Q2 2024 Natural Gas Services Group Inc Earnings Call

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Operator: Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group, Incorporated Quarter 2 earnings call. At this time, all participants are in listen-only mode. Operator assistance is available at any time during this conference by pressing zero pound.

Anna Delgado: I would now like to turn the call over to Ms. Anna Delgado, please begin.

Anna Delgado: Thank you, Luke, and good morning, everyone.

Anna Delgado: Before we begin, I would like to remind you that during the course of this conference call, the company will be making forward-looking statements within the meaning of federal securities laws. Investors are cautioned that forward-looking statements are not guarantees of future performance, and those actual results or developments may differ materially from those projected in the forward-looking statements. Finally, the company can give no assurance that such forward-looking statements will prove to be correct. Natural Gas Services Group disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

Anna Delgado: Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's earnings press release and in our filings with the SEC, including our Form 10-Q for the period ended June 30th, 2024, Form 8-Ks, and in our Form 10-K for the year ended December 31st, 2023. These documents can be found in the investors section of our website located at www.ngsgi.com. Should one or more of these risks materialize, or should underlying assumptions prove incorrect, actual results may vary materially.

Anna Delgado: In addition, our discussion today will reference certain non-GAAP financial measures, including EBITDA, Adjusted EBITDA, and Adjusted Gross Margin, among others. For reconciliations of these non-GAAP financial measures to the most directly comparable measures under GAAP, please see yesterday's earnings release.

Justin Jacobs: I will now turn the call over to our Chief Executive Officer, Justin Jacobs.

Justin Jacobs: Thank you, Anna, and good morning. I'd like to welcome everyone to our second quarter 2024 earnings conference call. Thank you for joining us this morning. We appreciate your interest in natural gas services.

Justin Jacobs: I'll start by introducing the team. Joining me on the call this morning is Brian Tucker, our President and Chief Operating Officer, and John Bittner, our Interim Chief Financial Officer. I'll start today with a quick recap of the quarter, a brief discussion of updated guidance, followed by some high-level remarks regarding the. I'll move next to our strategy with our four areas of growth opportunities and value levers and our progress to date.

John Bittner: I'll then turn the call over to John Bittner, who will review the quarter in more detail.

Justin Jacobs: I'll end with a few closing comments on our increased guidance for 2024 and our longer term outlook, which remains quite bullish. As for our Q2 results, we are quite pleased with our performance as we reported higher revenue, net cash from operations, and adjusted EBITDA, while delivering tangible results against the key growth and value levers I outlined in our last call. We reported a 45% increase in rental revenue year over year, and a 4% increase sequentially, with the growth driven by more horsepower rented, as well as rate. Adjusted EBITDA of $16.5 million increased 67% compared to last year's second quarter, and looking sequentially, is right between our prior two quarters, which were $16.3 and $16.9.

Justin Jacobs: Based on our results year to date and our favorable outlook moving into the second half of the year, we increased our 2024 adjusted EBITDA outlook from $61 to $67 million to a range of $64 to $68 million. At the midpoint of the range, this equates to roughly 45% growth over 2023, after posting growth of 56% last year.

Justin Jacobs: I'm certainly pleased with our Q2 performance, but I am particularly excited to announce our future growth. We are taking advantage of supply constraints, strong customer demand for both our equipment and service levels, along with our greater access to capital to grow our rent. We increased our outlook for growth capex for 2024, and we expect it will be even higher in 2025. The increase to our CapEx guidance is to support the new long-term contracts we've recently signed with Premier customers, including a long-term customer who will become our second largest customer once all these new units are operating in the field.

Justin Jacobs: The new contracts are all for large horsepower compression investments above our average rental rate for the fleet and above our target rate of return. Importantly, approximately 40% of the horsepower added as a result of these new contracts will be electric motor driven. I think it is a testament to the strength of our customer relationships and the technological innovation of our units that we were able to move into the large horsepower electric space in an organic nature. Going forward, we can address market demand in any combination of natural gas engines and electric motor driven compression. With these new units, we have taken an important step to diversify our customer mix, reduce concentration with larger accounts, and enhance our rental fleet capability.

