Natural Gas Services Group Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 15, 2023

There are 7 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group Incorporated Quarter 3 2023 Earnings Call. At this time, all participants are in listen only mode. Operator, assistance is available at any time during this conference by pressing 0 pound. I would now like to turn the call over to Ms. Anna Delgado.

Operator

Please begin.

Speaker 1

Thank you, Luke, and good morning, everyone. Before we begin, I remind you that during this call, we will make forward looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 based on our current beliefs and expectations as well as assumptions made by the information currently available to Natural Gas Services Group leadership team. Although we believe that the expectations Reflected in such forward looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the United States Securities and Exchange Commission for the factors that may cause actual results to differ materially from both in the forward looking statements made during this call. In addition, our discussion today We'll reference certain non GAAP financial measures, including EBITDA, adjusted EBITDA and adjusted gross margin, among others.

Speaker 1

For reconciliations of these non GAAP financial measures to our GAAP financial results, please see yesterday's press release and our Forms 8 ks, 10 ks and 10 Q furnished to the SEC. I will now turn the call over to Steve Taylor, Our Chairman and Interim CEO.

Speaker 2

Thank you, Emma, and Thank you, Luke, and good morning, everyone. Welcome to our Q3 2020 earnings conference call, And thank you for joining us this morning. Before taking your questions, I will highlight our financial and operational results for the Q3, Discuss the current business environment and provide comments on other aspects of our business. We had a very successful 3rd quarter. Sequentially, our total revenue increased over 16% with a year over year increase of 42%.

Speaker 2

These increases were led by rental revenues that grew by $3,600,000 or 15% sequentially and $9,100,000 or 49 percent when compared to last year's Q3. Sales and AMS revenue combined being about 12% of total revenue, grew by approximately $800,000 or 28%. Sequentially, Total gross margins grew by 14%, SG and A declined by over $2,000,000 or 41% And adjusted operating income was up almost 7 times to $4,900,000 Sequential net income increased by over 4 times And EBITDA grew 19 percent to $11,800,000 In the comparative year over year periods, we saw similar growth dynamics and cost savings, and I will detail those later in the call. Our 20 22 capital program is proceeding as planned and as we have also experienced in the last quarter, We continue to show exceptional and positive financial impact. Additionally, we saw the following of our 8 ks this morning.

Speaker 2

Have expanded our existing credit facility from $175,000,000 to $225,000,000 and have added a new member bank to the group. These funds will continue will be primarily dedicated to our 2024 growth capital plans and represent continuing confidence from our banks as the results we're achieving and our plan going forward. On this call, I have Jim Hazlett joining me. Jim is our Vice President of Technical Services Has been with NGS almost 20 years. Brian Tucker is also here and joined NGS about a month ago as President and COO.

Speaker 2

At the same time, John Bittner took over our Chief Financial Officer duties on an interim basis. Brian and John both have extensive experience in their respective fields. And if you'd like a refresher on the backgrounds, I'll refer you to the press release we post at the time. We're glad to have all of them on our team. Now let me jump into the review of the Q3.

Speaker 2

Total revenue for the 3 months ended September 30, 2023 increased to $31,400,000 from $27,000,000 for the 3 months ended June 30, 2023, or a 16.4% increase in sequential quarters. Total revenues increased year over year from $22,000,000 Sequentially, adjusted total gross margins increased 14% from $12,800,000 last quarter. On a year over year basis, our adjusted total gross margin of $14,600,000 in the Q3 of 2023 increased approximately 49% when compared to $9,800,000 in the same period in 2022. Rental revenue increased 15% from $24,100,000 in the 3 months ended June 30, 2023, compared to $27,700,000 in the 3 months ending September 30, 2023. Rental revenue increased to 27 $700,000 in the Q3 of 2023 from $18,600,000 in the Q3 of 2022 for a 48.7% gain over the past year.

Speaker 2

Both comparative period increases were primarily the result The increased deployment of higher horsepower rental units, slightly higher horsepower utilization across the fleet and rental price increases throughout the year. Rental revenues now compose approximately 85% to 88% of our total revenues in all comparative periods. Adjusted gross rental margin increased sequentially from $12,800,000 or 53 percent of revenue In Q2 2023, we had $14,200,000 or 51% of revenue in the Q3 of 2023. This was a 12% increase in gross rental margin dollars since last quarter. Our gross margin percentages slipped 150 basis points due to higher than usual parts costs.

