Natural Gas Services Group, Inc.
Q2 2008 Earnings Call Transcript

Published: 21 Sep 2008

[Operator:]

Welcome to the Natural Gas Services Group second quarter and six month financial results conference call. (Operator Instructions) The call leaders for today’s call are Jim Drewitz, Investor and Press Relations Representative and Steve Taylor, Chairman, President and Chief Executive Officer. I would now like to turn the call over to Jim Drewitz.

[Jim Drewitz:]

Please allow me to read the forward-looking statement. Except for historical information [inaudible] the statements in this conference call are forward-looking and pursuant to the Safe Harbor provision as outlawed in the Private Securities Litigation Reform Act of 1995. Forward-looking statements of known and unknown risks and uncertainties which may cause Natural Gas Services Group actual results in future periods to differ materially from forecasted results. Those risks include, among other things, the loss of market shares through competition or otherwise; the introduction of competing technologies by other companies; new governmental safety, health and environmental regulations which could require Natural Gas Services Group to make significant capital expenditures. The forward-looking statements included in this conference call are only made as of the date of this call and Natural Gas Services 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 today’s expectations reflected in the forward-looking statements include, but are not limited to factors described in our recent press release and under the caption Risk Factors in the company’s annual report filed on Form 10-K with the Securities and Exchange Commission. Before I turn the call over to Steve, I’d like to remind our listeners that as noted in today’s press release announcing this call, Steve will also be interviews on Fox Business News today at 3

[Stephen C. Taylor:]