Justin Jacobs: I'd like to take a second to thank all of our team members working out in the field, from the mechanics turning wrenches through district management. We could not have done this without your dedication and commitment to exceptional service.

Justin Jacobs: As for the market, both near and long-term industry dynamics remain strong for us, and my comments from prior quarters hold true today. Demand for high-horsepower compression remains strong, both from existing customers as well as new ones, as evidenced by the new contracts we announced for large-horsepower units. While the natural gas industry continues to see some instability in terms of pricing, this has a lesser impact on us as approximately 75 percent of our active fleet is in oil and liquids oriented basins where activity is primarily driven by oil. Crude oil prices remain relatively stable, and industry forecasts anticipate increased production over the coming year.

Justin Jacobs: As we look at the industry opportunity, we see significant growth on the horizon as customers are already looking out as far as 2020. I'd like to shift now to our strategy using the four growth opportunities and value levers I've discussed as the framework for tracking our progress. To recap, the first is optimizing our utilized fleet, second, improving our asset utilization, third, driving new unit growth, particularly in large horsepower, and fourth, executing a creative M&A. In Q2 and since quarter end, I believe we showed demonstrable progress against two of these buckets, leading to our strong quarterly results and increased 2024 guidance.

Justin Jacobs: Let me start with asset utilization, which encompasses two parts, converting non-cash assets into cash and increasing the utilization of our existing assets. With respect to the former, our accounts receivable went from $42 million to $33 million, a $9 million cash improvement in one quarter. This represents approximately $0.75 per share in cash. We believe there is more opportunity to reduce accounts receivable, as well as create cash from other assets, notably the income tax receivable and owned real estate. I'm confident that we, as we, excuse me, I am confident that as we continue to You will see more of our non-cash assets converted into cash, leading to higher returns for our shareholders.

Justin Jacobs: As I noted on our last quarter call.

Justin Jacobs: This is an ongoing initiative and will take up to 24 months to fully execute. With respect to increasing utilization of our rental fleet, this is a key priority for us, but more of a medium-term initiative as we look to make modest investments in our fleet to upgrade technology, convert units, and increase unit readiness.

Justin Jacobs: We expect to have more information to share in future quarters. Next key opportunity is our fleet expansion, and here we have made consistent progress with significantly more to come. As of June 30th, we had 1,242 natural gas compressors totaling approximately 455,000 horsepower rented, representing a 22% increase in horsepower rented year over year. Horsepower utilization stood at 82.3%, which was up 370 basis points from last year. In our earnings release, we announced new contracts with blue chip customers to expand our fleet. As I mentioned, all the new units are large horsepower and a significant portion are electric driven compression.

Justin Jacobs: We will be increasing our growth capex this year and next year to support these contracts, something we are able to do given our leveraged position and larger credit. These are material awards for natural gas services and are all long-term contracts with return on invested capital projected above our target rate of 20. As a result, I believe we'll see strong growth in revenue, utilization, profitability, and cash flow. The key driver of these new contracts is our technology and commitment to innovation. We are consistently hearing this from our customers. Our technology stands apart, as does our service and commitment to exceed customer expectations.

Justin Jacobs: Again, with many of our customers looking out towards 2026, this is another good sign for the future.

Justin Jacobs: And beyond the new awards, our pipeline is growing as is interest from large potential customers.

John Bittner: I'll come back to this in my closing remarks, and it's now my pleasure to turn the call over.

John Bittner: Thank you, Justin. And good morning, everyone.

John Bittner: Let me jump into the review of our second quarter results. Total revenue for the three months into June 30, 2024, increased to $38.5 million, which was up $11.5 million, or 43% from $27 million in Q2 2023. Our revenue was up from $36.9 million for the three months ended March 31, 2024. Rental revenue for Q2 2024 was $34.9 million, up from $24.1 million in Q2 2023, for a 45% increase year over year, and up $1.2 million from $33.7 million in Q1, a 4% sequential increase. Our total adjusted gross margin of $21 million in the second quarter increased approximately 65% when compared to $12.8 million in the same period in 2023.

