Natural Gas Services Group Inc (NGS) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group second (sic) quarter 2009 earning release and conference call.

Your host for today is Kimberly Huckaba, Investor Relations contact.

(Operator instructions.)

I will now turn the call over to Kimberly Huckaba.

You may begin.

Thank you, Erica, and good morning, listeners.

Once again, please allow me to read the forward-looking statement.

Except for historical information contained herein, the statements in this morning's conference call are forward looking, and they are made pursuant to the safe-harbor provisions as outlined in the Private Securities Litigation Reform Act of 1995.

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

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

The forward-looking statements included in this conference call are only made as of the date of this call, and Natural Gas Services undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include, but they are not limited to, factors described in our recent press release and also under the caption "Risk Factors" in the company's annual report on Form 10-K filed with the Securities and Exchange Commission.

Now that that's covered, I will turn the call over to Steve Taylor, President, Chairman, and CEO of Natural Gas Services Group.

Steve?

Okay.

Thanks, Kim and Erica, and good morning to everyone, and welcome to Natural Gas Services Group's third quarter 2009 earnings review.

We released our earnings after the market closed last night, and I'm happy to review them with you this morning.

As you know, we continue to operate in a very difficult and competitive market and have been for about a year now, but our results are, I think, enviable.

From a highlight standpoint, our rental revenues this year to date exceed those in last year's period, and we continue to maintain a higher level of rental gross margins over the same periods.

Our total revenues, although expected some decline, were sequentially flat, helped by an uptick in sales revenues, and we were able to deliver a 26% gross margin in our compressor sales business.

As I review year-over-year quarters, please remember that the third quarter of last year was a record quarter for NGS from a revenue, EBITDA, and net income perspective largely due to unusually high compressor sales.

As such, some of these particular year-over-year comparisons will be more severe than the other periods, but I will also compare year-to-date results to add perspective.

This reminder tells a story from a record quarter last year at this time to what we hope is a bottoming of a cycle in only 12 months, and this quarter's much as we predicted, a tough environment with pressure on all pricing and rental utilization, but we have continued to experience very good cost control, deliver industry-high margins, and maintain our market share.

Total revenues in the third quarter of '09 declined to $16.4 million from $19.5 million in the third quarter of '08.

Sequentially, though, revenues were just about flat at 16.5 -- $16.4 million.

On a nine-month year-to-date basis, revenues this year were $53.2 million, which is a 16% decline from the same period last year with all that decline and more, as predicted, attributable to the compressor sales business.

Comparing the third quarter of '09 to the third quarter of '08, total gross margin fell to $8.7 million, or 53% of revenue, from $11.6 million, or 46% of revenue.

As you can see, our gross margin percent has climbed primarily due to higher rental margins and a mix shift to a higher margin of rental revenues.

Sequentially, gross margin declined from $9.2 million to $8.7 million with delivered margins of 55% and 53% respectively.

For the comparative year-to-date period, gross margin was down only 3% to $28.5 million.

SG&A expense was essentially flat in the year-over-year quarters at $1.6 million in the third quarter of '09 and decreased sequentially from $1.7 million.

We did experience a $400,000 increase in comparative year-to-date periods, but a big part of that were new sales people we added this year and increased noncash employee stock option expenses.

Comparing the year-over-year quarters, net income declined from $4.8 million in the third quarter of last year to $2.6 million in the third quarter of '09 and, sequentially, fell $300,000.

On a year-to-date basis, net income declined $2.4 million but held at an 18% margin, the same as the nine-month period last year.

EBITDA declined from $10.1 million in the third quarter of '08 to $7.1 million in the current quarter but increased from 40% to 43% of revenue.

Sequentially, EBITDA went from $7.5 million in the second quarter of this year to $7.1 million in the third quarter and was off 8% in the comparative year-to-date periods.

Fully diluted earnings per share for the third quarter of this year was $0.22 per common share.