Speaker 2

We will see that as an irregularity and anticipate that these margins will recover in the 4th quarter. In the comparative year to date 9 month periods, our rental revenues have increased 38%, while adjusted gross margins grew by 50%. As of September 30, 2023, we had 1233 utilized rental units, representing over 400,000 horsepower compared to 1196 400 units, representing just over 305,000 horsepower as of September 30, 2022. We have added over 85,000 horsepower to the fleet this year, an approximate 20% increase in total fleet horsepower. Our total fleet size just passed 500,000 in September for a total of 509,000 horsepower at the end of the quarter.

Speaker 2

During that same period, our rented horsepower grew by almost 95,000 horsepower. That's a 31% growth in utilized horsepower and equates to incremental utilization of 111%. That's a utilization number you won't see often. We ended the Q3 with 63.3 percent utilization on a per unit basis and 78.7% utilization on a horsepower basis. Unit utilization decreased slightly from 65.4%, primarily due to lower utilization on our small to medium horsepower fleet and the impact from lower natural gas prices.

Speaker 2

The horsepower utilization experienced a slight uptick from 78.6% in the Q2 of the year. Revenue per horsepower per month increased 13.5% over the last 12 months, demonstrating the impact of the growth in higher horsepower units and the price increases we have been able to implement over the last year. Our total fleet as of September 30, 2023 consisted of Our average horsepower per unit has grown by 22% over the last year. Notably, approximately 97% of our and over half of our utilized horsepower and current rental revenue stream. Sales revenues for the sequential quarters decreased from 1,600,000 dollars in Q2 2023 to $1,400,000 in the Q3 this year.

Speaker 2

This decrease was from quarterly fluctuations we typically This is driven by the one time large sale of active rental equipment to an existing customer in last year's Q3. As I've mentioned in the past, our sales activity, primarily representing compressor, flare, parts and miscellaneous sales, have declined over the past few years due to higher customer demands for rental services, our increased outsourcing of large horsepower fabrication and our genesis of flare sales and service. This lower level of sales should continue due to the changes mentioned. There will continue to be volatility, albeit reduced. AMS or aftermarket services in our most recent two quarters have seen large increases in revenues.

Speaker 2

This is primarily due to pass through services that we provide to or arrange for customers when installing our large horsepower units. These revenues will fluctuate with the volume of equipment set in each quarter and they carry low pass through margins. However, when sales and AMS revenues are combined, they represent 12% of our total 3rd quarter revenues, where we experienced 28% growth in sequential revenues and a positive gross margin of 8.5%. Year over year, the combined revenues increased $250,000 Gross margins decreased, but still held at 9% of revenue. Our SG and A expenses decreased a bit over $2,000,000 in sequential quarters and totaled 9% of revenue.

Speaker 2

On a year over year basis, SG and A expenses decreased over $1,200,000 This was an anticipated and welcome decline in expenses At 9% of revenue, which is uncharacteristically low, we think this represents a low point. Going forward, we anticipate that SG and A will normalize at This improvement was primarily due to higher rental revenues along with the decrease in SG and A. On a year over year basis, our operating income increased to $4,900,000 compared to an almost $300,000 loss in the same Q3 period in 2022. Our net income in the Q3 of this year was $2,200,000 or $0.18 per basic and diluted share. This compares to a net income of $504,000 in the Q2 of the year or $0.04 per basic and diluted share.

Speaker 2

In the year ago quarter, our net loss was $80,000 or 0 point percent to $11,800,000 in the 2nd quarter of $9,900,000 and increased 53% from $7,700,000 for the same period last year. From a balance sheet perspective, our cash balance as of September 30, 2023 was approximately $200,000 In the 1st 9 months of this year, we have generated $25,700,000 in operating cash flow, which is 27% higher than the $20,200,000 generated in last year's comparative period. At the end of this quarter, we spent $128,600,000 for capital expenditures. 98% of this or 126 $4,000,000 was expended on rental fleet growth. I'll now ask John to comment on the bank facility.

Speaker 2

John?

Speaker 3

Thank you, Steve, and good morning, everyone. The outstanding balance on our current revolving credit facility as of the end of Q3 was $128,000,000 Looking at our 2 financial covenants, the leverage ratio at the end of Q3 was 2.71 and our fixed charge coverage ratio for Q3 was 2.78, both giving us comfortable cushion of these ratios as compared to the required levels in our credit agreement. And the company is in compliance with all terms, conditions and covenants in the credit agreement. As Steve mentioned earlier and as you may have seen in our announcement this morning, we have secured an increase in the total commitment of our credit line of $50,000,000 from our bank syndicate. We accessed this additional commitment using the accordion feature contained in our existing credit facility.