John Bittner: Sequentially, total adjusted gross margin dollars decreased 1% from 21.1 million last Adjusted gross margin as a percent of sales for Q2 2024 was 54.6% versus 47.4% for Q2 2023 and 57.2% in Q1 2021. This material increase year over year in margin percent was driven primarily by increased rental adjusted gross margins, driven by a combination of increased rented horsepower, along with an increase in pricing from the previous year. The decrease from Q1 was driven by lower gross margins across the board in Q2.

John Bittner: but primarily from lower rental adjusted gross margins in Q2 2024 as compared to Q3. Our rental adjusted gross margin dollars increased year over year to $20.7 million for Q2 2024 from $12.8 million in Q2 2023, representing a 62% increase. Sequentially, rental adjusted gross margin dollars were essentially flat, increasing by $78,000 from $20.6 million in Q1. Our Rental Adjusted Gross Margin as a Percent of Sales for Q2 2024 was 59.3%. versus 52.9% for Q2 2020. 61.1% in Q1 2020. As we mentioned on our last earnings call, our rental adjusted gross margins had been somewhat above historical levels for the previous T-Quarter.

John Bittner: We stated that we expected these amounts to move in the direction of historical averages and we saw that some way. with rental adjusted gross margins moving from approximately 61% of revenue for the previous two quarters to 59% for the most recent. We expected this slight margin contraction in a movement toward historical action.

John Bittner: We will need to add incremental labor and overhead costs as we continue to grow. This combined with natural variability of maintenance repair costs do lead to some fluctuation in rental markets.

John Bittner: With that said, we now have three successive quarters of strong rental margin. and we are increasingly confident about the margin potential.

John Bittner: as evidenced by the increase in our adjusted EBITDA guidance for 2020. ST&A expense for Q2 2024 was $4.8 million or 12.4% of revenue. versus 4.9 million or 18% of revenue in Q2 2023. SG&A expense was $4.7 million or 12.7% revenue in Q1. Factors leading to the increase in SEMA expense over Q1 include an increase in cost related to professional specifically related to public. Pre-tax operating income $8.5 million for Q2 2024. which was improved from approximately $700,000 in Q2 2023 and was down sequentially from $9.3 million. Net income in Q2 was $4.3 million compared to $504,000 in Q2 2023, down slightly from $5.1 million in Q1 2024.

John Bittner: Earnings per share for Q2 2024 were $0.34 on both a basic and fully diluted. compared to $0.04 per share for Q2 2023 and earnings of $0.41 per share for Q1 2024. Our second quarter of 2024 adjusted even to Iowa's $16.5 million compared to $9.9 million in Q2 2023, or a 67% increase year over year, with a 2% sequential decrease from $16.9 million in Q1. Our adjusted EBITDA on Q2 was negatively impacted by lower rental adjusted gross margin. compared to Q1 2024. in Q4 2023, partially offset by 4% growth in our rental revenue from Q1. At the end of Q2 2024, we had 1,242 rented units compared to 1,249 rented.

John Bittner: as of June 30, 2023. In Q2 2024, rented units represented just under 455,000 horsepower, compared to approximately 373,000 horsepower rented as of June 30, 2020. Our total fleet as of June 30, 2024 was 1,899 units, consisting of 552,599 horsepower, ending the quarter with a 65.4% utilization on our per unit. and 82.3% utilization on a horsepower. Our average horsepower per unit, as of June 30, 2024, was 291 horsepower per unit, up from 277 at year-end 2021. at 286 at the end of Q1 2020.

John Bittner: Turning to the balance sheet, we ended the second quarter with $3.6 million in cash and $163 million outstanding on our amended and restated revolving credit. and looking at our two financial components contained in our accredited Our leverage ratio was 2.51 times, down just slightly from 2.57 times as of Q1. Our fixed charge coverage ratio for Q2 was 2.68 times.

