Natural Gas Services Group Inc (NGS) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group Second Quarter and Sixth Month Financial Results Conference Call.

At this time, all participants are in a listen-only mode.

(OPERATOR INSTRUCTIONS).

The call leaders for today's call are Jim Drewitz, Investor and Press Relations Representative and Steve Taylor, Chairman, President, and CEO.

I would now like to turn the call over to Mr.

Jim Drewitz.

Mr.

Drewitz, you may begin.

Thank you, Ross, and good morning, everyone.

Please allow me to read the forward looking statement.

Except for historical information (inaudible), the statements in this conference call are forward-looking and made pursuant to the Safe Harbor Provision as outlined in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve known and unknown risks and uncertainties which may cause Natural Gas Services Group's actual results and future periods to differ materially from forecast results.

Those risks include, among other things, a loss of market share through competition or otherwise, the introduction of competing technologies by other companies, new governmental safety, health, and environmental regulations which could require Natural Gas Services Group to make significant capital expenditures.

The forward-looking statements included in this conference call are only made as of the date of this call.

And Natural Gas Services Group 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 under the caption "Risk Factors" in the company's annual report filed on Form 10-K with the Securities and Exchange Commission.

Before I turn the call over to Steve, I'd like to remind our listeners that, as noted in today's press release announcing this call, Steve will also be interviewed on Fox Business News today at 3:40, that's Eastern Time, or 2:40 Central Time by Liz Claman, who is the host to "Countdown to the Closing Bell." So needless to say, if you can, please tune in.

And I would now like to turn the call over to Steve Taylor, Chairman, President, and CEO of Natural Gas Services Group.

Steve, it's all yours.

Okay.

Thanks, Jim.

Good morning to everyone and welcome to Natural Gas Services Group's Second Quarter and Sixth Month 2008 Earnings Review.

You saw our earnings release this morning.

We have excellent earnings to report, so I'll get right to it.

We again achieved double digit growth on all material financial measures.

Comparing the second quarters of 2007 versus 2008, a diluted earnings per share were up 23%, our net income was up 26%, earnings before interest, taxes, depreciation, and amortization were up 21%, and total revenue was up 11%.

Now looking at the six months ending June 2008, diluted earnings per share were up 27% over the comparable period last year, net income was up 29%, EBITDA was up 23%, and total revenue was up 12%.

Looking at total revenue and comparing the second quarter of 2008 to the second quarter of 2007, revenues were up 11% from $17.6 million to $19.5 million.

Sequentially, total revenues rose 3% from the first quarter of '08 to the second quarter of 08, from $18.9 million to $19.5 million.

And looking at the first half of '08 versus the first half of '07, total revenues were up 12%, from $34.3 million to $38.4 million.

Comparing the second quarter of '08 as far as total gross margins to the second quarter of '07, gross margins grew to $9 million or 46% of revenue from $7.2 million or 41% of revenue last year, a 25% increase.

Sequentially, gross margin increased from $8.9 million to $9 million.

This slight growth in gross margin dollars quarter to quarter is a result of a bit lower gross margin percent relevant to revenue in our sales and rental business during the quarter.

But I'll detail that in a minute.

Comparing the first half of '07 to the first half of '08, gross margins increased from $14.3 million to $17.9 million at 25% increase.

Our sales, general, and administrative expense was $1.3 million or 7% of revenue in the second quarter of '07, and $1.5 million in the second quarter of '08, or 8% of revenue.

The comparative year to date six-month period's SG&A was even at 7% of revenue.

I had mentioned last year that we thought SG&A would rise back to our traditional 8% to 8.5% levels through 2007 due to added staff, but we've been able to maintain our overhead expenses at optimum levels while still expanding our staff capabilities.

Net income in the second quarter of '07 was $2.6 million or 15% of revenue.

It rose 26% in the second quarter of '08, or $3.3 million, also an increase of 17% of revenue.

For the sequential quarters, we were down $185,000 to $3.3 million in the second quarter of '08.

This is attributable to the difference in gross margins that I just mentioned between quarters.

In the first half of '07, net was $5.3 million.

It increased 29% to $6.8 million in the first half of this year.

EBITDA was $6.3 million in the second quarter of '07.

It rose 21% to $7.7 million in the second quarter of this year.

Sequentially, like net income and for the same reasons, EBITDA was down $160,000 to $7.7 million, but increased 23% in comparative half years, from $12.6 million to $15.5 million.

