Natural Gas Services Group Inc Q4 FY2021 Earnings Call

Good morning, everyone. 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 Provision as outlined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements, as you may know, involve known and unknown risks and uncertainties, which may cause Natural Gas Services Group's actual results in future periods to differ materially from forecasted results. Those 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 caption Risk Factors in the company's Annual Reports on Form 10-K filed with the Securities and Exchange Commission.

Thank you, Alicia, and good morning, everyone, and welcome to the Natural Gas Services Group fourth quarter 2021 earnings review. Thank you for tuning into the call. As noted in our earnings release, our overall business is growing both sequentially and on a year-over-year basis. Year-over-year, total revenue grew 6%, with our flagship rental business growing 12%. Sequentially, total revenue slipped 1%, primarily due to quarterly fluctuations in sales and our service and maintenance businesses. On a full-year comparative basis, every one of our business lines grew with overall revenues up 6% and rental revenues increasing 5%. Our core compression business continues to recover from the pandemic-induced decline and again, grew in the fourth quarter, our fourth consecutive quarter of rental revenue growth. Compression rental revenue grew nearly 2% sequentially and approximately 12% on a year-over-year basis, primarily driven by an increase in active rental horsepower. While I'm pleased we continue to show gains in revenues across the board, expenses related to our rental compression business were also significant. The expenses are largely concentrated in the second half of the year and are primarily a result of new large horsepower compression installations. I'll expand on these later in the call, but they were primarily due to mobilization, commissioning, and startup costs related to large horsepower units, increased labor and hiring costs, and catch-up on deferred maintenance from last year. In short, while these expenses had a material impact on our bottom line, I mean, they are one-time transient startup costs that will result in better margins and the potential for improved income over time and have further solidified our relationship with key long-term customers. It is also worth noting that general maintenance increase was higher than our traditional run rate, a result of increased maintenance costs as well as the catch-up of maintenance necessary as our business in the business of our customers recovered from the pandemic. Now let's look at the financial details. NGS reported total revenue of $18 million for the fourth quarter 2021. This is a $1 million or 6.1% increase in the same quarter in 2020 and as a result of a $1.7 million increase in rental revenues with an offset from third-party sales and maintenance revenue. When comparing consecutive quarters, we had a slight decrease in total revenues of 1%. This was driven by an almost $500,000 decrease in sales and third-party revenues, partially offset by rental revenue increase of $280,000. Our sales revenues fluctuate quarter-to-quarter, our rental revenues have grown consistently 1.7% and 11.8% respectively in both sequential and year-over-year quarters and 5% when comparing full-year results. Significantly, NGS has increased rental revenue in every quarter of 2021. Total adjusted gross margin, which does not include depreciation for the three months ended December 31, 2021, decreased to $4.3 million from $7.8 million in the same period ended December 31, 2020. Adjusted gross margin for the three months ended December 31 was 24% of total revenue. As noted earlier, margins were impacted by higher repair and maintenance costs, increased labor costs, and setting, commissioning, and start-up expenses related to the growth in rental compression deployment. Not to mention inflationary cost driven by lubricants, emissions, and repair parts. Sequentially, adjusted gross margin for the fourth quarter of 2021 decreased to $4.3 million from $7.5 million in the prior quarter. As a percentage of revenue, adjusted gross margin also decreased to 24% this quarter compared to 41% in the prior quarter. The majority of the decline in gross margins resulted from increased rental costs, a significant portion of which impacted the fourth quarter. As noted earlier, the expenses include higher mobilization, commissioning, and start-up costs, and to a lesser extent an increased level of unabsorbed costs in our manufacturing shops. Our rental revenue still grew in the fourth quarter. Our expense profile was higher than anticipated. While many of these expenses are the result of new equipment mobilization, we are not immune to inflationary pressures seen in raw materials and supplies, and supply chain challenges. We are working diligently to mitigate inflationary pressures we will be vigilant in our material and supply sourcing to improve efficiencies. We also believe the positive industry momentum will provide opportunities to selectively improve pricing and expense recovery. Sales, general, and administrative expenses decreased over 13% and increased almost 4% respectively in the year-over-year and sequential periods. Year-over-year, we realized lower executive compensation expenses and professional fees, partially offset by increased health insurance costs. Sequentially, our fourth-quarter SG&A was impacted by increased health insurance costs. Operating loss for the fourth quarter 2021 was $8.2 million compared to a loss of $2.2 million in the fourth quarter of 2020. This increase is due to a decrease in margins across our operating activities as well as a loss on retirement of units from our rental fleet of $3.1 million and an inventory writedown of just over $200,000. Sequentially, operating loss increased to $8.2 million in the fourth quarter 2021 from an operating loss of $1.6 million in the