John Bittner: Thus, we were comfortably in compliance with both of our financial covenants as of June 30, 2020. Our accounts receivable balance, June 30, 2024, was $33 million, a $9.3 million decrease from QE. On our last earnings call, we discussed the reasons why our receivables balance had become elevated from normal and expected levels. We stated at that time, we felt this was more of a timing issue and that there was no real concern about our customers. We're certainly pleased with the progress to date on accounts receivable, but continue to believe we have more improvement to make.

John Bittner: And that improvement is likely to take until the end of 2024 to fully achieve what we expect to be sustainable go forward level. The net book value of our rental fleet at Quarter End was approximately $388 million. We generated cash flow from operations of $31.1 million in the first half of 2024 compared to $22.6 million for the first half of 2020. The increase is primarily related to higher net income in 2024, along with the reduction of our accounts receivable balance, as discussed earlier in the call. We had capital expenditures of approximately $28.2 million in the first half of the year, which can be broken out to $24.5 million of new unit growth capex and rental upgrades, with the remaining $3.7 million being maintenance capex.

John Bittner: We paid down the balance on our amended and restated credit facility by a net $1 million during the first half.

Justin Jacobs: With that, I will turn it over to Justin for some closing remarks.

Justin Jacobs: Thanks, John. With respect to our 2024 guidance, our current outlook for 2024 adjusted EBITDA is $64 to $68 million, which marks an increase from the prior guidance provided on our Q1 results call of $61 to $67. We have moved our range up based on our results through the first half of the year and our confidence in the margin generating potential of our rented compressor units.

Justin Jacobs: We are mindful of costs, looking to improve efficiencies, lowering non-core expenses where we can, and reallocating cash to growth and cash flow generating initiatives. With that said, there are some incremental investments that are necessary as it relates to improving scalability and efficiency of our operations, in addition to making sure we have the best people in the industry. With respect to growth capital expenditures, we expect to spend between $60 to $80 million in 2024, reflecting investments in new large horsepower compression units. As noted in our release, the wider range is primarily due to the fact that the contracts were just awarded and we are still working on the exact timing in terms of what will hit in Q4 24 versus early next year.

Justin Jacobs: At the midpoint of our range, assuming $70 million, we would currently expect 2025 growth capex to increase by roughly one-third over 2024. To the extent that 2024 is at the lower or higher end of the range, we would expect 2025 growth capex to adjust accordingly. This is a similar issue we faced in 2023 and 2024.

Justin Jacobs: While we are not providing 2025 guidance, we wanted the investment community to have a rough sense of the growth opportunities we currently have sought. As we move further into the year, we will update 2024 CAPEX projections accordingly. It is our expectation that all the units related to these new contracts will be set in the field in 2025. Our outlook for 2024 maintenance capex remains unchanged at $8 to $11 million, with the majority of the expenditures related to our rental compression units with smaller amounts for field equipment, including trucks and other. In terms of return on invested capital, our 2024 target remains at least 20%.

Justin Jacobs: In closing, we are taking advantage of the tight compression market, our industry-leading technology, and our strong customer relationships. We believe we are growing faster than our peers, certainly the public ones, and we are well-positioned to capture an increasing share of the large horsepower compression market, including in the large horsepower electric market. We are profitable and continue to generate higher net cash from operating activities to reinvest. Our balance sheet remains strong, and our expanded credit facility provides us the flexibility to capture high return growth. We are executing on our strategy to drive cash flow and earnings while never losing sight on increasing both near and long-term shareholder value.

Justin Jacobs: Considering the many opportunities on the horizon, I'm quite excited about what NGS can achieve in the coming years.

Operator: This concludes our prepared remarks, so I'll ask the operator to queue up for the question and answer portion of our call.

Operator: Luke, Luke, please go ahead. And ladies and gentlemen, at this time, we will conduct the question and answer session. If you would like to state a question, please press seven pound on your phone now, and you will be placed in the queue in the order received. You can press seven pound again at any time to remove yourself from the queue. You are now ready to begin.

Rob Brown: Our first question comes from Mr. Rob Brown with Lake Street Capital. Go ahead, please.