Total sales revenue consists primarily of compressor sales but also includes flares, parts, and rebuild revenues.

Total sales declined to $5.3 million in the third quarter of this year as compared to record revenues of $13.2 million in the year-ago quarter.

Ninety-five percent of this decrease was from compressor sales, but, significantly, we were able to maintain gross margin in the 31% to 32% range for both year-over-year quarters.

Sequentially, revenues moved up from $4.6 million last quarter, and gross margins increased from 29% to 31%.

Year-over-year compressor sales alone decreased to $3.8 million in the third quarter of this year but did uptick from $3.1 million in the second quarter of '09.

Our compressor sales margins continue to be exceptional and are running 26% this year to date, as opposed to 29% last year.

The compressor sales backlog at our fabricating facility in Tulsa at the end of the third quarter of this year was about $3 million.

This shows that we still have low levels of activity in the compressor sales business and continued limited visibility, but we don't want to take this sequential bump as a future indicator at this point.

Compressor rental revenue declined $600,000 in year-over-year quarters from $11.4 million last year to $10.8 million in the third quarter of this year, but we maintained our rental margins at 64% in both of those quarters.

Sequentially, rental revenues fell $1.1 million.

From the comparative nine-month periods, revenues are running 17% higher with gross margin 21% greater.

We're happy that we've been able to maintain superior pricing, control our costs, and increase our margins in this environment, and, in fact, our average rental fee revenue per unit is 9% higher this quarter than the year-ago quarter.

The rental fleet had essentially no growth this quarter, as we added only one net new compressor and spent only $600,000 in capital.

Our year-to-date capital expense is $7.8 million, and the fleet now totals 1,772 units.

We ended the third quarter at a rental fleet utilization rate of 70%.

Our liquidity continues to be very strong and our capital structure enviable.

Our total short-term and long-term debt was $14 million as of September 30th of this year, including $7 million drawn on our $40 million line of credit and cash in the bank at $17.7 million, a $6 million increase this quarter.

So we are net cash on the balance sheet.

Our cash flow from operations was $7.5 million this quarter and $24.4 million this year to date compared to $20.3 million last year.

This is 20% higher cash generation over these past nine months.

1, and total debt to total cap is 10%.

We're in a period of time where the current operating environment is adverse, and it's hard to project too far into the future.

For example, earlier this quarter two separate firms revised their 2010 projection for natural gas prices.

One went from $6.50 per NCF down to $5.00, while the other went from $5.50 per NCF up to $7.50, all within three days of each other.

That's a 50% swing, and that price delta implies a widely disparate opinion of future activity.

I had started the year saying that this quarter would likely be the trough and that during the Q4 we would bump along the bottom with some upturn going into the new year.

This was predicated on some rebound in the economy, and I still think that may be the case but also feel that any real momentum will be more muted and possibly delayed.

The positive signs are there.

Gas prices are a bit higher, colder weather is coming, production has moderated, and although storage is high, we didn't, as I predicted, run out of it.

However, there aren't any clear signs on the economic side, that being primarily industrial demand, and that's a macroeconomic factor that will be driven by the national economy, and I certainly don't think that's being managed correctly.

In the meantime, we will continue to deliver industry-leading results.

Although the short term is difficult, natural gas has a great future, and I do want to make some comments on efforts to introduce natural gas into the infrastructure of this country to a greater degree, and one of those is by using CNG for vehicle fuel.

If we really want to clean up our environment in a timely manner, there is no better way to do it than with natural gas as a mode of fuel.

It is domestically produced, cleaner and less expensive than gasoline, and does not require any technological breakthrough.

Vehicles have been fueled with CNG for over 50 years.

There are legislative efforts in Oklahoma, Louisiana, and Texas to offer economic and tax incentives to accelerate the adoption of CNG, and there has been a bill introduced in the US Congress to encourage greater use, but we need more push from an administration ready to dump billions into unproven, long-lead, solar, wind, and electrical technologies that hasn't given natural gas the time of day.

