pretty good still?

Yes, the service margins, as we highlighted, we expect the revenue to be, on that piece of the business, the parts and service flat and margins, again, kind of, in the mid-20% range and potentially better.

Okay. And, then, looking at the back log, how much of the backlog is in Belleli?

The backlog for production of processing equipment for Belleli, that backlog is about $132 million. So production processing is 132 million for Belleli and 61 million for traditional Hanover production processing.

And you're not expecting much of an impact from the summer vacation season, I guess, in Europe there this year?

No, I think.

No, we don't.

So that's not going to be an issue this year.

No.

Now, the plant sale $20 million in proceeds from that, it will be some sort of a gain, does that increase the amount of money you guys are willing to throw into growth CapEx, or are you still kind of sticking with your -- ?

Yes, that gives us optionality. Obviously, we're going to take that money and, right now, just pay down on our revolver. But if the opportunity is there, as we talk about these bids that are coming up, to the extent -- a lot of these have short fuses on them, 180 days, 210 days delivery. That's going to require us to spend some capital this year. So if we are successful, especially in the idle equipment bids that we can move assets overseas and put them to work for long periods, then we'll consider the possibility of using some of the proceeds from this to go over the high end of our CapEx if we're successful.

Yes, and I was trying to get a little bit more color on that. These international projects, you talked last quarter about some interesting opportunities. It sounds like there's still a lot out there. How many of these have you won? Or is it still the bulk of the stuff still ahead of you?

We won, I'm going to say three or four projects in the quarter beyond what we had already booked last quarter. We have, I counted them up this morning. There's, and some of these are small. It may be only 50,000, $100,000 a month in revenue. And some of them are large, they may be 6 or $700,000 a month of revenue. But we have a dozen-plus projects in the backlog that haven't come on yet on the international front that have been awarded. There are one, two, three, four, five -- there's at least four or five projects, five or six projects I'm aware of that are coming up for bid in the next three or four months that are large. Large scale projects. Large from our standpoint, anywhere from 10 to 30,000 horsepower kind of projects. Seven -- let's call it 7 to 30,000 horsepower projects, it's 7 here and 10 there and 15 there, it adds up to a lot of horsepower fast. So those are in the queue to be bid and awarded the second half of the year.

So as you start looking to '06, which is where everybody is going to be looking by the time we get to September, the international business, if you continue to win some of these, that could actually ramp fairly quickly?

Yes.

And would it be a slow start to the year and ramp in the back half? Or given what you're saying, you could see stuff coming on in Q1?

Well, I think what you'll see is of these dozen or so projects, give or take a little bit, you'll see some begin to come on in the third, more in the fourth. So the entry rate for the year will be up from where we are some, and then we have five projects -- excuse me, at least four projects I'm aware of right now that are scheduled to start somewhere between the first and third quarters. So, yes, you'll have early ramp up, and it will continue each quarter. So it is not back-loaded yet. We hope to load the back end, too. But right now the front's got a fairly -- three of the four projects start in the front half of the year, and one of them starts in the July 1, in the third quarter if everything stays on schedule. A number of the projects we're bidding are required to start by the third quarter.

Okay. So when you're saying they're pretty short lead times, they'll be starting mid-year next year if you won them?

Yes, because if you're awarded in August or September and they have 210 days to get them online, you're already in April or May.

Yes. No, that's great news. And, then, just one last thing I noticed some Schlumberger really small share sales hitting the tape.

Right.

Have you been talking to them about their position or how that relationship's going to go going forward?

Well, just to clarify what you saw, they filed a 144 a few weeks ago where they gave up -- where they were going to sell 200,000 shares, and they've done that. They also rescinded their right to have a Board seat on our Board. And those are just items that they chose to do to keep all their options open. But for what they do with their ownership and positions and so forth after that is clearly up to them and something we don't have a lot of dialog about. As far as our alliance that we've tried to get off the ground, we continue to work with them. But they've a lot of things going on on their front, and just we haven't seen much come of that to this point. So it's something that's always out there, and with Norrie Mckay joining us from Schlumberger and living over in that part of the world and working there, we may be able to work a few things out. There's a couple projects we talked on again and off again about. We'll see if those come to fruition. But right now, it's not in any way baked into any of our numbers.

Okay. Great. Thanks. Okay.

Your next question comes from Gary Stromberg, Bear, Stearns.

Hi, good morning.

Hi, Gary.

Lee, I've got two questions for you. One is on working capital, what are your expectations second half of '05 and into 2006? And then the second question -- Can you just update us on the bank refinancing?

Well, the working capital we would anticipate seeing that coming down a little bit in the second half of the year, as we have some of the projects have long lead times. We hope that would start turning. So we'd see that moderate and hopefully flatten out and reduce over the second half of the year. In terms of our bank refinancing, we are -- basically our revolver does not come due until December 2006, but we are looking at options of refinancing that and would anticipate doing something in the second half of this year.

Okay. Great. Thank you.

Your next question comes from Eric Calamar with Wachovia Securities.

Good morning, John. Hi, Eric.

Question -- question regarding potential asset sales, you've done two -- you've done two things now. Is there anything else that, even if it's small, that you might mention?

Well, in terms of asset sales for the second half for the year?

Well, it doesn't even have to be, necessarily, the second half of the year. I mean, there are other parts of the business, certain segments that are just parcels that you're looking to.

Yes, there's always things that we're looking at people approach, just on -- or we're trying -- we're continuing to try and optimized our business for what we really want to be about long-term. And we rent a lot more than just compression. And we have aiming plants, we have gas plants, we have things scattered all over. We have facilities we've still been trying to sell, We have, still, some old inventory from other projects we got into in days gone by that we're actively trying to move. So there is opportunity, I think, still, to generate cash from either idled equipment and/or business lines that we may not want to be in long-term.

And might that be use to do fund some of the international gross initiative?

Absolutely. As we clarify each of the areas we're in and what we're really good at, and what we're not as good at, we're trying to monetize what we don't think we're quite as good at. It's not a lot of money. But it could still be 10 or $20 million here or there that you could put together. And you put 10 to $20 million on some of these projects, we could make a lot better return with it. And that's exactly what we're trying to do.

And in terms of -- in terms of your overall financial profile, would we -- would we expect deleveraging really just to come through the increasing cash flow and not so much -- ?

For the time being, that's, certainly, our stated approach is that there's so much opportunity with our high-graded return profile that we would expect it come through just pursuing projects and growing the business and, sort of, growing into what we have at this point, because that's -- we don't want to miss the market.

Yes. Okay. Thank you. Thanks.

Okay.

At this time, there are no further questions. Mr. Jackson, are there any closing remarks?

I just want to thank everyone for joining us on the call and look forward to having you on the call next quarter and hopefully another great quarter to talk about. Thank you.

This concludes today's conference call. You may now disconnect.