Rob Brown: Good morning and congratulations on all this progress.

Justin Jacobs: Thanks, Rob. I just want to get a little bit into the new contracts and the demand environment. I think you talked about a pretty good pipeline into 25, and I guess the CapEx discussion implies that. But how is the demand environment? Characterized kind of what you're seeing and when you start to see the. New Contracts.

Justin Jacobs: Well, we just announced a bunch of them, so we're certainly focused on those right now. And, you know, we're going to have significant activity in the second half of 2024 and throughout 2025. So I think I could characterize overall that it is a. robust environment in terms of demand for compression. And so we're going to have a very busy time in terms of getting all these new units set. Obviously we had a bunch that are still coming on in the second half of 2024 and into now 2025 is going to be a very active period in terms of getting new units out into the field.

Justin Jacobs: In terms of beyond that, you know, we're already having and have been having conversations with customers for 2025 and 2026. And so, you know, that is kind of next on the docket, but overall it's an active environment.

Operator: Okay, great.

Rob Brown: And, and, and I wasn't minimizing the the new contracts you signed.

Rob Brown: So congratulations. Okay, Rob, I appreciate it.

Operator: I did want to ask about those the I think you said 40% were electric drive.

Justin Jacobs: How is that market developing? And I guess, you know, what's the what's sort of the comparison in that market of the rental rates? the margins of that. I would call them just, you know, generally comparable. There's some differences in a number of different areas, but overall, I would think of them as generally similar. In terms of the market, you know, I think there has been a significant increase in demand for electric over the last several years. And then there is also a constraint, a practical constraint of, is there power at the particular site to power these large machines?

Justin Jacobs: And the answer is, in some cases, yes, and in some cases, no.

Justin Jacobs: And, you know, our perspective is one of flexibility in being able to offer our customers whatever they need. Do they need natural gas? Is that what they want at their particular site? Or do they want electric? And so in that way, we really want to let the market decide that as, you know, the grid increases in terms of power that's provided, that's a reasonably uncertain exercise to understand at this point. We'll let our customers tell us what they want, and we have the flexibility to be able to provide that.

Operator: Okay, great. Thank you.

Rob Brown: I'll turn it over. Thanks, Rob.

Jim Rollyson: Our next question comes from Mr. Jim Rollyson with Raymond James. Go ahead.

Jim Rollyson: Hey, good morning, guys. Morning, Jim.

Jim Rollyson: Justin, maybe you started talking with new contracts and just referenced the fact that rates on those are, you know, higher than where your kind of fleet average is today. Maybe just a little sense of magnitude so we can kind of think about where the, you know, where the ship is headed here over the next several quarters as those new contracts roll in, just trying to understand that kind of delta there, if you don't mind. Sure.

Justin Jacobs: I mean, I'm not going to get into specifics on pricing. I wanted to indicate that it is above the average for the fleet to show that, you know, it is overall a good pricing environment, particularly for new equipment, if you have it available, and that You know, it is, I think, supportive of the fact that these new units are going to be above our target return on invested capital. And so they're above, I'm not at a point where I want to quantify that amount. But, but they are above. Got it.

Justin Jacobs: And when I look at the range now of growth capex this year, and you kind of alluded to where 25 is headed from there, just maybe a little bit of color on how much incremental horsepower that would equate to. We haven't disclosed the the horsepower amount, you know, I would say that the cost of building this horsepower is, is generally in line with with what's out there in the market, you know, all a significant percentage of this is fabricated externally, just because of the size, we're doing that with with partners at this point, and it's not a number that we've disclosed in terms of forward looking, although, if you look at the horsepower, we've added over the last, you know, one to two years, it's generally going to be in line with those those price levels.

Justin Jacobs: I appreciate that and maybe just one last one on kind of your, you know, cash initiatives between DSOs, which you made really nice progress on this quarter and some of the other things you're doing. You mentioned the timeline could be out to 24 months, but curious if you have any visibility on some of these items just here over the next handful of quarters. Sure, and there there are a couple of of buckets and timeframes. Certainly, we've shown good progress on the accounts receivable front, and that is something that's a little bit more in our control.