Okay. Thanks Jim. Good morning to everyone and welcome to Natural Gas Services Group’s second quarter and six month 2008 earnings review. If you saw our earnings release this morning, we have excellent earnings to report so I’ll get right to it. We again achieved double digit growth in all material financial measures. Comparing the second quarters of 2007 versus 2008, our diluted earnings per share were up 23%; our net income was up 26%; our earnings before interest, taxes, depreciation and amortization were up 21%; and total revenue was up 11%. Now looking at the six months ended June, 2008 diluted earnings per share were up 27% over the comparable period last year; net income was up 29%; EBITDA was up 23%; and total revenue was up 12%. Looking at total revenue and comparing the second quarter of 2008 to the second quarter of 2007, revenues were up 11% from $17.6 million to $19.5 million. Sequentially, total revenues rose 3% from the first quarter of ’08 to the second quarter of ’08, from $18.9 million to $19.5 million. Now looking at the first half of ’08 versus the first half of ’07, total revenues were up 12% from $34.3 million to $38.4 million. Comparing the second quarter of ’08 as far as total gross margin to the second quarter of ’07, gross margin grew to $9 million or 46% of revenue, from $7.2 million or 41% of revenue last year, a 25% increase. Sequentially gross margin increased from $8.9 million to $9 million. This slight growth in gross margin dollars quarter-to-quarter is a result of a bit lower gross margin percent relative to revenue in our sales and rental business for the quarter. I’ll detail that in a minute. Comparing the first half of ’07 to the first half of ’08, gross margin increased from $14.3 million to $17.9 million, a 25% increase. Our sales, general and administrative expense was $1.3 million or 7% of revenue in the second quarter of ’07 and $1.5 million in the second quarter of ’08 or 8% of revenue. The comparative year-to-date six month period SG&A was even at 7% of revenue. I had mentioned last year that we thought SG&A would rise back to our traditional 8 to 8.5% levels to 2007 due to added staff, but we’ve been able to maintain our overhead expenses at optimum levels while still expanding our staff capabilities. Net income in the second quarter of ’07 was $2.6 million or 15% of revenue. It rose 26% the second quarter of ’08 or $3.3 million, also an increase to 17% of revenue. For the sequential quarters we were down $185,000 to $3.3 million in the second quarter of ’08. This is attributable to the difference in gross margin I just mentioned between quarters. The first half of ’07 net was $5.3 million. It increased 29% to $6.8 million in the first half of this year. EBITDA was $6.3 million for the second quarter of ’07. It rose 21% to $7.7 million in the second quarter of this year. Sequentially, like net income and for the same reasons, EBITDA was down $160,000 to $7.7 million but increased 23% in comparative half years from $12.6 million to $15.5 million. In spite of the flat quarter EBITDA we were able to increase its relative contribution as a percent of revenue. The second quarter of ’08 EBITDA was 39% of revenue whereas in the second quarter of ’07 it was 36%. It rose from 37% of revenue to 40% of revenue for the comparative six month period. Our earnings per share on a fully diluted basis for the second quarter of ’08 were $0.27 compared to $0.22 for the second quarter of ’07 or 23% increase. Comparing the six month periods, diluted EPS grew from $0.44 to $0.56 per share for a 27% increase. Now looking at our different segment comparisons, total sales revenue which includes compressor sales, flare sales, parts sales, rebuild and CiP compressors was $10.2 million in the second quarter of ’07 compared to $9.2 million in the second quarter of ’08, down $1 million. This variation is primarily attributable to the quarter to quarter revenue and margin lumpiness of the compressor fabrications sales business. This quarter we also, due to strong rental demand, fabricated an additional 12 rental compressors in our Tulsa facility, which displaced approximately $1.8 million of sales revenue this quarter. Sales gross margins improved from 28% in last year’s quarter to 32% for this year’s period. Sequentially total sales revenue declined for the aforementioned reason about $400,000 to $9.2 million with gross margins moved from 34% to 32%. Compressor sales alone decreased $900,000 between the second quarter of ’07 and the second quarter of ’08 to $7.8 million. The gross margin dollars were level at $2.2 million with a corresponding increase in margins from 26% to 28%. Consecutive quarterly compressor sales revenues went from $8.3 million in the first quarter of ’08 to $7.8 million in the second quarter of ’08 with the gross margins moving from 31% to 28%. Although sales margins were down slightly from 31% to 28%, which of course all my regular listeners will note has been expected and predicted, these continue to be industry high margins. The compressor sales backlog at our fabricated facility in Tulsa totaled more than $19 million at the end of the second quarter of this year. This compares to a $17 billion backlog in the year ago quarter and $21 million in this prior quarter. Our service and maintenance business revenue was essentially flat in comparative year-over-year, three and six month periods and typically runs about 1% of total revenue with a margin of 31% year-to-date. And talking about compressor rentals, rental revenue continues to grow at a very strong rate. The second quarter of ’07 rental revenue was $7.2 million. It grew 40% the second quarter this year when it was $10.1 million. Rental revenue increased sequentially from $9 million to $10.1 million for the current quarter, a 12% gain quarter to quarter. Significantly, this is our first quarter where we’ve had rental revenues exceed $10 million. We’ve dealt with the rental revenue in the past two-and-a-half years and three-and-a-half years ago the company’s total revenues barely exceeded this. Comparing the six month periods of 2007 versus 2008, rental revenue increased from $14.2 million to $19.1 million, a 35% increase. Rental gross margin’s percent of revenue in the second quarter of ’08 was 59%, the same as in the second quarter of ’07. Gross margin dollars were up 7% sequentially although the margin slipped from 62%. I won’t characterize this as a seasonal phenomena where in typically you think revenues are impacted, but more so a practical situation where spray expenses climb coming out of a winter where we tend to do relatively more catch up maintenance and overhauls. Year-to-date gross margin is 61% compared to 60% in the year ago period. Our engineer and fabrication people did a hell of a job this quarter. We added 123 new compressor units to our rental fleet in Q2. That brings the total fleet to 1,546 units as of the end of June this year, almost 190,000 horsepower. And this is up from 1,352 units at year end ’07, an increase of 194 units this year-to-date. Our average fabricated rental horsepower per unit this quarter was 138 horsepower and that continues the last few quarter’s trend of building higher horsepower than average fleet units. Our average cost to fabricate an average rental unit on a per horsepower basis this quarter compared to a year ago increased 11%. As predicted and just noted, we have quite a ramp up of rental fabricated units in the second quarter. Of this total, about 75% were built in our main rental fab facility in Midland. The balance of units were built in Tulsa or outsourced. Going forward we anticipate to maintain the Midland build rate and ending the year at the high end of our 300 to 350 predicted unit additions to the rental fleet. We ended the quarter with the rental fleet utilization rate of 90%, identical to last quarter and higher than