Natural Gas Services Group, Inc.

Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group, first quarter 2020 earnings call. At this time, all participants will be in the listen-only mode. Operator assistance is available at any time during this call by pressing star zero. Your call leaders for today's call are Alicia Dada, IR Coordinator, and Steve Taylor, Chairman, President, and CEO. I would now like to turn the call over to your host, Alicia, you may begin.

Thank you, Ross, and good morning listeners. Please allow me a moment to read the following forward-looking statement prior to commencing our earnings call. Except for the historical information contained herein, the statements in this morning's conference call are forward-looking and are made pursuant to the safe harbor provisions as outlined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements, as you may know, involve known and unknown risk 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 share through competition or otherwise, the introduction of competing technologies by other companies, and new governmental, safety, health, or environmental regulations which could require Natural Gas Services Group to make significant capital expenditures. The forward-looking statements included in this conference call are made as of the date of this call, and Natural Gas Services undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include, but are not limited to, factors described in our recent press release and also under the captioned risk factors in the company's annual report on Form 10-K filed with the Securities and Exchange Commission. Having all this stated, I will turn the call over to Stephen Taylor, who is President, Chairman, and CEO of Natural Gas Services Group. Steve?

Thank you, Alicia and Ross. Good morning, everyone, and welcome to the Natural Gas Services Group's first quarter 2020 earnings review. Thank you for tuning in to our call. The COVID-19 pandemic has had an impact on our industry and business activity. but NGS continues to provide quality service to our customers and we have seen no material impact on our supply chain or critical vendors. We have adopted remote and staggered work processes at our Midland headquarters and have adapted our field and fabrication work to meet the new realities from the COVID virus. We have implemented guidelines intended to keep our employees, our customers, and suppliers as safe as possible. We have managed to do so without adding significant costs to our operation. We continue to be vigilant to find ways to remain as efficient as possible in this environment of new operating challenges. The impact of COVID-19 and the resulting oil demand destruction continues to cloud our visibility for short-term business prospects. In April, as expected, we experienced more unit returns and shedding notices from customers, and we anticipate and are prepared for additional volatility in our business over the course of the next several months. Nevertheless, unlike many other oilfield service companies, NGS has the balance sheet to withstand this environment. With $13.1 million in cash on hand, minimal debt, a $30 million credit line, and an expected $15 million cash tax refund, we have adequate liquidity and are well positioned to emerge intact when a more normal industry and economic environment returns. We anticipate impact to our business going forward from equipment being returned, the associated lower utilization rates and revenue, and margin pressure. Our larger horsepower installations are faring relatively well, but the medium horsepower equipment will be impacted the greatest. Interestingly, our smaller horsepower units, which are generally oriented towards the production of natural gas, now a relatively valuable commodity, may get by relatively unscathed. That's not a promise. There are no promises anymore, but we're seeing some isolated instances where that might be the case. We've implemented various cost-cutting measures with respect to operating and capital expenses, including reductions in our headcount from layoffs and attrition, wage freezes, centralization of certain processes for better cost control, and the enlistment of our suppliers in our cost-cutting efforts. We continue to review additional opportunities to become more efficient, including combining and reorganizing field operations to reduce the number of operating locations. Our rationalization of costs is a multifaceted process that has started, is continuously being implemented, and will not go away for the foreseeable future. I also want to remind everyone of the flexibility and resilience of the NGS business model. Being on the production side of the energy business, as opposed to the drilling side, conveys an inherent advantage. We are the last vestige of an operator to make money when