Speaker 3

The total commitment amount was the only change to the credit facility with all terms remaining the same, Particularly our borrowing rate, which currently is SOFR plus a spread based upon our net leverage ratio, which At the end of Q3, the spread the interest rate was so far plus 3.5%. We continue to have units being delivered through the first half of twenty twenty four. So we will look to utilize the additional capital for our capital requirements beginning in the second half of twenty twenty four. With that, I'll turn it back over to Steve for some closing comments.

Speaker 2

Okay. Thanks, John. This past year, essentially since we've incurred our debt balances, I've had requests from shareholders to provide a greater level of detail as to our forward plans, otherwise known as your guidance. As you know, guidance is always a risky area and I equate it To what can happen in a football game with a forward pass? There are 3 possibilities.

Speaker 2

The pass is completed, is not completed or it's intercepted. Therefore, you have a 1 in 3 chance of being successful. Guidance will either be high, low or right on the number. Again, 1 in 3. In spite of that, I think it's a fair request.

Speaker 2

That said, we're issuing our first set of guidance for revenue and EBITDA for 2023 2024. These numbers, along with the color provided in my prior comments, should allow everyone to assemble their own models with a higher degree of accuracy. For 2023, we anticipate the full year revenues will end up between $110,000,000 $116,000,000 and EBITDA will range between $37,000,000 $39,000,000 In 2024, revenue is projected to be $130,000,000 to $140,000,000 with EBITDA between $50,000,000 $60,000,000 Note that the 2024 guidance does not reflect any impact of the 2024 CapEx program. We will update that as soon as we announce details of next year's capital program. So we've not only dipped our toe into the water, We're now up to our neck.

Speaker 2

All I ask, be kind. From a macro perspective, the factors supporting hydrocarbon Pricing appear to be intact. There are certainly countervailing wins, notably the recent weakness in crude price, but overall the hydrocarbon economic environment seems to be favorable. We've avoided the once predicted 2023 recession. OPEC seems ready to defend any further weakness and construction of a peaceful LNG export It's never smooth selling, but we think 2024 and into 2025 will continue to be a good environment for NGS.

Speaker 2

We are in an undersupplied gas compression market and it appears that it will continue into next year. Industry utilization continues to be at very high levels. And listening to others' earnings calls, there is very little, if any, incremental capital being planned to mitigate As NGS goes forward, we will endeavor to pre contract equipment with long terms and required returns before we commit to building it. As we've done in the past, this will ensure our committed capital returns. We intend to pick our customers.

Speaker 2

This isn't meant to be an belief statement, But NGS has a lot to offer from our service capabilities to superior equipment and runtime to technology. Capital is limited and we want to make sure the customers going forward with us appreciate the value we deliver and are looking for strong partners as we are. We're bullish on our industry and our opportunities. With our capital availability, long term contracts at exceptional rates and good counterparties who are in an enviable position to take advantage of the strong environment. Thanks for your time and I look forward to your questions.

Operator

Ladies and gentlemen, at this time, we will conduct a question and answer You're now ready to begin. Our first question comes from Tate Sullivan with Maxim Group. Go ahead please.

Speaker 4

Hey, Steve. Yes, great team. I mean, the first time is it in history with the forward guidance and I mean is that something that made the banks more comfortable or can you talk about your discussions with them and how they get comfortable with your growth plans too?

Speaker 2

No. I mean, it didn't come from the banks, truly. I mean, the bank obviously has confidential forward projections and things like So they have plenty of information to make their decisions on. But as I mentioned, it's primarily shareholders that Yes. A lot of additional information.

Speaker 2

And with the debt load we've taken on, which we have not Never had this level of debt before. I felt like it was a fair request. It took me a couple of quarters to come around to it. But no, we just want to go ahead and try to give a better picture of the future And what we plan on doing with the money and the results we see.

Speaker 4

And then can you repeat one of your colleagues who said that the leverage ratio as of the end of the quarter? And then Did you sort of somewhat imply based on what you were already constructing maybe a pause in CapEx in the first half of twenty twenty four or did I misinterpret that?