the 88% we saw in the second quarter of ’07. We recently implemented a price increase for our installed and operating rental equipment that was effective August 1 as a high single digit percent increase. It’s been two years since our last blanket increase, although labor and many other expenses have nominally increased 40 to 50% and we figure it’s a fair increase. We’ve actually had some positive customer feedback. We have also been able to penetrate our mortgage to a greater degree and take some competitive share. In the 50 to 500 horsepower range in the states where we operate and according to data from the Gas Compressor Association, our share has increased from 7.4% in December, 2004 to 10.3% in December of 2005 to 11.8% in December, 2006. As of the latest data available, we held a 12.5% share at the end of March, 2008 compared to 12.1% in March, 2007. Our balance sheet continues to be very strong. Our total debt is down to $11.4 million on June 30, 2008, a reduction of 27% from the $15.6 million at the same time last year. Our cash and cash equivalence were $7.3 million in June of this year. This is the first time in over two years that we have been net debt on the balance sheet. And I had mentioned last quarter that we would need to secure additional financing to continue our rental fleet growth. We now have that in place. Our banks have renewed our $40 million line of credit and we refinanced our existing term loan on more attractive rates, both at lower than prime interest rates. Capital expenditures in the second quarter of this year were $13.8 million and are $21.9 million year-to-date. This compares to $9 million in the first six months of last year. I would remind you that all of our capital expense is growth capital. None of it goes to overhauls or maintenance of equipment. And 95% of that is to build rental units to grow the fleet with the balance being primarily dedicated to buy new service vehicles. To wrap it up I want to make a few additional comments. From a general business perspective, a recurring trend that I think is important for our shareholders and followers to note is that not only do we continually post good results and growth in comparable periods, we also continue to grow our financial metrics as a percent of revenue. I think we do a very good job from a financial and capital efficiency perspective. We are also seeing excellent progress being made in the strategic shift we want to make relative to rental revenue share. To remind everyone, we want to get rental revenue to two-thirds to three-quarters of our total revenue. This is due to the higher gross margins from that piece of the business. It’s less volatile from a revenue margin perspective. It’s a good defensive hedge in slow markets. For the first time in almost four years, rental revenue was 50% of our total revenue this quarter, moving up from 34% of the tope line back end. The U.S. EPA has issued new emissions regulations pertaining to engine driven compressor units effective July 1, 2008. While the new standards were expected, they were issued with an almost immediate effect whereas in the past there has been a period of time to comply, usually one to two years. But this time between the time of issue and the effective date was only about 30 to 60 days. This will be a time consuming and technically difficult process to accomplish in a very short timeframe, and there will be some expenses associated with it. But we’re working with our engine and other suppliers to comply. We’re buying and installing the catalytic converters and air fuel ratio controllers required and we’re working with our customers to coordinate it all. For some engines, to give you an idea of the magnitude of this, the retrofit approaches the cost of the engine itself. And there are detailed paper trail requirements that we have to follow. And we’ve already got the written processes and details and specs in place to do this. It will take more capital dollars and the cost of engines has already gone up, but we intend to be a leader in this area. We have a young fleet so we’re in a good position, in fact a better position than most to retrofit our equipment. And we have the capital resources and the expertise to make some inroads against smaller competitors in this respect. And one final note from a general business perspective. We were inserted into the Russell 3000 Index in June so I think that we’ll portend increased liquidity for our shareholders. And from a market perspective, gas prices, everybody’s seen oil and gas here lately, the gas prices have dropped dramatically the last 30 to 45 days along with oil. But it’s still 50% higher than the same time last year. And I think we lose perspective of that sometimes. Storage is presently below last year’s level and about even with the five year average. From a consumption standpoint, more gas fired electric generating plants are being built constantly. Our customers continue to drill. They have a lot of [aggregate] inventory to continue to drill on in the future. Their capital expenses are up. And there are a lot of new shell plays out there, which of course is our specialty. Canadian imports are declining and L&G imports are 70% from last June. Now speaking of L&G, there was an announcement the other day that most people probably didn’t see and those that did may not have understood its significance. Korea Gas Corporation, after buying into the threats of supply disruption from Indonesia, entered into a purchase agreement with Indonesia to buy L&G at a record price of $20.00 per MMBtu. This says L&G originally contracted to a U.S. utility but was diverted to this higher price. But that’s not the real news. We’ve seen L&G go far into Eastern Europe as U.S. buyers have been outbid. But what needs to be paid attention to are the future ramifications of this. A country friendly to the U.S. as opposed to the Irans of the world is using their engine muscle to drive prices up in natural gas. Does that sound familiar? Does OPEC and oil ring a bell? This price that was based on $120 oil has now set a precedent and potential market clearing price for international L&G. What’s important to us, right now the U.S. is almost energy self-sufficient when it comes to natural gas. But if we go the way we have gone with oil, legislating against it and not developing our resources, we will be in the same situation with natural gas in the future. It amazes me that we now have a president that wants offshore drilling, a presumptive candidate from both parties support it and 75% of the public agrees with it, the governor of Florida is getting behind it, but we get Miss Pelosi saying it won’t happen on her watch. Is it any surprise that we are in the dire shape that we are in when it comes to energy? We presently have the governor of New Mexico restricting drilling and implementing new restrictive regulations on expiration of production. Michigan, the state with some of the highest taxes and unemployment rates in the U.S. has essentially a regulatory standstill in place while arguments continue about production practices. We have fought our $4 gasoline and everyone is blaming the oil and gas industry. I think fingers are pointing the wrong way. Natural gas is one of the absolute best ways this company has to help resolve all of our energy dependence. It’s here, it’s abundant and it’s environmentally sound. It can be used as a vehicle fuel in addition to heating and generating electricity. While we continue to have restrictions on access to it on federal lands or the threat of additional taxes that hinder exploration, if something doesn’t change in our approach our kids will be fretting over the price of natural gas from the Middle East. That’s the end of my prepared remarks. I’ll now turn the call back over to Ross to open the lines for any of you that might have questions. Thanks.