they stop drilling. Wells that need compression never unneed compression, and although wells can be shut in, some production has to be maintained to keep even a minimal amount of revenue rolling in. Does this insulate us from this downturn? Absolutely not, but it does give us a preferred position in the oil field services structure hierarchy. That's our macro advantage, but we also have a number of microeconomic, company-specific advantages. As you know, if you followed NGSE in a short time, Our model is demonstrably different from our competitors. We have operated for years throughout all kinds of cycles, essentially without debt, and we typically have an appreciable amount of cash on a balance sheet. We retain the ability to generate cash for a rental business, and we have always been one of the first to cut capital expenses to an extremely low level in an accelerated manner. Our playbook is the same this time, but it is being implemented in an even quicker manner due to the extreme downward slope in the industry. In spite of the pressures on the industry and our business, I feel certain we will emerge in a preferred position, both financially and as a superior provider of equipment and services to our customers. So, with all that said, I'll discuss the financial results as well as pertinent operating and market comments. Given the challenges in our industry and the overall economy, we are pleased with our operational performance in the first quarter of 2020. Our rental revenue increased 5% sequentially and 20% when compared to the first quarter of 2019. It was driven by increased rentals of our large horsepower units. Our unit and horsepower utilization remained solid, and we generated an adjusted EBITDA of $5.8 million, an increase of 11% over the fourth quarter of 2019. Our operating cash flow for the quarter was $8.3 million. Looking further at revenues, NGS reported total revenue of $17.9 million for the first quarter of 2020, a $100,000 decrease from the same quarter in 2019. We experienced an increase in rental revenues of 20% that decreased in both sales and service maintenance revenue streams. Sequentially, total revenue decreased by 9%. More importantly, rental revenues increased 5% sequentially. Not unexpectedly, sales revenues decreased due to a drop in compressor sales. In a capital constrained environment, we would expect sales revenues to remain soft in the coming months as companies have significantly reduced capital spending. Toll adjusted gross margin for the three months ended March 31, 2020 increased by 3% to $8.1 million from $7.9 million for the same period ended March 31, 2019. Adjusted gross margin, which does not include depreciation, as the percentage of revenue for the three months ended March 31 was 45%, an increase from 44% year-over-year. Sequentially, adjusted gross margin for the first quarter of 2020 also increased by 3% to $8.1 million from $7.9 million from the prior quarter. Adjusted gross margin as a percentage of revenue increased to 45% in this quarter compared to 40% in the prior quarter. Selling, general, and administrative expenses were $2.2 million. A year-over-year decrease of approximately $330,000 and a decrease of approximately $580,000 sequentially. The main reason for the year-over-year decrease is due to a credit of $350,000 related to the company's reduced deferred compensation liability. Without this, the first quarter of 2020 SG&A would have been relatively flat compared to the first quarter of 2019. Sequentially, the $580,000 decrease is also related to the lower deferred compensation liability and lower stock compensation expense. Our adjusted SG&A expenses generally run at 13% to 14% of total revenue and continue to do so. Operating income for the first quarter of 2020 was a loss of $273,000 compared to a loss of $145,000 in the first quarter of 2019. The adjusted operating loss this quarter was due to lower sales, lower rental margins, and higher depreciation expenses on our lowered horsepower equipment. Sequentially, operating income increased $608,000 from an adjusted operating loss of $881,000 in the fourth quarter of 2019. This increase was primarily driven by higher rental revenue, lower SG&A, and higher rental margins. Our adjusted net loss after tax for this quarter was $808,000. This compares to a net income of $98,000 in last year's first quarter and a $1.4 million adjusted net loss in the fourth quarter of 2019. Quantifying the loss for this quarter, our net loss before tax was $461,000, So almost $350,000 of the bottom line net loss this quarter was attributable to deferred taxes, with another $300,000 related to a loss in our fabrication facilities. As far as reported net income, our net income will be a positive $4.1 million. Fortunately, due to our recent change in tax laws, were able to claim net operating