In spite of the flat quarter to quarter EBITDA, we were able to increase its relative contribution as a percent of revenue.

In second quarter of '08, EBITDA was 39% of revenue, whereas in the second quarter of '07 it was 36%.

It rose from 37% of revenue to 40% of revenue for the comparative six-month periods.

Our earnings per share on a fully diluted basis for the second quarter of '08 were $0.27, compared to $0.22 for the second quarter of '07, or a 23% increase.

Comparing the six-month periods, diluted EPS grew from $0.44 to $0.56 per share, or a 27% increase.

Looking at our different segment comparisons, total sales revenue, which includes compressor sales, [conveyer] sales, parts sales, rebuilds, and [sift] compressors, was $10.2 million in the second quarter of '07 compared to $9.2 million in the second quarter of '08, down $1 million.

This variation is primarily attributable to the quarter to quarter revenue and margin lumpiness of the compressor fabrication sales business.

But this quarter we also, due to strong rental demand, fabricated an additional 12 compressors, 12 rental compressors, in our Tulsa facility, which displaced approximately $1.8 million of sales revenue this quarter.

Sales gross margins improved from 28% in last year's quarter to 32% for this year's period.

Sequentially, total sales revenues declined for the aforementioned reason, about $400,000 to $9.2 million with gross margins moving from 34% to 32%.

Compressor sales alone decreased $900,000 between the second quarter of '07 and the second quarter of '08 to $7.8 million.

But gross margin dollars were level at $2.2 million with a corresponding increase in margins from 26% to 28%.

Consecutive quarterly compressor sales revenues went from $8.3 million in the first quarter of '08 to $7.8 million in the second quarter of '08, with gross margins moving from 31% to 28%.

All those sales margins were down slightly from 31% to 28%, which-- of course, as all my regular listeners will note, has been expected and predicted.

These continue to be industry high margins.

The compressor sales backlog at our fabricating facility in Tulsa totaled more than $19 million at the end of the second quarter of this year.

This compared to a $17 billion in the year ago quarter, and $21 million in this prior quarter.

Our services and maintenance business revenue was essentially flat in comparative year-over-year three- and six-month periods, and typically runs at about 1% of total revenue, with a margin of 31% year to date.

Now, talking about our compressor rentals-- rental revenue continues to grow at a very strong rate.

In the second quarter of '07, rental revenue was $7.2 million.

It grew 40% to the second quarter of this year when it was $10.1 million.

Rental revenue increased sequentially from $9 million to $10.1 million for the current quarter, a 12% gain quarter to quarter.

Significantly, this is our first quarter that we've had rental revenues exceed $10 million.

We've doubled the rental revenue in the past two and a half years, and three and a half years ago, the Company's total revenues barely exceeded this.

Comparing six-month periods of 2007 versus 2008, rental revenue increased from $14.2 to $19.1 million, a 35% increase.

Rental gross margin as a percent of revenue in the second quarter of '08 was 59%, the same as in the second quarter of '07.

Gross margin dollars were up 7% sequentially, although the margin slipped from 62%.

I won't characterize this as a seasonal phenomenon, when typically you think revenues are impacted, but more so a practical situation.

Where spring expenses climb coming out of winter, when we tend to do relatively more catch-up maintenance than overhauls.

Year to date rental gross margins is 61%, compared to 60% in a year ago period.

Our engineering and fabrication people did a hell of a job this quarter.

We added 123 new compressor units to our rental fleet in Q2.

That brings the total fleet to 1,546 units as of the end of June this year, almost 190,000 horsepower.

And this is up from 1,352 units at year end '07, an increase of 194 units this year to date.

Our average fabricated rental horsepower per unit this quarter was 138 horsepower, and that continues the last few quarters' trend of building higher horsepower than average fleet units.

Our average cost of fabricating an average rental unit on a per-horsepower basis this quarter, compared to a year ago, increased 11%.

As predicted and just noted, we have quite a ramp-up of rental fabricated units in the second quarter.

Of this total, about 75% were built in our main rental fab facility in Midland.

The balance of the units were built in Tulsa or outsourced.

Going forward we anticipate maintaining the Midland build rate and ending the year at the high end of our 300 to 350 predicted unit additions to the rental fleet.

We ended the quarter at a rental fleet utilization rate of 90%, identical to the last quarter, and higher than the 88% we saw in the second quarter of '07.

We recently implemented a price increase for our installed and operating rental equipment that was effective August 1.