This administration has to not only start encouraging the use of natural gas but stop discouraging it through benign neglect and punitive actions, likely overly restrictive access and increased tax burdens.

Along these same lines, electric-generating capacity should be totally natural gas fired, as opposed to coal.

There have been market-share gains in natural gas in this area in the past few years.

We are about to embark on a journey through the brave new cap and trade world, and according to reports, the coal industry will be able to maintain or increase their share with the award of free credits.

What is one of the dirtiest fuels available generates most of our electricity in this country, and apparently we're about to encourage and perpetuate that in spite of what is being said.

We spend billions on trying to perfect clean-coal technology, which, contrary to general perception, doesn't exist yet, and to develop carbon sequestration and capture that is, at best, theoretical, not to mention unacceptably expensive.

And do you know what it takes to get natural gas to burn cleaner than any of this?

A match.

One area that has held natural gas back from wider use was its perceived unreliability of supply.

Five years ago it was thought that we would exhaust our natural gas resources in a few years.

Now, with the huge unconventional gas discoveries, our reserves have risen to many multiples of that.

It is now accepted that we will be able to tap economic gas resources well into the next century.

We need our lawmakers to utilize the resources we already have that can be produced in real time and that are clean.

My last comment relates to NGS for the fifth year in a row being chosen as one of Forbes magazine's "200 Best Small Companies in the US." This year we ranked No.

36, our highest mark so far.

That's the end of my prepared remarks, and I'll now turn the call back over to Erica to open the lines for any that might have questions.

(Operator instructions.) Our first question comes from Gary Farber from C.L.

King.

Please state your question.

Yes, hi.

Good morning.

Nice quarter, Steve.

Just had a question on what are you seeing from your competitors in the market given that the environment sounds pretty difficult?

Well, there's -- you get, I guess, the gamut from A to Z as to how people approach things like this, but, generally, we're seeing some pretty low pricing, some of it what I would call predatory or desperate in some areas, and there's some -- a little bit turmoil in the market from -- there's been come recapitalizations going on, some pretty tight cash situations with some companies.

So -- and that's nothing new.

That always drives, maybe, some companies to price, what I would call, unrealistically in these markets.

But we've been able to -- I mean, you can see by the numbers we've not only preserved our margin but gone up.

Our average pricing is up, and we're still holding in there from a market-share standpoint.

So I think we've -- there's a couple ways you approach pricing.

You can just go by market share and hope that works -- and it never does in the long term -- or just try to establish -- work off the main strategy of continuing to maintain the service and hold everything in there as best possible and try to continue to sell the customer on the quality he's getting.

And is the key factor here going forward -- as far as that situation resolving itself -- demand, basically?

You need to see industrial demand?

That's going to be it that --

Yes, we've just got to a get a bit more of that.

Now, there's -- production's coming off, recounts still down -- things like that -- and others a little -- the EIA data in August was -- kind of spooked some people because production showed a little, say, month-over-month gain, but that's just one point.

I don't think anybody needs to panic about that yet because, I think, overall, the trend is ripe in going down.

But, yes, we just need some good, solid demand coming back in.

And there's little hints of that, but there's really nothing that you can really set a projection on yet.

Right.

Okay.

Thanks.

Thanks, Gary.

Our next question comes from Mike Drickamer from Morgan, Keegan.

Please state your question.

Hey.

Good morning, Steve.

Hey, Mike.

No commentary on how the health-care debate's going to affect NGS?

You know, I've tried to limit my comments to the energy realm.

Otherwise, we'll be here a long time.

All right.

We can take that one offline then.

Yes.

You did talk about a tick up in the rental -- or excuse me -- sales revenues during the quarter.

Anything special on there, or is that just the numbers didn't fall as much as we thought?

Well, we had a couple of overseas sales that happened in there that helped out somewhat, and so that's good and -- but it's -- as I mentioned, I'm just -- you know me and sales.