loss carrybacks and recoup some past cash income taxes. This will result in a total of $15 million in actual cash tax refunds, of which $4.9 million is the income tax benefit recorded this quarter. NGS reported earnings for the losing share of $0.30 for the first quarter. EBITDA is Earnings Before Interest Taxes, Depreciation, and Amortization, and our adjusted EBITDA also excludes any increases in inventory allowance. Adjusted EBITDA for the three months ended March 31, 2019 was $5.8 million, a slight increase from $5.7 million the same period in 19. Adjusted EBITDA increased approximately $580,000 sequentially from $5.2 million, primarily due to higher rental revenues and lower SG&A. Total sales revenues, which include compressors, flares, and product sales, decreased 65% or $2.7 million on a year-over-year basis. Sequential sales revenue decreased to $1.5 million from $3.9 million. Approximately 70% to 80% of these declines, depending on the quarter, were driven by lower compressor sales. First quarter 2020 total sales gross margin was a loss of $289,000. This was a result of unabsorbed costs in our fabrication facilities. primarily due to lower plant throughput and our retention of incremental personnel and compared to positive gross margins of $426,000 in the first quarter of 2019 and $358,000 in the fourth quarter of 2019. First quarter 2020 compressor-only sales decreased from $2.7 million in the first quarter of 2019 and $3 million in the prior quarter to $852,000 this quarter. Again, due to unabsorbed costs, compressor-only sales margin posted a loss of $435,000 for the three months ended March 31, 2020, compared to a loss of $30,000 for the same period a year ago and a profit of $76,000 last quarter. Our sales backlog as of March 31, 2019 was approximately $1.4 million compared to approximately $2.2 million in the fourth quarter of 2019. I'm sorry, that backlog of $1.4 million was this quarter. Our rental revenue continued to grow in the year-over-year sequential quarters. Rental revenue in the first quarter of 2020 was $16.1 million compared to $13.4 million in the first quarter of last year and $15.3 million last quarter. This is a rental revenue increase of 20% and 5% respectively. Compared to the fourth quarter of 2019, our average rental rates on a per unit basis increased 7% and we're at 4% on average per horsepower basis. Rental rates increased by an average of 18% per unit in the year-over-year quarters, mainly due to our continued penetration into the larger horsepower market. This is a large per-unit rental rate increase over the past year. Now, I'm going to brag about it, but remember that almost all the rental fleet equipment added last year was large horsepower and carries much higher rates per unit than our average unit. Reported rental gross margins this quarter were 51%, an increase from fourth quarter 2019 rental gross margins of 47%, and a decrease from last year's first quarter of 54%. Fourth quarter rental margins were negatively impacted by the previously mentioned $620,000 bad debt charge. Without the bad debt charge, gross margins sequentially would have been flat at 51%. Fleet size at the end of March 2020 totaled 2,316 compressors or 437,750 horsepower in addition of 12 units or 8,100 horsepower during the first quarter. As of March 31, 2020, 37% of our utilized horsepower is classified as large. Over the past 12 months, we have added 86 new fleet units totaling just above 72,000 horsepower with 94% of those units classified in our large horsepower category. The 37% of our utilized horsepower being classified as large is important. Large horsepower as compared to small and medium horsepower tends to fare better in a downturn. and this is the first time we've had this kind of backstop when entering a period of depressed activity. Our horsepower utilization is 68% and unit base utilization was 60% as of March 31, 2020. Overall, we had 25% more horsepower generated revenue this quarter compared to last year's quarter and had a small 1% decrease sequentially. I noted on a year-end call that we thought our capital expenditures would decrease approximately 75% when compared to 2019 levels, which suggests a CapEx budget of about $17.5 million for this year. We spent about $6.7 million in the first quarter, including $5.8 million on rental equipments. We have approximately $5 to $7 million of additional capital commitments for the year, which suggests a total 2020 capital expenditure budget of only $12 to $14 million, appreciably below the capital expenditures we estimated just last quarter. On August 12, 2019, NGS announced that our board had approved an authorization to invest up to $10 million directly into the company through a stock buyback. And as of March 31, 2019, the company has repurchased almost 38,000 shares at a cost of almost $490,000.