It is a high single digit percent increase.

It's been two years since our last blanket increase.

All labor and many other expenses have nominally increased at 40% to 50%.

We think it is a fair increase and we've actually had some positive customer feedback.

We have also been able to penetrate our markets to a greater degree and take some competitive share.

In the 55 to 500 horsepower range, in the states where we operate, and according to data from the Gas Compressor Association, our share has increased from 7.4% in December, 2004, to 10.3% in December, 2005, to 11.8% in December 2006.

As of the latest data available, we held a 12.5% share at the end of March 2008, compared to 12.1% in March 2007.

Our balance sheet continues to be very strong.

Our total debt is down to $11.4 million on June 30, 2008, a reduction of 27% from the $15.6 million at the same time last year.

Our cash and cash equivalents were $7.3 million in June of this year.

This is the first time in over two years that we have been [net debt] on the balance sheet, and I had mentioned last quarter that we would need to secure additional financing to continue our rental fleet growth.

We now have that in place.

Our banks have renewed our $40 million line of credit, and we refinanced our existing term loan on more attractive rates, both at lower-than-prime interest rates.

Capital expenditures in the second quarter of this year were $13.8 million and are $29.9 million year to date.

This compares to $9 million in the first six months of last year.

I will remind you that all of our capital expense is growth capital.

None of it goes to overhauls or maintenance of equipment.

95% of that is to build rental units to grow the fleet, with the balance being primarily dedicated by new service vehicles.

To wrap it up, I want to make a few additional comments.

From a general business perspective, a recurring trend that I think is important for our for our shareholders and followers to note is that not only do we continually post good results and growth in comparable periods, we also continue to grow our financial metrics as a percent of revenue.

I think we do a very good job from a financial and capital efficiency perspective.

We are also seeing excellent progress being made in the strategic shift we want to make relative to rental revenue share.

To remind everyone, we want to get rental revenue to two-thirds to three-fourths of our total revenue.

This is due to higher gross margins from that piece of the business, it's less volatile from a revenue/margin perspective, and it's a good defensive hedge and slow markets.

For the first time in almost four years, rental revenue is 50% of our total revenue this quarter, moving up from 34% of the top line back then.

The US EPA has issued new emissions regulations pertaining to engine-driven compression units effective July 1, 2008.

While the new standards were expected, they were issued with an almost immediate effect, whereas in the past there has been a period of time to comply, usually one to two years.

This time, between the time of issue and effective date was only about 30 to 60 days.

This will be a time-consuming and technically difficult process to accomplish in a very short time frame, and there will be some expense associated with it, but we are working with our engine and other suppliers to comply, we are buying and installing the catalytic converters and air-fuel ratio controllers required, and we're working with our customers to coordinate it all.

For some engines, to give you an idea of this, the retrofit approaches the cost of the engine itself.

And there are detailed paper trail requirements that we have to follow.

We've already got the written processes, and details, and specs in place to do this.

It will take more capital dollars, and the cost of engines has already gone up, but we intend to be a leader in this area.

We have a young fleet.

We're in a good position, in fact a better position than most, to retrofit our equipment.

And we have the capital resources and the technical expertise to make some market inroads against smaller competitors in this respect.

And one final note from a general business perspective.

We were inserted into the Russell 3000 index in June, so I think that will portend increased liquidity for our shareholders.

And from a market perspective gas prices - everybody's seen oil and gas here - but gas drives prices have dropped dramatically the last 30 to 45 days along with oil.

But it's still 50% higher than the same time last year, and I think we lose perspective of that sometimes.

Storage is presently below last year's level and about even with the five-year average.

From a consumption standpoint, more gas-fired electric generating plants are being built constantly.

Our customers continue to drill, they have a lot of acreage and inventory to continue to drill on in the future, their capital expenses are up, and there are a lot of new [shell plays]out there, which of course is our specialty.

Canadian imports are declining, and LNG imports are off 70% from last June.

Speaking of LNG, there was an announcement the other day that most people probably didn't see, and those that did may not have understood its significance.

Korea Gas Corporation, after buying the threats of supply disruption from Indonesia, entered into a purchase agreement with Indonesia to buy LNG at a record price of $20 per Mmbtu.

This was LNG originally contracted to a US utility but was diverted to this higher price.

But that's not the real news.

We've seen LNG go to far eastern Europe as US buyers have been outbid.

What needs to be paid attention to are the future ramifications of this.