I'm very, very conservative on that because it is -- just a very highly variable business quarter to quarter, and so I don't want anybody to say, "Oh, the turn is here, and it's going to be all rainbows and butterflies going forward." It's -- we were fortunate to get a couple good orders in that helped increase that, but I think we just still need to be pretty cautious with that part of the business.

I mean, can you quantify how much those orders were, and if they don't recur going forward, is that something we need to look at perhaps (inaudible) rental -- or excuse me -- sales revenues (inaudible) lower level going forward?

Yes, well, it wasn't -- it was -- I think those were about, maybe, roughly $1 million -- something like that.

So, if you essentially backed out of where we are, you get pretty close to the backlog we're -- we had going forward.

And that's why I say you don't want to -- wouldn't want any of you guys to say this is -- again, we turned the corner.

I think that's still a very competitive, very tough environment, especially in that business right there, and it's always highly variable, and it's just -- it can run the extremes right now.

Where was the backlog then going forward now at?

It was $3 million the end of Q3.

Okay.

And we don't anticipate -- I mean, it's just -- we feel like -- we just feel like it's going to hold at a low level.

We don't see -- and as I mentioned, the problem here is there's just no real good visibility about this stuff.

At least in rental, you can kind of calculate something out there because you've got an install base of equipment, but the sales stuff, it's -- with your backlog down to essentially a quarter's worth of revenue, heck, it's -- you don't know until you get into the quarter exactly what's happening sometimes.

Okay.

You commented on your utilization at the end of the quarter was 70%.

By my calculations, that somewhere over 350 compressors you can put back to work out of your existing fleet.

Looking at CapEx for the fourth quarter, is there any reason to believe it won't be similar to what third quarter was?

No.

There's no reason to believe it'll be much more.

I mean, there's -- we spent $600,000 in Q3.

We had a net add of one.

We actually built four units and sold three out of -- not the same three, but just out of -- we sold some out of the fleet.

Right.

So, no, I don't anticipate a whole lot of difference in that.

It's -- we're just at a very low level, and as you mentioned, we're able to pretty routinely pick something out of the yard and fit, and if it doesn't fit very well, we're trying to make the application right for that equipment, and/or a lot of times we can do some minor cylinder changes or something like that on a unit that's sitting there and go ahead and redeploy it.

So that's our first and almost last resort when we're looking at equipment, and it's only as -- the 1% time that we'd look at building something.

Now, has your outlook changed enough that perhaps you start building a greater number of compressors in 2010, or are you still at the point where you want to sit back and wait and kind of put compressors back to work before you start building compressors again?

Yes, we're going to -- I mean, we watch utilization real close, and that tells us pretty quick as to whether we need to be gearing up or not, and I don't anticipate much of that.

Now, I think utilization can go up, and we can still not build much because, as you mentioned, we've got a pretty good backlog of equipment just in the yards, and if you look at redeploying that and getting utilization back up into the -- say, the 80%-plus range, we can do that without a whole lot of capital.

Now, it won't be zero capital because you're always needing something.

You can have a customer call up and none of those 350 fit.

But it's going to be very minimal, and that's where I think the leverage comes next year in the business.

I think it'll be interesting to see that we can have pretty good -- with the market firming, we can have pretty good top- and bottom-line growth with very, very little investment.

All right.

So good top- and bottom-line growth with minimal investment means you're going to generate a lot of cash.

Last quarter you talked a little bit more favorably about acquisitions.

Still haven't seen any announcements yet.

What are you seeing in the acquisition market right now?

Well, we're still looking, and as I've mentioned quite a few times, there's -- at any given time we're always talking to somebody in some matter, typically on some cursory level, to determine if there's some interest.

I mean, it's still about the same level.

It's probably actually dampened a bit this quarter versus last quarter, I think.

With some of the market moves up -- our stock's not the only one.