We continue to believe that our equity remains one of the more attractive investments available in the current environment.

That said, given the current uncertainty in the market and the board's belief that enhanced liquidity is prudent, We are not likely to be active participants in share repurchases at this time. We will continue to review market conditions and our business and capital position as we evaluate future opportunities. Moving to the balance sheet, our total bank debt remains minimal at $417,000 as of March 31, 2020, and our cash balance remains strong at $13.1 million. In addition, we have a largely untapped credit line of $30 million available to us, which provides ample liquidity in any conceivable scenario. We generated positive net cash flow from operating activities in this quarter of $8.3 million which represents 46% of our quarterly revenue. Free cash flow was $1.6 million and we anticipate this will increase through the year due to our recurring rental revenue and dramatically lower CapEx budget. In summary, there are not many companies in the OFS space that have a recurring rental revenue stream, essentially no debt on the balance sheet, cash reserves in the bank, and a continuing ability to generate cash. Finally, I want to comment on the PPP loan we recently received and then paid back. As noted in our earnings press release in our recent 8K, we applied for and received a $4.6 million loan under the Paycheck Protection Program which we intended to use to help maintain our employee population in a period of unprecedented turmoil in our industry and overall economy. With the assistance of our bank and under the rules of the time, we applied in good faith and received a loan. However, less than a week following the approval of our loan by the U.S. Small Business Administration, we were informed by our bank as well as the media that as a public company, and solely because we were a public company, we were deemed to have applied for and received funds that maybe all of a sudden weren't meant for us. Essentially, we were expected to divine the intent of the SBA as it developed over a couple of weeks, never mind these specific rules. In effect, public companies and our employees were discriminated against in what became a politically driven process. Well, this is not the forum in which to debate the merits or the politics of the program. Our management and our board believed at the time and continue to believe that NGS was and is a company that should have participated and benefited from the program. However, after carefully considering the potential costs associated with the revised PPP program and guidelines, We determined it was, on balance, in the best interest of our collected stakeholders to return the loan under the provisions set forth by the SBA after we applied and received the loan. That insult to injury, we were charged interest on the loan for the interim period we had it. Unfortunately, the irresolute nature of this government program and the, in my view, irrational rush to political correctness, exactly the opposite impact of the program's intent, as NGS was forced to reduce our workforce by 20 percent, or roughly 50 of our team members, upon the return of the loan. Before we take questions, I want to thank the entire NGS team for their dedication and efforts during this difficult period. In a very trying environment, our employees have demonstrated the utmost in professionalism and responsibility. We have some challenging months ahead of us, but we will emerge stronger than most thanks to our superior financial strength and the exceptional people we have. These are challenging times, but we are a company that has found ways to effectively navigate through turbulence and will continue to focus on exceptional service and a strong balance sheet. Ross, that's the end of my remarks, so if you would, please open the phone line for questions.

At this time, we will take questions. If you would like to ask a question, please press star 1 on your phone now, and you will be placed in the queue in the order received. You can press pound 1 at any time to remove yourself from the queue. Once again, if you would like to ask a question, please press star 1 on your phone now. Our first question comes from Rob Brown from Lake Street Capital. Please go ahead, Rob.

Hi, Steve.

Hi, Rob.

First question is kind of on your tax refund. You talked about a $15 million refund. I guess maybe when do you expect it and then maybe some clarity on sort of how you get that and some of the cash flow items in terms of the deferred tax offset in the quarter. But maybe some clarity on that tax refund would be great.

You know, we've applied for the refund, the $4.9 million, you know, item we booked this quarter is, you know, effectively what the net book impact of the $15 million cash refund will be. And all it is is going back. on some cash taxes. There's been a change in the tax law where net operating losses can be carried back and applied towards those cash taxes and netted out. So that's going to result in, I don't remember if it was over three or four years, but that's going to result in $50 million in cash coming back. As far as timing, you know, it's the government. So, you know, we would expect something, you know, next quarter or two, but it could be, you know, it could take throughout the year. It just depends on what's going on and, you know, what the priority is on this stuff.