A country friendly to the US, as opposed to the Irans of the world, is using their energy muscle to drive prices up in natural gas.

Does that sound familiar?

Does OPEC and oil ring a bell?

This price that was based on $120 oil has now set a precedent and market clearing price for international LNG.

What's important to us?

Right now, the US is almost energy self-sufficient when it comes to natural gas.

But if we go the way we've gone with oil, legislating against it and not developing our resources, we'll be in the same situation with natural gas in the future.

It amazes me that we now have a President that wants off-shore drilling.

The presumptive candidates from both parties support it, and 75% of the public agrees with it.

The governor of Florida is getting behind it.

But we get Ms.

Pelosi saying it won't happen on her watch.

Is it any surprise we're in the dire shape we're in when it comes to energy?

We presently have a governor of New Mexico restricting drilling and implementing new restrictive regulations on exploration and production.

Michigan, a state with some of the highest taxes and unemployment rates in the US, has essentially a regulatory standstill in place while arguments continue about production practices.

We have $4 gasoline, and everyone is blaming the oil and gas industry.

I think fingers are pointed the wrong way.

Natural gas is one of the absolute best ways this country has to help resolve our energy dependence.

It's here, it's abundant, and it's environmentally sound.

It can be used as a vehicle fuel in addition to heating and generating electricity.

But we continue to have restrictions on access to it on federal lands or the threat of additional taxes that hinder exploration.

If something doesn't change in our approach, our kids will be fretting over the price of natural gas from the Middle East.

That's the end of my prepared remarks.

I'll now turn the call back over to Ross to open the lines to any of you who might have questions.

Thanks.

Thank you.

At this time we will conduct the question and answer session.

(OPERATOR INSTRUCTIONS).

Our first question comes from Neal Dingmann from Dahlman Rose.

Please ask your question.

Good morning, Steve.

Good quarter.

Hi, Neal.

Say, on - Steve, I know you mentioned on the update here that you said that now you thought that for the rental fleet you could hit the upper end of the guidance.

Is the new facility now, is that ramped up or on pace to do about what you thought?

Are you able to expand that?

Starting next year, will you begin and ramp up even more or does it stay within your initial plans?

Well, this year, what we're thinking-- I mentioned on the last call too-- we'll ramp up the first couple quarters and the last couple quarters will be about flat there, and that's what we're looking at.

So that will put us at the high end of that 350.

But we intend, as I also mentioned before, to go ahead and ramp up further the next couple years, intending to reach the ultimate capacity of that facility of 500 to 550 per year in 2010.

But we're taking that two to three year ramp-- number one, just getting suppliers conditioned to give us more engines and compressors, getting the people in place and then developing the market simultaneously.

I think we're right on track as to where we thought we would be, but we're going to be able to hit the high end of what we're seeing from a rental fleet addition.

Okay.

And then, you mentioned the price increase.

It sounds like it's been pretty well received.

Does that factor in-- should we see the margins still stay in that same range, or could they [take] up just a bit or two now because of that going through?

Well, I'm hesitant to put a lot of that to bottom line, because as I mentioned, it's been two years since we did an across-the-board increase, and our guys have done just a heck of a job on controlling costs and watching this stuff.

It's gotten to the point where you just couldn't hold any more, and I think the positive feedback we've gotten from customers is that we hadn't done anything for a couple of years from the perspective of-- this is all installed operating equipment up there now.

They appreciate that we hadn't done that in a while, and we kind of-- we're reasonable in our approach to it.

So I don't want there's going to be anything to the bottom line.

We're certainly going to try to do that, but the costs keep going up.

Other stuff is getting cheaper, and I'm just-- I don't want to predict that we get any-- and if so, what to the bottom line right now.

I got you.

And now, on this last quarter, or, going forward, will you do like you did this last quarter, and that is, maybe we might see a few of the numbers that the sales guys out of Tulsa knock out, that some of those might fall into what you [add] in the lease side instead?

Well, now we're looking like a pretty full quarter in Q3 from the sales perspective.

So I don't think we'll have that, and I want to reiterate that point I'm glad you brought up again.

Although these sequential numbers are down quarter to quarter in that business according to just the inherent lumpiness of it, it was primarily due to build some new rental equipment in there to feed the rental business, which was very, very strong the first half as is apparent from the numbers we gave.

We don't think we'll be doing much of that in Q3.

Now, we may do some more in Q4, we're kind of looking at that, but that's our advantage here.