Justin Jacobs: And I'm happy the way we've executed against that and continue to believe we will execute further on that. As John mentioned, it's something to get within historical levels is by year end. And certainly, in the recent past, we've been well above historical levels, but we want to return back to that. You know, the income tax receivable, we are making progress against, but we're dealing with a government agency there. And so at the end of the day, we are somewhat at their, if not significantly at their mercy, but we believe it is, we will receive that.

Justin Jacobs: And it's just a question of timing. And we're doing everything on our side that we can to accelerate that.

Justin Jacobs: When it comes to the, you know, owned real estate, practically, that's just a little bit longer term. And I think that is, you know, probably more towards the range I gave up to 24 months. Certainly, we hope to make progress more quickly, but it just does take some time with some real estate, and there's some significant value there. And so it's something we're focused on. I think just the timing is a little longer.

Jim Rollyson: Absolutely appreciate the color and thanks for the questions. Thank you, Jim.

Tate Sullivan: Our next question comes from Mr. Tate Sullivan with the Maximum. Go ahead, please.

Tate Sullivan: Hi, thank you.

Justin Jacobs: Um, can you talk about the procurement of the engines themselves? Is it is it a long longer process than a couple months ago? And is that part of your competitive advantage access to different kinds of engines than the competitors? You know, I think that the procurement timeframe, it certainly isn't longer than it was over the past year or so and generally trending, probably a little bit better. But it is it's still a long lead time item. And it's not the only long lead time item. They're really kind of, you know, three longer lead time, you know, general items, which are the engine, the compressor frame, and then getting space with a fabricator to have it done.

Justin Jacobs: And those are, you know, all still, you know, slightly less than they were, you know, a year to two years ago, but it's still a long lead item item.

Justin Jacobs: And so that leads to some of the just uncertainty on exact timing of capex spend between 24 and 25 of, you know, we're, we're roughly six months to the end of the year, as we were looking at these contracts and saying how much is going to fall in q4 and q1, but an expectation that they will all be set by by the end of 2025. And so I think it is still a reasonably long lead time, but probably a little better than And related to your comments about industry leading technology, is that related to more than natural gas engines or what?

Justin Jacobs: Can you talk about what they're referring to? I think that's, I think that those are the units overall. There are a couple of key items that I would point to in terms of the run times of our units and not the mechanical availability, but the actual run time that the customer sees due to our smart technology is is quite strong. We've received a lot of favorable feedback from customers that, you know, that that delivers productivity to them. And that's important from a service level and ultimately profit profitability perspective on their end. So that's one component of it.

Justin Jacobs: And the second major component, which relates to engines, but also some of the technology that we put on the units is reducing emissions. And that is an increasingly important characteristic or need for the producers. And so those are certainly two of the big ones, not the only ones, but two of the larger drivers of the technology of the units where we're getting very favorable responses from customers.

Tate Sullivan: Thank you.

Justin Jacobs: And last, do you already have electric motor horsepower units in the field? We do.

Operator: If not, when like the first? Oh, you do. Okay. Yeah, we do. Okay.

Justin Jacobs: And I assume the service related to those is that much less compared to the natural gas engine components are not necessary. It is, it is lower, just because you have some lower levels of maintenance and that you got dealing with an electric motor versus an engine, fewer moving parts require some less maintenance.

Justin Jacobs: But it is an area that we have significant experience going all the way back to to fabricating these years ago. So it's an area that we have a good bit of experience.

Tate Sullivan: Thank you very much. Thank you, Tate.

Operator: Thank you very much.

Selman Akyol: And our next question comes from Selman Akyol with Stufo.

Selman Akyol: Go ahead, please. Thank you.

Justin Jacobs: Good morning. A couple quick ones for me. So you talked, I think, about 40 percent of your delivery is going to be electric drive and you've guided a little bit towards 2025. Would you expect that percentage to move meaningfully one way or the other as you look into 2025 and beyond?