There's been others moving up, and we're not talking about -- we talk to our public companies -- it'd be private companies, but, still, their equity value and enterprise value goes up the same respect.

So it's -- we're probably just getting back into what's, I guess, more normalized valuations that would tend to slow things down just a little bit more than a, quote-unquote, "deal."

If that acquisition doesn't materialize, do you just keep the cash on balance sheet and use it to build compressors (inaudible) next up-cycle, or what are you looking at doing?

Yes.

Yes, that's the two reasons -- I mean, with that cash, if we find something we want to get, we can do it.

If not, exactly, we're going to use that cash to build equipment, won't have to go out and borrow any money or anything like that.

And/or if this ends up being stretched out longer than any of us anticipate, it gives us a good cushion.

It's -- to coin a phrase, "Cash is king" -- right?

-- and especially in downturns like this.

All right.

That's it for me, Steve.

Thanks a lot.

Okay.

Thanks, Mike.

Our next question comes from Joe Gibney from Capital One Southcoast.

Please state your question.

Thanks.

Good morning, Steve.

Hey, Joe.

Hit most of the hot points here.

Just want to circle back on the compressor sales side on the gross margin line.

I'll certainly try and refrain from building in rainbows and butterflies into my model here, but where are we, at least from a perception standpoint, on gross margins?

I know it's lumpy, 26% was well above my expectation for the third quarter, and you're telling us to restrain ourselves, I'll do so, but does that mean kind of low to mid-20%'s kind of at best as a reasonable trajectory here for the next several quarters?

Yes, I think so.

Because last quarter's 22% -- we popped up a bit, which is great, but, again, I just think these are -- it's volatile times and volatile business, and I think we need to be conservative in that.

So, yes, I think the low-20%'s is going to be reasonable.

Okay.

That's it for me.

We hit most of the high points.

I appreciate it, Steve.

I'll turn it back.

Okay.

Thanks, Joe.

Our next question comes from Bill [Heiler] from Ridgecrest.

Please state your question.

Yes, good morning, Steve.

Hi, Bill.

Hi.

Steve, question on new areas, like the Marcellus.

What is your strategy there to try to address that market, which looks like it's going to get a lot bigger over the next five, six years?

And, also, a second part related to that, do you think the industry is going to need new compression equipment to meet that demand, or will it probably just redeploy equipment from, maybe, the Rockies or other areas that may be seeing a decline in activity?

Well, number one, we'll be planning the Marcellus as it gets into our piece of the business.

And Marcellus is like the Haynesville.

It's -- those two are really just iterations -- reiterations of what had happened in the Barnett -- the beginning of the decade, where you go in and start drilling the stuff up and then, over time, these wells -- number one, they deplete pretty quick, and then, number two, as they get older, they -- the good wells deplete down.

So we've already got a physical presence there with service people and sales and have some equipment in the Appalachian area.

So we're already there so all we have to do is move equipment in when it's required by this.

But it's going to be a couple years before we need to be -- or we will be placing increasing amounts of equipment in there -- in the Marcellus itself just because -- I mean, you've -- everybody's heard the numbers.

These wells come in just great volumes and great pressures.

They don't need compression right now, whether it's our size or anybody else's.

But as this stuff depletes, it -- 75%, 80% first-year declines, and probably you'll at least half that going forward, that's when that -- that's when compression starts to come in.

And then -- and our compression, being the small-to-medium more well-head-focus type compression, will come in a couple years down the road, but then that's when we'll really see a pretty quick climb, we think, just like the Barnett.

I mean, that's our biggest area, and it grew very, very fast because, once you start going to well head, that stuff just starts -- about everywhere you go, you're placing compression in there.

So we think it'll be very, very -- a good market for us down the road.

Now, will need new equipment versus being deployed from somewhere else?

I -- a lot of moving parts to that question, but, generally, I think it'll need additional equipment because what's going to develop that area is what's going to develop every other area, and that's gas pricing.