We don't have to-- if we see the demand stay up that way, we might do some, but if the sales demand comes back the other way, we might do it that way.

So with both facilities and being able to go back and forth, we can pretty well play the market however we want to do it.

Okay, Steve, last question.

As far as-- I'm sure somebody else asked this as well-- as far as the new plays out there, the Haynesville, Marcellus, Maine coast, on and on, are you being more proactive on that or are you waiting-- is it, let's have somebody contact you first before you would really go after those areas-- what's your plan to look at and explore those areas?

Well, every one of those is either in an area we've got sales guys or adjacent to an area where we have sales and operating people.

So, we're certainly talking to the customers in those areas and starting to develop a feel for it and what their timeline is, but some of these, as you know-- the Haynesville really is just starting with the drilling piece of it and not a whole lot going on there yet, so still a lot of infrastructure going into these places.

It's not really our time yet for our horsepower to be in there, active, but we are laying the groundwork so people know us, so we have a feel for what's going on and we'll be ready to move in when we need to.

Good, good.

Thanks, Steve.

I look forward to all activity.

Okay.

Thanks, Neal.

Your next question comes from Steve Ferazani, of Sedoti & Company.

Please ask your question.

Good morning, Steve.

I may have missed it-- just tell me what the fleet size was at the end of the quarter.

1546, I think.

And what's been the efforts in the quarter in terms of outside of the Barnett and the San Juan Basin?

How's that been going, what's the progress like?

You mean, where is most of the equipment going?

Yes, outside of those two areas.

You've seen-- has it been overwhelmingly those two spots, or have you gotten-- ?

No, it's overwhelmingly those.

I mean, the Barnett is just a nutty place.

Twenty years ago in this business you would have gotten a little worried about that, but everything you look at, involving the customers (inaudible) that there's still just so much good to do out there, so much inventory, there's still-- depending on who you talk to, 3, 5, 10 more years left out there to keep growing.

But most of it is there.

San Juan-- I'd say, probably 3/4s of it goes to those areas and the other is scattered out.

Okay, and what do you think the plan is over the next couple of years?

Do you think you can-- with the volume numbers you've talked about adding to the fleet, can most of them go in those two areas, or do you think you have to move it to some new spots?

We are moving into some others.

We-- I think I mentioned before, put salesmen in Oklahoma City over this year, we're starting to dabble in East Texas, Central Texas areas, so we're starting to move into that.

That's really one of the reasons we want this bigger fab facility, because before with our internal capacity topped out at about 250, but all we could supply were San Juan and Barnett.

So now we've got this additional capacity available to us, we're starting to get these things in some other areas, and actually we're in discussion with a couple more salespeople in some new areas to bring them on too to start developing those markets.

Our plan is to continue to move out geographically contiguous to the areas where we are so we can service that stuff and go ahead and expand our influence that way.

On the sales side, I know we talked about the lumpiness in other quarters.

Is that more of a product mix or just total volume going through?

It's a little of both.

You get-- for example, in the second quarter, some of it is due to just the flow through the plant.

We think we had a little over $1 million that didn't hit in the second quarter, but it hit in fourth day of the third quarter.

And that was-- we thought it was going to be the second quarter until the end when the customer couldn't get in and do his [run test to accept the equipment]-- we had to go into the third quarter.

You get things like that that go between quarters.

And you do get some of the mix, we've seen that before.

It's just, with the flow through a fab facility like that where you think you know exactly what's going to happen and of course, the customers change it during the week all the time, it's just real hard to get a good quarter to quarter feel for that, and that's why most you and everybody, you just have to look at that business on a rolling 12-month average, and as long as it looks good there, I think that's all that needs to be worried about.

And backlog is pretty healthy there right now?

Yes, same as last year.

Down a couple million from last quarter, but we're well within the normal range of what we see.

Fantastic.

And what are you thinking for compression utilization for the rest of the year?

Can you do 90% or is this going to be probably the higher end?

Well, we like 90 plus or minus a couple of points.

If we get to 87, 88, that's okay.

I really don't like much over 90, because that starts to hinder the share you can continue to get.

And sometimes, like we did a couple years ago, even when things slowed down, we kept building and drove it down intentionally ourselves because we knew it would be back, so I think 90 is a good number but again, two or three points around that is nothing to worry about either.

All right, thanks a lot, Steve.

Okay.

Thanks, Steve.

Our next question comes from Matt Beeby, from Morgan Keegan.