third quarter 2021. This increase in comparative quarters is primarily due to the aforementioned lower margins, loss on retirement of the units from our fleet, and inventory write-offs. Our net loss after-tax for this quarter was $5.6 million. This compares to a net loss of $1.9 million in last year's fourth quarter and a net loss of $1.3 million in the third quarter 2021. We reported a loss per diluted share of $0.44 for the fourth quarter 2021 compared to a loss of $0.14 per diluted share in the fourth quarter of 2020 and $0.10 per diluted share in the third quarter of 2021. EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and our adjusted EBITDA excludes inventory allowances, fleet retirements, and stock compensation expense, all of which are non-cash items. Adjusted EBITDA for the three months ended December 31, 2021 was $2.3 million, a decrease from $5.4 million in the same period in 2020. Adjusted EBITDA decreased approximately $3.1 million sequentially from $5.4 million last quarter to $2.3 million in this quarter, primarily due to higher rental expenses resulting in lower margins. On a full-year comparative basis, adjusted EBITDA decreased $6.2 million to $18.7 million from $24.9 million in 2020. Total sales revenue, which as a reminder, includes compressors, flares, and product sales was $1.1 million this quarter. This is a decrease from $1.7 million year-over-year and from $1.5 million last quarter. The change in both comparative quarters is due to the volatility in the various sales components. On a full-year comparative basis, however, sales increased 22% from $5.7 million to $6.9 million. This current quarter, we had a total sales adjusted gross margin loss of $750,000. This compares to a positive gross margin of 48,000 in the fourth quarter 2020 and negative gross margins of $91,000 in the third quarter of 2021. Although we had some compressor fabrication projects in progress, our compressor sales business continues to be slow with no compressor sales revenues recognized in all comparative quarters. As noted by our backlog, however, this does not mean the business isn't generating revenue, but with the long lead items associated with our current products, there are quarters that we are fabricating equipment, but not recognizing revenue on that equipment yet. Due to the absence of any recorded compressor sales revenues this quarter and unabsorbed costs, compressor-only sales margin posted a loss of $1 million for the three months ended December 31, 2021 compared to a loss of $713,000 for the same period a year ago and a loss of $557,000 last quarter. Our sales backlog as of December 31, 2021 was approximately $1.5 million compared to approximately $2 million in the third quarter of 2021. Rental revenue in the fourth quarter 2021 was $16.5 million compared to $14.7 million in the fourth quarter 2020, an increase of 12%. For the sequential quarters, rental revenue grew to $16.5 million from $16.2 million last quarter. Average rental rates increased approximately 14% per unit in the year-over-year quarters. While certainly positive, this is skewed due to the effect of selling more and more higher horsepower equipment that contributes to an outsized manner to a higher average rental rate. Rates were essentially flat sequentially. Rental adjusted gross margins this quarter were 30%, a $2.6 million decrease from a 51% gross margin year-over-year and a $2.5 million decrease from the 46% gross margin last quarter. Rental revenues improved throughout the year; our expenses largely related to new compression units, which lead to increased revenue over time were above expectations. In addition to the non-repetitive deployment and commissioning expenses, we did experience maintenance supply expenses such as initial oil and free skills, which can be significant, especially in large horsepower units. While we eventually recover those costs, the recognition of the expense in the reimbursement of such will from time to time result in cost revenue mismatches like we experienced in the fourth quarter. These are of course, necessary expenditures, but we can do experience very expensive before revenue is generated. This is a transient problem in that the initial expenses are recovered in time, but it does affect current operations and margins. In addition to the above, while we are encouraged by oilfield activity, it has created significant additional personnel expenses. Not only has our headcount increased to meet new equipment demand, but wages are rising and overtime as prevalent as finding qualified employees, especially in the Permian, is challenging. Hiring rotating employees from outside the Permian also results in higher training, living, and travel costs as well as new equipment and transportation expenses. In addition to meeting this concentrated demand, we have had to contract third-party field labor, which in itself was a $1.7 million expense in 2021. We also experienced over $2 million in what we anticipate is one-time maintenance expenses due to pandemic-related catch up and increased year-end operating costs imposed by customers. In spite of all the fully absorbed higher costs we experienced, the core rental expense of maintaining our equipment as measured by our direct cost of maintenance parts, lubricants, and fluids for the full fleet rose a competitive 14.9% on a year-over-year per horsepower basis. In addition to the gross margin impacts on net income, we also retired a number of older compressor units from our rental fleets. A total of 263 compressor packages, representing 38,200 horsepower, were removed from the fleet at a non-cash charge of $3.1 million. With that rental fleet size at the end of December 2021 totaled 2,023 compressors or over 418,000 horsepower, which also reflects an addition of 12 units or approximately 4,100 horsepower during the fourth quarter. Over the past 12 months, we have added 65 new fleet units totaling just over 18,000 horsepower, with the majority of that