Speaker 2

The leverage ratio, I think, was 2.7 something, maybe 7.3, but 2.7 in That area. And I'm not sure I understood on the Q1 'twenty four. What we've got is some of the capital from the 2,133 plan We'll roll over into the 1st part of 'twenty four necessarily just from the point of equipment being finished up, the capital being committed, say, in Q4, but with lead times and build times and everything else, we won't get some of that equipment until Q1 and a bit of it into Q2. So we're using so that's essentially Some of the capital from 2023 falling over into 2024 from the point of being spent, but being built and delivered are 2 different timelines. So I think that's what you're referring to.

Speaker 4

Okay. Yes. And then just a quick Last one for me is an accounting question on capitalizing the practices of capitalizing the interest expenses, But then you had interest expense on the income statement this quarter. Are you changing the practice in terms of capitalizing interest?

Speaker 2

No. The practice stays the same, but there is some variability in how much you capitalize. It's not all capitalized. So there's some and I'll refer you to the accounting department on this. I don't know all the particular details, but there is a variability in how much You can and cannot capitalize by quarter.

Speaker 4

Okay. All right. I'll keep an eye on it. Okay. Thank you very much.

Speaker 2

Okay. Thanks, Ike.

Operator

Thank you very much, Mr. Sullivan. Our next question comes from Mr. Rob Brown with Lake Street Capital Markets. Go ahead please.

Speaker 5

Hi, Steve.

Speaker 2

Hey, Rob.

Speaker 5

First question is just on the capital spending. Could you update us on what CapEx you plan to spend this year? And then, I know you didn't say 24,000,000 and I think your guidance did not include the capital spending in 2024, but how does 2024 CapEx look?

Speaker 2

Yes. The capital were the announced capital budget this year was $150,000,000 Yes, and that will all be spent. As I mentioned, it's all committed. From 2024, we haven't announced that yet. Obviously, we wanted to get some capital commitments in place before we started going too far afield on that.

Speaker 2

And now we've got that. We want to confirm your customer desires and stuff. So that will take us We thank you all and thank you so within the next 30 days to see where we are from that standpoint and what customers want what. And as I mentioned, we're high grading and prioritizing the customers we want Yes, build for and work for. So when we have a more definitive number, We'll announce that.

Speaker 2

Now obviously, there's additional $50,000,000 in capital available. Whether all that is committed pretty quick or we spread it out or we end up getting more is still a question up in the air, but Yes. We'll announce a little more detail on that. We just got the capital committed, obviously, Yes, they announced it today. So we're going to start working on placement now.

Speaker 5

Okay, great. And then I think you're alluding to it a little bit, but the demand environment sounds strong. What are you sort of hearing kind of Customers at this point, it sounds like you're you've got more demand than you can fulfill, but just a sense of the demand environment and the visibility into 2024?

Speaker 2

Well, I mean, demand continues strong. It's not just us. I mean, The whole gas compression rental industry is doing pretty well. You can just listen to Calls with other public companies in the gas compression space to tell that. So the market continues strong.

Speaker 2

Some People even talking in 2025, and that's primarily just because equipment deliveries have stretched. They were Into the 6% to 9%, the 9% to 12%, and now generally you're probably talking 12 plus months, you have to get equipment. So Necessarily, you're talking into the end of next year on into 2025. So we see it as strong. We think it will be a good year also.

Speaker 2

And I want to Point out, it's the $50,000,000 increase in our accordion, It came in a lot of money, but it pales a little when you had $175,000,000 already drawn and committed. But With the deliveries, we're essentially talking about a second half of twenty twenty four. If you order equipment today, it's about when you're going to get it. Right now, our view of the capital budget for 2024 is the second half. We do, as you just talked about with We've got equipment coming out in Q1, Q2 that will continue to be placed in generating rentals.

Speaker 2

So We're talking to customers essentially about the second half of the year. So we're pretty close to that Beginning at 2025 also. So we think the demand is there. We've been talking to our customers And they say it is. So as soon as we have more definitive Maybe for you on the capital part of 2024, we'll put it out.

Speaker 2

But yes, we're pretty confident of demand.

Speaker 5

Okay. Great. And just to clarify on guidance and you probably don't want questions on guidance after just giving it. But did that guidance include, I think you said it did not include sort of the 24 capital plan in those numbers that would be sort of on the current Capital plan and not much at incremental capital, is that right?