Please ask your question.

Good morning, everybody.

Hi, Matt.

Just to follow up with you when you discussed the EPA standards that go into effect July 1.

Those costs associated with that, is there going to be a meaningful impact in this third quarter.

Are you going to be able to share some of those with clients?

Can you provide any detail on how that might work?

Well, it took effect July 1, so we're starting to ramp up.

All the new engines we're buying are emission-controlled and things like that.

So there will be an immediate effect.

That won't show up for over time because that stuff's capitalized and will feed back through that way.

But we're sitting down with customers and really trying to figure out what's the best way to do this from an implementation-- and being sensitive to down time for them to do all this stuff.

It's a pretty big undertaking because, like I mentioned, usually you have a year or so to get ready for this stuff, and this just came in with about 30 days' notice for whatever reason.

So it's got everybody's attention pretty quick.

Now we will be recovering.

It's going to be a capital expense on the equipment so it will be into a rental rate.

So a direct operating effect-- you won't see much of that, but you'll see an increase in capital just due to that.

The margin may be impacted more by down time not the [expense] or cost?

I don't think it will be impacted by that.

That's why we're working with the customers.

Certainly we don't think we're going to get a deal where we're penalized for downtime for responding to a federal mandate.

And I don't think the customers see that either.

I think they're very receptive as to our approach to them and how we're doing it and trying to work with them to get this stuff in there and done.

It's actually the customers' responsibility, since its their lease, to have those things cleaned.

So that's why we're getting out there and getting after it pretty quick.

I see.

And again, as I mentioned, I think it will help us from a market standpoint.

Not only, number one, being very proactive in doing this from an environmental perspective, but we've got the capital resources and tech resources and technical expertise to do this and do it right that some of our smaller competitors in our area probably can't match.

Okay.

You mentioned that you had some outsourcing.

Can you quantify the number of compressors that were outsourced this last quarter?

Well, as I mentioned, in Tulsa we did twelve.

We probably outsourced outside of that about fifteen or twenty.

So what are the bottlenecks, then, at your main facilities?

Is it still a labor issue or component delays, or-- ?

Yes, well, it's not really component delays.

It's, again-- the three things we've got to develop simultaneously is, number one, our suppliers have to be able to supply us more engines, compressors, etc.

coming in.

They can't do that overnight, so that's a ramp up piece of it.

And coolers and everything else.

So that's a ramp up piece.

Getting the people in there is a ramp up piece.

And then developing the markets.

If we want to put out 500 more units into the fleet two years from now, we've got to get out into these areas we just mentioned: Oklahoma, East Texas, and some of these other areas that we're putting these sales people in to pull that equipment into.

So it's all three of those, not really a bottleneck just a ramp up in a very busy time that will take a couple years.

Okay, and then flipping back over to the sales side, you guys are going to have to see some pretty significant performance is 3Q and 4Q just to get to the' 07 levels on an annual basis.

Is that a goal, or do you have any kind of guidance on that or expectations on that?

Well, again, it's going to be-- It's hard to put a number or expectation on that because of just exactly what happened the second quarter in doing some rental units through there.

With the number of rental units we put in the fleet, what over 120 which is-- we did about 70 the first quarter, so a heck of a ramp up.

The market took all of them because our utilization stayed the same.

And our sequential growth is 12% or 13%, so if we see the need for additional rentals compression, we may displace some of that sales revenue.

And that hurts you in one way from the immediate quarter, but certainly long term is where we want to go from a margin standpoint and from a top line perspective from the rental revenue.

So, I think we'll be within-- if we don't exceed the sales number this year of last year, we'll certainly be within a reasonable estimation of that.

But again, we're going to reserve the right to take the long-term perspective and run more rental units through there if we need to.

Understood.

I think that's about all I had.

We'll look forward to your interview this afternoon.

Okay.

Thanks, Matt.

(OPERATOR INSTRUCTIONS).

At this time we have no further questions.

I'd like to turn the call back to Mr.

Taylor for closing remarks.

Okay.

Well, thanks, Ross.

I appreciate everybody joining us.

Before I close, I want to, as I always do, thank all of our employees for their continued work.

It's only through their efforts that we've been able to grow the Company as we have, deliver the bottom line profits as we need to, and prosper as we expect to.

So I thank you for joining me on this call and look forward to visiting with you again next quarter.

Thanks.

Thank you.

This concludes today's conference call.

Thank you for attending.