Justin Jacobs: Morning, Selman. Just to confirm, your question is, will the electric percentage differ much in 2025? Correct. That's a 24, I would say, remainder of 24 and 25 on the new contracts. That's looking overall. Got it.

Justin Jacobs: And then is something changing out there? Because I mean, especially for large horsepower, right? It's just not electric, but it's large electric. Is there something your customers are seeing that it's given them confidence to go that way? Because we've been hearing that that's still kind of a huge stumbling block. You know, I think it was, I would say generally, it's been the last several years that we've seen increasing, although somewhat uneven interest in the large horsepower. I think there is, you know, an attractiveness from the operator's perspective in certainly the emissions side as it relates to the compressor units, and potentially some on the runtime just with less maintenance.

Justin Jacobs: But that's assuming that there is, that one, power exists at that particular site, and then two, that it is consistent power. And that is, I think, really the, a material restriction in terms of the potential penetration on compression overall, and specifically large horsepower. And there's a fair bit of uncertainty around that. The customers are uncertain as to, you know, will they have power for instances of, they thought they would, and then suddenly they didn't, and they'd already planned to put electric horsepower there. And so I think the power supply and consistency is really the big question mark.

Justin Jacobs: And that's kind of an unknown, which is one of the reasons that we want to take a an approach that is either or. It's whatever the customer wants there, we can supply either. And so I think there's significant interest. I think it will continue to increase over some long period of time, but it's going to be uneven. Got it.

Justin Jacobs: Are you, and I know you focus on the Permian, we always talk about the Permian, but are you guys seeing demand in any other basins out there? You know, I would say that the Permian is certainly the most robust, and for us with it, you know, around 75% of our business, the area that we focus the most. We are seeing, certainly in other basins that are more oil-driven, we're continuing to see demand.

Justin Jacobs: It's just on a relative basis for size for us, it's just smaller, but doesn't matter. Got it.

Justin Jacobs: And then last one for me. Can you just touch on your outlook for acquisitions? It's an ongoing process. You know, the I think it is an opportunity for us. But it's not one that we have to do for our shareholders to see, I believe, very good returns. And so I think I look at it that way.

Justin Jacobs: It's an ongoing set of discussions with potential acquisitions, whether, you know, entire companies or portions of fleets. But it's not one that I feel that we are pressured to do. We are in an advantageous position to, I think there is strategic logic to it, but we'll remain disciplined on the composition of the fleets that we're looking at, the customer mix, the bays, and obviously valuation. And so it will be an ongoing process of which we'll continue to look at and we'll pull the trigger if we see something that we think is going to be good.

Justin Jacobs: If we think makes sense for shareholders.

Selman Akyol: In terms of just acquisitions, not thinking so much about another compression company, but just thinking about, do you have customers who may be looking to sell units that, you know, from basins that either are not working out as well as maybe originally thought?

Operator: I'm sorry, Selman, will you just repeat the question? I'm not sure. Yeah.

Justin Jacobs: Let me phrase it better. So are there any packages from your customers that you could potentially acquire from them where either they're, you know, the basin's not spooling up as fast as they thought, or, you know, less of an emphasis. So is there any opportunity to buy compressor packages from your customers? I see from the customers. I missed that part. Sorry. We've seen it, although that's not, I wouldn't describe that as a material portion of where we would, where we are spending our time in M&A. If that becomes a larger opportunity, it's something that we'll certainly look at.

Justin Jacobs: But it's not a big part of it.

Selman Akyol: Understood.

Operator: Thanks so much.

Operator: Thank you very much. And again, if you would like to ask a question, please press seven pound on your phone now, and we will place you in the queue.

Operator: I don't see any other questions.

Operator: Go ahead. Thank you, Luke. And thanks for all of your questions and participation on the call. We sincerely appreciate your support. I want to thank all of our employees who deliver these results for our shareholders. I also want to thank our customers for trusting us with their business. We look forward to updating you on our progress in the next quarter.

Thank you, everyone. And we're done with the call. This concludes today's conference call. Thank you everyone for attending.