Speaker 2

Yes. The numbers for 2024 are pretty much Pretty close to the static model. And again, just like I've mentioned, even ordering stuff today, Yes, this is November. I mean, we're into Q4. So once we get the customer Got requirements and do all this stuff.

Speaker 2

You're into the year, maybe a little sooner in Q4, just depending on what we can Do and the sizes we're buying, but yes, that number does not include any incremental capital into it other than what's bleeding over from 23. So and you can tell from the guidance, that's still going to be a pretty strong year even with that Incremental capital in there.

Speaker 5

Okay, great. And then last question on margins. You had a little Margin compression this quarter you said should return, but was that any one time stuff or just sort of the natural in and out of the business?

Speaker 2

No, nothing in particular, just it just had some high expenses in the Quarter, sometimes you get that, sometimes you get low expenses, sometimes you get high. They all there's no rhyme or reason to it sometimes. So nothing extraordinary, but we do think We'll see a back on the trend we want. I don't want to step my neck out too far, but probably 200 basis point or 300 basis point improvement in rental margins, I think, in Q4. You're lucky you already got me giving more guidance what they had.

Speaker 5

All right. Thank you. I'll turn it over.

Speaker 2

Okay. Thanks, Rob.

Operator

Thank you very much, Mr. Brown. We have Mr. Tim O'Toole next on with TETRA Capital. Go ahead please.

Speaker 6

Good morning, Steve. How are you?

Speaker 2

Hey, Cam. Good. You?

Speaker 6

I am well. I was kind of trying to decide what quip to use this morning, but it seems like you've accomplished an awful lot in your Retirement maybe as much as you did in the prior 10 years running the company. What I mean, congratulations.

Speaker 2

Well, I don't know if that's a compliment or not, is it?

Speaker 6

Well, I know it sounds a little left handed. I'm sorry, I just muted as a compliment though.

Speaker 2

Sorry, backhanded one, but I'll take it.

Speaker 4

All right.

Speaker 6

Yes, a little updated. Sorry about that. I'm trying to so a couple of things that I'm kind of curious about, I'm not sure if you can slice and dice This way, but if you look at your what you consider large horsepower fleet, I'm trying to get some sense of what the age of that part of the fleet is, because I think the kind of the book Value, the depreciated value, let's say, of stuff that's older than that and smaller than that is probably close to nothing. It's probably not quite nothing yet. But it also seems to me that you have spent a few $100,000,000 of cash flow over, Let's say the years prior to 'twenty three and that you spent another 150,000,000 So on large horsepower, very much in demand equipment.

Speaker 6

And so it would seem to me that Your fleet age for the larger horsepower stuff, the stuff that's so much in demand would be relatively young. Do you have an assessment of that even if it's a rough thumbnail?

Speaker 2

Yes, I mean it is pretty young and you got to remember Yo, to coin a phrase, what uses in the eye of the beholder, I guess it's beauty, but On this bigger horsepower, especially the well, particularly the 1500 horse and 2,500 horse, We got 25 year book lives on those. So that's those are bigger, Heavier, longer live equipment. So when you look at youth, you can look at just Finite years, you can look at relative to the age. But either one, we've got a pretty young because of our fleet. I would dare say, The youngest, if not one of the youngest.

Speaker 2

And I know we've got a relatively smaller fleet than the bigger competitors, but Yes, we started moving into the 15,200 horse, which has become kind of the bulk of our large horsepower fleet 4, 5 years ago. So at the outside, we've got we've used up 20% of life on the oldest Big horsepower units. So it's pretty small. So that's one of the advantages of the The horsepower market just having such a long live equipment, it's you can get multiple payouts on it over its life. So we have a relatively young fleet in that horsepower range.

Speaker 6

Okay, great. Thank you. And so I'm trying to it's a little difficult comparing with the peers because you have A smaller kind of old fleet, but then you actually have a very fresh and you're able to put capital to work in this In the younger and bigger horsepower equipment. So I did a little math on just what you actually have rented, what you're oh, I know what so another question is what does the new horsepower of equipment, What is the cost per horsepower? That's been going up over the last couple of 3 years pretty significantly.

Speaker 6

And I'm wondering if you could update me on that.

Speaker 2

Yes, it has gone up quite a bit. We were looking back at some 4 year or 5 year old prices and Kind of scares you and makes you long for the old times, right? But generally today, you probably see And I'm talking about primarily 1500 and 2,500 horse, but you'll get some of The smaller horsepower in this range. You're into the roughly $1100 to $1200 per horsepower.