[Operator:]

Thank you. At this time we will conduct a question-and-answer session. (Operator Instructions) Your first question comes from Neal Dingmann – Dahlman Rose & Co.

[Neal Dingmann:]

Steve, I know you’ve mentioned on the update here that you said now you thought for the rental fleet you could hit the upper end of the guidance. Is the new, I guess the new facility now, is that ramped up, on pace to do what you thought? Are you able to expand that? Starting next year will you be getting even more or does it sort of stay within your initial plan?

[Stephen C. Taylor:]

Well this year, I think I mentioned this on the last call, too, we’ll ramp up the first couple quarters and the last couple quarters will be about flat there. And that’s what we’re looking at. So that will put us at the high end of that 350 but we intend as also mentioned before go ahead and ramp up further the next couple of years to intend to reach the ultimate capacity of that facility of 500 to 550 per year in ‘010. But we’re taking that two or three year ramp, number one, just getting suppliers conditioned to give us more engines and compressors; getting the people in place; and developing the market simultaneously. I think we’re right on track as to where we thought we’d be. But we’re going to be able to hit the high end of what we’re seeing from a rental fleet addition.

[Neal Dingmann:]

You mentioned the price increase. It sounds like it’s been pretty well received. I mean does that factor in? Should we see margins, I guess, that still stay in that sort of the same range? Or could they sneak up just a bit or two now because of that going through?

[Stephen C. Taylor:]

Well, I’m hesitant to put a whole lot of that on the bottom line because as I mentioned it’s been two years since we did an across the board increase. And our guys have done just a heck of a job on controlling costs and watching this stuff. And it had gotten to the point where you just couldn’t hold anymore. And I think the positive feedback we’ve gotten from customers is that we hadn’t done anything in a couple years from that perspective, of this is on installed operating equipment out there now. They appreciate that we hadn’t done that in a while. And that we kind of were reasonable in our approach to it. I don’t want to say there’s going to be anything to the bottom line. We’re sort of going to try to do that. But the costs keep going up. And other stuff isn’t getting any cheaper. And I just don’t want to predict that we get any, and if so what to the bottom line right now.

[Neal Dingmann:]

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

[Stephen C. Taylor:]

We’re looking like a pretty full quarter in Q3 from the sales perspective. So I don’t think we’ll have that. And I want to reiterate that point. I’m glad you brought it up again. That although these sequential numbers down quarter-to-quarter in that business, [inaudible] to the inherent lumpiness of it, but it was primarily due to build some more rental equipment in there to feed the rental business which is very, very strong the first half according to the numbers we gave. We don’t think we’ll be doing much of that in Q3. Now we may do a little more in Q4. We’re kind of looking at that. But that’s to our advantage here. We don’t have to, if we see the demand stay up that way, we might do some. But if the sales demand comes back the other way, we might do it that way. So with both facilities and being able to go back and forth we can pretty well play the market however we want to do it.

[Neal Dingmann:]

As far as the new plays out there, the Hainesville, Marcellus, [Mincos], on and on, are you being more proactive on that or are you waiting? Is it – let somebody contact you first before you’d really go after those areas? Is there – kind of what’s your plan to look at and explore those areas?