But, you know, we'll get it.

We're just not, I just can't confidently say exactly when.

Okay, but that's a net number. The $15 million will be a net number that you'll add to your balance sheet.

Yeah, we'll get $15 million in cash.

Okay, good. And then kind of utilization rates, you talked about the high horsepower kind of maintaining utilization rates in a downturn. What's the dynamic that drives that, and how sticky is that high horsepower market?

Well, these are our relative questions, right? Big horsepower relative to small and medium. But the large horsepower, and this is one of the reasons we wanted to move into it a couple years ago, is it's relatively sticky from the point that it's pretty expensive to freight and install. Once you have it there, it's hard to move it. or send it back or anything else and as you know we've got pretty good long-term contracts on this stuff so it's going to stay out there as with anything in an environment like this there are You know, obviously negotiations going on as far as discounts and things like that. But that equipment is generally staying out. We see some of the 400 and 600 horsepower come back a little, but not much. I mean, our large horsepower utilization, and we classify large horsepower 400 horsepower and up. So it's essentially 400 to 1,400 horsepower for us. Utilization has dropped significantly. and many more. You know, hardly any of the big horsepower to come back. You know, the medium will be the primary impact we see. And as I mentioned on small horsepower, that may actually hold in pretty well, too, depending on the gas market and gas price and what everybody's doing there. But, you know, it's just more expensive to build, install, operate, and operators tend to, not to do anything at large horsepower unless it's a last, last resort.

Okay, good. And then I'd be curious to hear your thoughts on the latest sort of environment most recently in the last few weeks. How is the pricing environment? You mentioned some shut-ins and shut-offs, but how is that sort of trending? How are you seeing the near-term utilization and sort of pricing environment at the moment?

Yeah, we're talking about pricing right now. It's... You have to shift to talking about discounts being given, you know, plus shut-ins. This downturn is quite different from all the others in that the speed and how fast it's come off and how operators have reacted and, of course, you know, how we've had to react according to what they're doing. So it's been a pretty quick downturn, and really it's gone from – Initially, discounts given to shut-ins happening. And shut-ins are, there's two reasons, right? Oil prices being extremely low where people just can't make money at it, cash money. and, you know, storage issues. Now, both those, I think, are starting to alleviate themselves. We've seen some strength and crude, you know, and strength is a relative term, right? You know, anything's up from $10 or $15, but, you know, it's been, you know, A little steady climb here recently, and I think that'll probably hold. We'll see how long it continues up. In storage, I think we're getting very close, and there's a lot of oil in the water and tankers right now. In storage, it's going to stay high for a bit, but I have a feeling that... We're not going to run out totally, as was the fear a couple, three weeks ago. And it'll be full, and there's going to be some issues around it. But as far as totally running out of storage and shutting everything, it's totally shutting everything in. It seems to be fading a little more than what it was a couple weeks ago. So pricing, you know, it's just all down, right? So there's hardly any pricing to compare to. Now, we're still putting out some equipment. Obviously, we're getting more back that we're putting out, and the units we're putting out are really not taking too severe of a beating on what I would say prices were six months ago. But there's not a whole lot going out, so it's not a good statistic to use right now just because the amount of equipment going out is far lower than the amount of equipment coming back. But if you just look at what we've done, pricing is not an issue right now. Really the issue is, you know, managing through shut-ins. And, you know, we'll do that. We've gotten some back, but we'll get some more back. But, you know, I think generally we'll be in a lot better shape than most other people coming out of this thing.

Okay, great. Thank you. I'll turn it over.

Thanks, Rob. Our next question comes from Craig Holden from Anderson Holden. Please go ahead, Craig.

Yeah. I was curious, Steve, could you talk a little bit about the various regions you operate in and where you're seeing units being turned back and which regions are faring relatively better? Sure.