Speaker 6

Okay. Yes, I was using sort of $11.50 and I think that was kind of guesstimating on earlier

Speaker 2

Average and selling. Yes.

Speaker 6

Okay, great. Yes. So this is I did a

Speaker 2

little bit

Speaker 6

of calculator calisthenics, if you will. And you have 400,000 horsepower rented right now and your fleet is obviously bigger than that, but you had some of that older stuff that is still underutilized. When the gas markets come back, kind of trim the fleet out a little bit. But if I put an 11 a replacement value, which is obviously not strictly speaking correct, but if I put a replacement value On the 400,000 that you're renting right now at what current prices per horsepower would be, and then take the debt out, I come up with a number that is Something on the order of $26 a share. Is that Dreaming way too heavily or is that starting to get are we starting to get close to reality with that kind of a number?

Speaker 2

Well, we've got a tangible book of around $19,000,000 $19.5 a share. So that delta between your number and the tangible book is $6 or $7 So, what, 25%, 30% roughly something like that. I don't know. It's hard to say Because you got the smaller equipment, you're down into the 60, 70 horsepower rotary screws and low pressure, low volume stuff that doesn't carry Has much value on it up into either 2,500 horsepower 4 stage gas lift equipment, which is premium Equipment, right. And it's got our technology in it, emissions technology and operating technology and stuff like that.

Speaker 2

So you've got a pretty wide range. The 1100 to 1200 is what is current on the big horsepower. You probably can't Put that on the smaller horsepower we've got? I don't know exactly what the right number would be on average, and we'd have to look at that. But To me, 25% difference in your number and our number probably isn't as part of adjustment, right?

Speaker 2

I mean, it's not Yes, everybody's going to have a different view of value. So I wouldn't Or you use too much down, I'd say you may be a little high, but 19.5% is a real number. So that's when you got to gauge from?

Speaker 6

Well, yes, but that is also a historic number based on a whole lot of the equipment being purchased many years ago at 900 or less per horsepower, right? So that's what I'm trying to do a little bit is if someone wanted to replace your fleet, Not to mention kind of your backlog, your customer base, your You're in support equipment and personnel. They have to pay something like my number to get there and get an active rental fleet. But anyways, it's really just some, again, calculator calisthenics and I appreciate you walking me through that. Yes, no problem.

Speaker 6

That is it for me for the time being. We'll see if there if someone else has some questions. Thanks.

Speaker 2

Okay. Thanks, Tim. Good to talk to you.

Speaker 6

And good to talk to you, by the way.

Operator

Thank you very much. And our last Question is from Mr. Tate Sullivan again with Maxim Group. Go ahead please.

Speaker 4

Thank you, Steve. Just a quick follow-up. The guidance for 2023 implies a slight, I think, quarter over quarter Decrease in revenue and EBITDA, is that mainly because service and maintenance, less service and maintenance revenue in 4Q or any other dynamics going on in the current quarter that could cause a quarter over quarter decline?

Speaker 2

Yes, there's probably I imagine the service and AMS, Fredericks, those jumped quite a bit, a couple Not a couple of million, but a $1,000,000 or so on one of those things like that. So there's going to be we've set a lot of equipment and That number tends to be a little higher. So any lower impact would be In that range, you'd like to say.

Speaker 1

Okay. And

Speaker 4

that service and that is That's larger numbers mainly related to when you deploy the larger compressors in the field to confirm, is that correct?

Speaker 2

Yes, exactly. That's a lot of pass through, it's got low margin because pass throughs typically are Lower margin, so it's a lot. There's some freight costs in there to freight the equipment out. There's installation costs, setup costs and stuff like that. So A lot of times we'll do that for the operator.

Speaker 2

If they don't have the desire, the experience to do it, we'll just pass it through to them.

Speaker 4

Okay. Thank you, Steve.

Speaker 2

Okay. Thanks, Dave.

Operator

Thank you very much. And We don't have any other questions.

Speaker 2

Okay. Thank you, Luke. Thanks for everybody's questions. We appreciate everybody's support. I certainly want to thank all of our employees.

Speaker 2

They obviously are the ones that We did the real lift and work on these numbers and we get to brag about them. So I want to thank all of our Employees and supervisors we've got in the field doing the hard work. Thank you everybody for participating in our call. We look forward to updating you on our Progress in the next quarter. Thank you.

Operator

Thank you, everyone. And this concludes today's conference call. Thank you for attending.

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