[Stephen C. Taylor:]

Well every one of those is either in an area where we’ve got sales guys or adjacent to an area where we have sales and operating people. So we’re certainly talking to the customers in those areas and we’re starting to develop a feel for it. And what their timeline is. But you know some of these, you know, the Hainesville really is just starting with the drilling piece of it and not a whole lot going on there yet. So still a lot of infrastructure going on in these places. It’s not really our time yet from our horsepower to be in there active. But we are laying the groundwork so people know us. We have a feel for what’s going on and we’ll be ready to move in when we need to.

[Operator:]

Your next question comes from Steve [Farazini] – Sidoti and Company.

[Steve Farazini:]

I may have missed it. Could you tell me what the fleet size was at the end of the quarter?

[Stephen C. Taylor:]

1,546 I think.

[Steve Farazini:]

What’s been the efforts in the quarter in terms of outside of the Barnett and the San Juan Basin? How’s that been going? What’s the progress like?

[Stephen C. Taylor:]

Oh you mean where’s most of the equipment gone?

[Steve Farazini:]

Yes outside of those two areas. Has it been overwhelmingly those two spots or have you gotten –

[Stephen C. Taylor:]

No it’s overwhelmingly those. I mean, the Barnett is just a nutty place. You know in – two years ago in this business you would’ve gotten a little worried about that. But everything you look at, in talking to customers, the Devon’s, the XTOs, you know EOGs are [basing] there’s just still so much to do out there. There’s so much inventory there’s still, you know, depending on who you talk to three, five, ten more years left out there to keep growing. So it is there but so is San Juan. Probably three-quarters of it goes to those areas and the other is scattered out.

[Steve Farazini:]

What do you think the plan is over the next couple of years? Do you think you could – with the volume numbers you’ve talked about adding to the fleet, can most of them go in those two areas? Or do you think you have to move it to some new spots?

[Stephen C. Taylor:]

We are moving in some others. We, I think I mentioned it before, put a salesman in Oklahoma City this year. We’re starting to dabble in east Texas, central Texas area. So we’re starting to move into that. That’s one of the reasons why we wanted this bigger fab facility because before with our internal capacity topped at about 250, about all we could supply were San Juan and Barnett. There’s enough now that we’ve got this additional capacity available to us, we’re starting to get these things into some other areas. And actually we’re in discussion with a couple more salespeople in some new areas to bring them on, too, to start developing those markets. Our plan is to continue to move out geographically in a contiguous to the areas we are so we can service that stuff and go ahead and expand our influence that way.

[Steve Farazini:]

On the sales side, I know we talk about the lumpiness in other quarters. Is that more of a product mix or just total volume going through?

[Stephen C. Taylor:]

It’s a little of both. I mean you get, for example in the second quarter some of it is due to just the flow through the plant. I mean – I think we had a little over $1 million that didn’t hit second quarter but it hit on the fourth day in the third quarter. And that was – we thought it was going to be in the second quarter until the customer couldn’t get in to do his run test except equivalent. We had to go into the third quarter. See you get things like that that go between quarters. And you do get some in the mix. We’ve seen that before, but it’s just with the flow through a fab facility like that where you think you know exactly what’s going to happen and then of course the customer’s change it during the week all the time. It’s just real hard to get a good quarter-to-quarter feel for that. And that’s why I mentioned to you and everybody, you just take a look at that business on a rolling 12 month average and as long as it looks good there, I think that’s all that needs to be worried about.

[Steve Farazini:]

And backlog’s pretty healthy there right now?

[Stephen C. Taylor:]

Yes same as last year. I mean, you know, down a couple million from last quarter. But we’re well within the normal range of what we see.

[Steve Farazini:]

And what are you thinking for a compression utilization for the rest of the year? Can you do 90% or is this probably going to be probably the higher end?

[Stephen C. Taylor:]

We’d like 90 plus, minus a couple points; if we get to 80, 87, 88 that’s okay. I really don’t like much over 90 because that starts to hinder the share you can continue to get. You know and sometimes like we did a couple years ago, even when things slowed down, we kept building and drove it down intentionally ourselves because we knew it would be back. So I think 90 is a good number but again, two or three points around that is nothing to worry about either.

[Operator:]

Your next question comes from Matt [Beebee] – Morgan Keegan.