Yeah, good morning, Craig. Well, the Permian has been hit the hardest, and that's simply because it's been the fastest grower the last two or three years. So it's not unusual that you'd see that. And of course, this is primarily All country and oil is a commodity that's getting hurt. So we're seeing most of it in the Permian. We're seeing a touch of it in mid-continent, you know, scoop stack area, Oklahoma. and those are probably the biggest impacted areas. We haven't seen much in the Rockies yet. Now San Juan has been affected somewhat in the oil play out there. But generally, the Rockies haven't seen much. You know, Barnett, South Texas haven't seen much. Appalachia hasn't seen much. So it's primarily going to be, and again, this makes sense from the point of this is how we've been most active, mid-continent or the Permian. You know, as far as, you know, areas stronger than others, I think that's, again, that's relative to you say, well, these have gone down and these haven't gone down as much. So the ones that haven't gone down as much, I guess, are the relatively good areas.

Right. Okay. And are there any more large regs under contract that haven't begun work yet or haven't begun generating revenue yet?

Yes, we've got a number, just as we had in the past, a number of units that are on standby rates. They've been built in the past, and contracts allowed us to charge standby rates. Now, obviously, those standby rates are going to be invoked a little longer than we anticipated. We were thinking... Most of this stuff would be out and operating by mid-year, third quarter's the latest. And we were on track to do that two quarters ago, but now you will see. Those standby rates extend much longer. Now, we're still going to get the contracted minimum term out of this equipment. So if standby goes on another two or three months or two or three quarters longer than we think, we'll get standby rates, plus we'll still get the full contract term at the end. So it's essentially a deferral of full rates, but we're going to see a lot more on standby longer than we anticipated.

Okay. And you mentioned in your prepared remarks, you believe free cash will be better in Q2 or Q3 than it was in Q1, primarily because of the drop in CapEx.

Right, right. Now, we're obviously going to have some drop in cash, but yes, the capex drops much quicker. There's more in our control, and we spent 6.7, 5.8, I think, was rental and compression, and that's telling off pretty quick. Yeah. By third or fourth quarter, we've got some obligations to fulfill in Q2 on it. And again, they're obligations from contractor equipment. But by Q3 and Q4, CapEx is going to be negligible.

And at our current rental run rate, are we able to cover overhead?

Yes, sir. Yeah, we'll still be generating some cash, but obviously it's going to be under pressure. But, you know, Q1 was good and resilient, but, you know, Our company and all the other companies, Q2 is really the start of where you're going to start seeing some real major impacts from crude because that's essentially a March event. So the impacts start affecting Q2. But, no, we anticipate generating free cash at the end of the year and throughout the second half.

Right. Okay. Thanks, Steve. Okay.

Thanks, Craig. Our next question comes from Tate Sullivan from Action Group. Please go ahead, Tate.

Thanks, Tate. I appreciate your comments. In the current environment, there's shut-in notices, and you commented on it before, but how much do you get advance notice from the customers that they're planning to shut down a well and they'll return the equipment in two months, or is it instantaneous to shut down and return the equipment and hear about it at the same time?

Yeah, it's pretty instantaneous. They're not waiting a whole long time to call us, pretty much when they decide internally shut some down or shut a field down or something like that. We're probably about next on the phone list because compression is a fair operating expense to them. So we get very little notice. We have agreements we put in place on shut-ins from the point of – You know, how long they're going to last, what the rate's going to be, you know, if there's any minimum terms that have to be fulfilled and things like that. So we've got that stuff pretty well covered.

And, you know, you don't like those.

I mean, actually, you hate them, you know, shut-ins, because, you know, nobody's making money at that point. But I think we've – and I've been in, you know, some of the direct customer negotiations on some of these, and – I think, you know, out of a bad situation, we're going to come out in fairly good shape on it, not just from what the shut-ins might be and the terms and conditions around them, but, you know, I think the customers we're dealing with and that we've got and, you know, and are shutting in to are ones we have good relationships with.