So as gas pricing starts to firm up -- firm back up in the future, we'll see more equipment go back into the existing areas.

I mean, the -- we'll see more equipment go back into the Barnett, San Juan, etc., etc., as these prices come back up to where operators can make the return they want.

So existing areas will still need equipment, and then I think there'll be additional equipment needed in the Marcellus, and I think that's particularly true for us because we've had a fleet we've grown very quickly the last four or five years, but we've still got a lot of room to grow on that, and we've got the capacity to add that stuff.

So we think areas like the Marcellus and the Haynesville are -- I mean, we've already got them on our map as being places in the next three to five years that are going to generate a lot of growth for us.

Okay.

Thank you.

Thanks, Bill.

Our next question comes from Neal Dingmann from Wunderlich Securities.

Please state your question.

Hi, Steve.

Hi, Neal.

Question was wondered -- you talked a little bit about the backlog you have.

Is that as a result of -- and I think you and I have talked about this in the past -- when you have some of these wells that have recently been shut in, have you brought back some compressors back into inventory?

And then sort of the second part of that question, are there other compressors you have out there that maybe they've shut into wells, but they plan to bring those back up soon, and so they're out there but maybe not working?

I'm just wondering how those show up.

Yes, a lot of the equipment we've gotten back is sort of the base reason (inaudible) customer for whatever reason doesn't need it, and it's all related to economics.

And, yes, some of it is consolidation of some systems out there -- the operators have gotten very efficient in how they run some of these systems and consolidate parts of it, and it's most just straight economics where it's -- either they aren't making money on that well or they don't want to sell at this price so it was a shut-in situation, where they'll shut it in and send the equipment back.

Now, going forward, as pricing starts to firm up and get a little better, what we'll see is, I think, three different phases here.

Number one, the first thing an operator does when he wants to put gas back on, he goes out and turns on his shut-in wells, and so, if we've already -- that doesn't take any drilling, doesn't take any -- really more prep money than sending somebody out there and turn it on, maybe run a (inaudible) get some water (inaudible), but pretty cheap, quick-and-dirty way to get some gas back in.

The second thing will be this amorphous number of drilled and uncompleted wells.

Those will be -- you don't drill them.

You just go back out and complete them and put that stuff on.

Then you start getting to the drilled wells.

Of course, it's not a definite one-two-three step.

There's gray areas in between them, but I think that's how the general trend will go.

So we do have some compression out on locations the customers have shut in that they wanted to leave out there on what they think is a, quote-unquote, "temporary basis." They didn't want to spend the money to pull something out, put something back in, and if we didn't need the equipment at that time, we'll work with them to leave it out there, knowing that, when they turn it back on, it's our equipment that goes back to work.

Sure.

Sure.

Yes.

Good call there.

And then the last answer is, as far as (inaudible) Rock Springs and some of this Rocky Mountain area, what do you perceive there?

Do you think that's coming back, or what are you anticipating?

Yes, I think it'll come back, but, again, it's going to be driven by price, and you need more incremental price in the Rockies than any other area just -- of course, you've always had the traditional pipeline constraints up there, but it's just -- it's also a more expensive area to operate.

So I think long term the Rockies are going to be a great place.

Now, as I just mentioned, the very short term -- I think our growth will go very short term from a point of when the pricing gets back up, operators are confident -- it's the existing areas we're in that'll come back.

We'll start putting equipment in there.

Because they've got the infrastructure there, they've got the wells drilled, you just go out there and get that stuff.

The second is going to be these Marcellus, Haynesville, Eagle Ford -- these new plays coming on that look very good, very economic, and those will be the second phase.

And then I think, third, long term -- and it may be ten years -- but the Rockies -- there's a lot of gas up there, and there's pipelines going in, and it's just going to take a little more time, but, I mean, I've worked the Rockies for a long time and lived up there a long time, and there was always a constraint up there, but at least now there's realization of what the issues are, what needs to be done.