[Matt Beebee:]

Just to follow up with you on the – you discussed the EPA standards that go into effect July 1. Those costs associated with that is there going to be a meaningful impact in this third quarter? Are you going to be able to share some of those with clients? Can you provide any detail on how that might work?

[Stephen C. Taylor:]

Yes we’re starting to – it took effect July 1 so we’re starting to ramp up. And all the new engines we’re buying are mission controlled and things like that. So yes there will be an immediate effect. Now it won’t show up for over time because you know that stuff’s capitalized and no feed back through that way. But we’re sending our customers and really trying to figure out what’s the best way to do this from a implementation and being sensitive to down time for them to do all this stuff. It’s a pretty big undertaking because, like I mentioned, you usually have a year or so to get ready for this stuff and this just came in with about 30 days notice, for whatever reason. So it’s got everybody’s attention pretty quick. Now we will be recovering – it’s going to be a capital expense on the equipment so it will be into a rental rate. So a direct operating effect you won’t see much of that. But it’s just you’ll see an increase in capital just due to that.

[Matt Beebee:]

The margin may be impacted more by down time not the –

[Stephen C. Taylor:]

I don’t think it’ll be impacted by that when we’re working with the customers. And I mean we don’t think we’re going to get penalized for down time for responding to a federal mandate. And I don’t think the customers see that either. I think they’re receptive as to our approach to them and how we’re doing it and trying to work with them to get this stuff in there and done. Because it’s actually the customer’s responsibility since it’s their lease to have those things cleaned. So you know that’s why we’re getting out there and getting after it pretty quick.

[Matt Beebee:]

I see.

[Stephen C. Taylor:]

And again I think as I mentioned, I think it will help us actually from a market standpoint. Not only number one from being very proactive in doing this from an environmental perspective but we’ve got the capital resources and technical expertise to do this and do it right. Some of our smaller competitors in our area probably can’t match.

[Matt Beebee:]

You mentioned that you had some outsourcing. Can you quantify the number of compressors that were outsourced this last quarter?

[Stephen C. Taylor:]

As I mentioned, in Tulsa we did 12. We probably outsourced outside of that about 15 or 20.

[Matt Beebee:]

So what are the bottlenecks then at your main facilities? Is it still a labor issue or component delays?

[Stephen C. Taylor:]

Yes, well, it’s not really component delays it’s again the three things we’ve got to develop simultaneously is number one, our suppliers have to be able to supply us more engines, compressors, etc, coming in and they can’t do that overnight so that’s a ramp up piece of it. And you know coolers and everything else. So that’s a ramp up piece. Getting the people and there’s a ramp up piece. And then you know developing the markets. And we’re going to put out – if we want to put out 500 more units in the fleet two years from now, we’ve got to get out into these areas we just mentioned, Oklahoma, east Texas and some of these other areas where we’re putting these salespeople in, to pull that equipment in, too. So it’s all three of those that don’t really bottleneck, just a ramp up in a very busy time that’ll take a couple years.

[Matt Beebee:]

And then kind of flipping back over to the sales side, you guys are going to have to see some pretty significant performance in 3Q and 4Q just to get to the ’07 levels on an annual basis? Is that a goal or do you have any kind of guidance on that? Or expectations on that?

[Stephen C. Taylor:]

Well again it’s going to be – it’s hard to, I guess, put a number and expectation on that because of just exactly what happened in the second quarter in doing some rental units through there. With the number of rental units we put into the fleet, over 120, we did about 70 the first quarter so a heck of a ramp up. The market took all of them because our utilization stayed the same. And our sequential growth is 12, 13%. If we see the need for additional rental compression, we may displace some of that sales revenue. And that hurts you in a little way from the immediate quarter but certainly long term is where we want to go from a margin standpoint and from a you know top line perspective from a rental revenue. I think we’ll be within a – if we don’t exceed the sales number this year over last year we’ll certainly be within a reasonable estimation of that. Again, we’re going to reserve the right to take the long term perspective and run more rental units through there if we need to.

[Operator:]

At this time we have no further questions. I’d like to turn the call back to Mr. Taylor for closing remarks.

[Stephen C. Taylor:]

I appreciate everybody joining us. Before I close I want to, as I always do, thank all of our employees for their continued work. You know, it’s only through their efforts that we’ve been able to grow the company as we have, deliver the bottom line profits as we need to and prosper as we expect to. Thank you for joining me on this call and look forward to visiting with you again next quarter. Thanks.