We're able to work through some of the

You know, the details and the stickier points with them as we negotiate some of these things. And I think we're going to come out from the point of having a pretty good, you know, image with our customers as far as being responsive and fair in what we're doing on this stuff.

And, you know.

Those guys don't want to shut them in, and we sure don't want them to shut them in, but it's all a given right now, and the best you can do is try to negotiate something fair so that we can all get through it and come out on the other side. I think we're going to be in pretty good shape from that standpoint on that, but it is what it is. A shut-in is not good for anybody, but we get very little notice typically.

And then another technical question, the larger horsepower that's currently in the fields or on a pad supporting multiple wells and the wells are producing currently, does a customer sometimes stop the gas lift process while keeping the production at a lower level or will they shut the whole field down as it's all connected?

Typically, it's the whole, you know, the well or the field or, you know, a bunch of wells are just shut in. You can probably, you know, some of those gas-lifted wells you could produce with that gas lift. Most of them you couldn't or you wouldn't be able to produce enough to make it worthwhile. So typically when they're shutting in the compression, they're shutting in the wells and, you know, just hoping for a higher oil price.

Okay. Thank you, Steve.

Okay. Thanks, Tate.

As a reminder, if you would like to ask a question, please press star one on your phone now. And Steve, at this time, there appears to be no further questions, so we'll just chew it up one moment. We'll have George Melas from MKH. Please go ahead, George.

Thank you. Yes. Good morning. I'm very new to this story. Is there a way to segment the rental revenue between Low horsepower, medium, and high in this quarter. Roughly, how much of the rental revenue is each of those categories?

Yeah, I don't have it off the top of my head, but I mentioned 37% of our utilized horsepower is large, classified as large. So you could roughly say, if you just want to You know, equate dollars to horsepower. You roughly say 40% of the rental revenue is large horsepower. So, at least you're 60%. So, of that, I'm going to hazard a guess to say 40% is medium horsepower, and then, you know, 20% is small horsepower.

Okay, great. Thanks. That's helpful for me. And then, a question on your deferred tax liabilities. and I don't know quite how to understand that number and it's a pretty large number on your balance sheet. Does that represent taxes that are deferred and that you will owe in the future?

Yes, yes. Now, you know, the $4,000 question is when you owe them and when you pay them and et cetera, et cetera. It does represent taxes that are deferred down the road. We get some tax advantages throughout different years depending on what our depreciation loads are, depending on if you have bonus depreciation, what the tax laws allow you from a depreciation standpoint. Some years you can shelter all those taxes, and some years you can't. You know, those are the years that we have some cash taxes paid. But, you know, and that's about as far as I'm going to go because I'm going to start, you know, story and tell you as far as what all that means. But it is a liability because they are taxes owed, but, you know, we carry them for a long time, so sometimes they're not owed for quite a while.

Okay, very good. Thank you.

Thanks. And we do have a question from Patrick Hensley. Please go ahead, Patrick.

Yes, it's noted that you guys gave back the PPP loan, but is there any indication that there are other stimulus programs out there that you all are eligible for and you will apply for?

No, there's some others out there, but I think they have done a good job of surgically removing small public companies from eligibility for anything. Excuse the sarcasm. So, no, there's some out there, you know, that becomes you can take advantage of and, you know, et cetera, et cetera. But, no, actually, I think, you know, we've looked at a couple others, and there's just not – You know, they don't apply or they're not appreciable, you know, or, you know, heck, you know, you can read the rules. They're going to change next week when we get the loans. So, no, there's nothing in the queue that we're going to be doing right now anyway.

And, Steve, at this time, there are no further questions.

Okay, thanks, Ross, and thanks, everybody, for joining me on the call. I appreciate your time this morning and look forward to visiting with you again next quarter.