I think it'll turn, but it's going to be longer than some of these other, less-expensive areas to develop.

Got it.

Thanks, Steve.

Thanks, Neal.

Our next question comes from Steve Ferazani from Sidoti & Company.

Please state your question.

Good morning, Steve.

Hi, Steve.

Can you give a sense of where regionally your compressor sales are going at this point?

It's really a smattering of different places.

If I pick the one largest area, it's going to be no surprise that it's Texas, but it's not -- it's -- there's some into the Rockies, some into the Southwest and [Midcon] and stuff like that.

So there's no real one area we can point to as, "Hey, let's go there and really hit that." It's just kind of spread out.

Just with sales and, I guess, cover some topics that have already been covered already, which is the sales growth seemed to correspond fairly closely with the uptick in the rig count.

So what's to make us think that, given rig count should trend at least modestly up here, that your sales won't go with it?

Well, I don't --

Is that coincidental, maybe, is --

Yes, I don't think there's that close a correlation.

I mean, it -- I understand what you're saying, but I don't -- because, number one, the rig count is a little further removed from when people actually buy and build and get a compressor.

So, if the rig count went up in Q3, that compression would have had to have been probably contracted in Q2.

So the -- there's probably not a matching time cycle on those two.

But I hope you're right, but I'm not ready to call the -- a tight correlation yet.

Okay.

In terms of now that we're just entering injection season, have you seen any signs of some of the shut-in wells where you have compressors might be getting turned on here and, also, any indications of some of those drilled wells and the Barnett getting completed?

We haven't seen anything yet, but talking to customers, we're hearing their plans to do so.

(Inaudible) that and $2.00 gets you a cup of coffee nowadays; right?

But these are good customers we've had and we've talked to and we -- there's no reason they wouldn't be saying something if they don't intend to do so.

We're hearing more and more talk about it, we're hearing a little more talk about people starting to put some rigs back in some of the areas like the Barnett and things like that.

So, generally, there seems to be just a little more positive talk in some of that stuff.

But, again, we need to see some compression go back to work before we -- before it shows up in real time.

If you're out around 70% utilization, the other 30%, can you give us a sense of how much of that is still sitting out in the field ready to go back to work and how much is back in your -- in the fab at this point?

Yes, there's not a whole lot out there.

Probably, I would say, 3% of the fleet is just out maybe waiting on the shut-in thing -- 2% or 3%.

So there's not a whole lot out there doing that.

A lot of them just went ahead and sent equipment back, and they'll deploy it if they need it.

Okay.

Last one for me is, given that your compressor fleet isn't necessarily growing a lot now, you're probably turning over some units, any change in your horsepower per compressor?

I mean, are you looking at changing that as you're replacing compressors?

Are you going higher horsepower?

lower horsepower?

Any shift?

Well, there's no real shift going on right now, and when you talk about turnover, we're -- we don't -- we've got the youngest fleet around.

It's only about three- or four-years old average age.

So we're not -- from a turnover standpoint, we're not retiring any equipment or selling it off as bad or obsolete or writing it off.

Any turnover we have is we're a little more amenable nowadays to selling something out of the fleet to somebody that wants to buy it than we would have been in the past.

So we don't anticipate anything like that on the wholesale basis.

So we don't -- I think the build level is going to be low going forward, and, again, until we see some uptick in utilization with some corresponding confidence that it's going to be sustainable, we'll be able to live off what we've got.

Appreciate the color, Steve.

Okay.

Thanks, Steve.

(Operator instructions.) At this time, we have no further questions.

Okay, Erica.

Thanks a lot.

Before I close, again, I want to thank all of our employees for your continued work.

It's only through their efforts that we're able to go grow and prosper and get through tough times like this.

I want to make sure they all know it's appreciated.

So I want to thank everybody for joining me on the call, and I look forward to visiting again with you next quarter.

This concludes today's [tel] seminar.

Thank you for attending.