horsepower being classified in our large horsepower category. As of December 31, 2021, about 45% of our utilized horsepower is made up of compressor units that are in excess of 400 horsepower per unit. Our horsepower utilization is approximately 71%, and unit base utilization was approximately 62% at the end of this quarter. Our capital expense for completed gas compressor rental fleet units in the fourth quarter, which does not include work in progress, was approximately $4.9 million. For the year, we expended $22.8 million on completed rental fleet additions with an additional $1.5 million in capital on vehicles and other PP&E. With the anticipated continuation of activity in the Permian Basin expected in ‘22, we anticipate we will spend approximately $20 million to $25 million on growth compression capital expenditures in the coming year. From a balance sheet perspective, we continue to have no debt outstanding at the end of the fourth quarter, with our cash balance at the end of the fourth quarter at $22.9 million. This compares to cash a year ago of $28.9 million and last quarter of $24.4 million. While we fully funded our capital expenditures with cash flows from operations, we utilized $7.9 million of cash on the balance sheet to repurchase over 737,000 shares of our common stock on the open market. In spite of our strong capital spending on committed rental equipment and our stock buyback program, our cash balance in all comparative quarters has remained relatively steady due to our ability to deliver strong operating cash flows. The combination of our cash balance and untapped credit line continues to provide ample liquidity in nearly any conceivable scenario. We generated positive net cash flow from operating activities in this quarter of $8.6 million or 48% of our quarterly revenue. This is strong cash flow conversion. We also reinvested $3.4 million back into the company through common stock buybacks this quarter. Our total stock buyback program for 2021 totaled $7.9 million or 5.6% of our outstanding stock as of December 31, 2021. Our average purchase over the course of 2021 was $10.65 per share. In short, ‘21 was a year of growth in transition for NGS. We continue to build our large horsepower rental fleet, selling more horsepower in the last half of the year than in any other comparable six-month period. We also began the process of returning to a normal workflow after two years of pandemic-induced challenges. Those transitions should lead to transformational growth for NGS in the future. The costs and investments required in the process had a higher than anticipated impact on margins and profits, especially in the second half of 2021. As we started the new year, we are focusing on improving efficiency and pricing as ways to boost margins and profits. We won't shy away from continuing our large horsepower growth, which may result in a higher expense run rate. We will continue to focus on improving sourcing, procurement, and execution to reduce our overall cost profile. Inflation in the oil patch presents a number of challenges, but we will address these challenges given our strong financial position and long-term vendor and supplier relationships. We will also look for ways to use our fabrication expertise and facilities as an advantage to create efficiencies and continue to provide best-in-class equipment to our customers. We anticipate steady growth in the coming year. This will be primarily driven by activity in the Permian Basin, but we're also seeing signs of increased activity in other areas. We have already had commitments for additional high horsepower units in a couple of different operating areas, and we are currently ordering equipment. We have continued with our practice of ordering committed equipment for the majority of our needs to ensure that we maximize utilization and returns. Natural Gas Services Group remains one of the few oilfield companies with a strong recurring rental stream, no debt, a significant cash position, and the ability to consistently generate meaningful operating cash flow. With the new year well underway, we are steadily beginning to feel we are pushing towards a more normal operating environment, where many pandemic-related health and safety protocols will remain with us indefinitely. Our people are beginning to return to more regular work patterns, and more personal customer interactions are leading to new opportunities. We're fortunate that the NGS team remained largely healthy and continue to strive to meet the needs of our customers, regardless of the challenges. I'm grateful for the efforts during the past two years and for their continued efforts as we work to make 2022 another successful year for Natural Gas Services Group.

Ladies and gentlemen, at this time, we will conduct a question-and-answer session. And we have a question from Rob Brown from Lake Street Capital Markets. Your line is open.

Hi, Steve. Good morning. First question is on kind of margin trends. Some of this was one-time in the quarter, how do you sort of see the margin recovering and will it normalize or will it take time the pricing?

It will definitely improve because, as I mentioned, many of these costs are one-time and temporary. The costs related to installing, commissioning, and starting up equipment are unavoidable; they come first, and revenue typically follows. It's crucial because it drives future growth. Additionally, we have some catch-up expenses from customers and other maintenance costs we didn't anticipate in the fourth quarter, largely due to higher oil and gas prices. Customers want to maximize flows and operations, which requires maintenance to get units back into optimal condition. Running at three-quarter capacity presents different management challenges compared to full or even over-capacity. My team on the ground had to focus on tuning and maintaining these units to achieve maximum capacity, which was an unexpected situation for us, but I don’t believe it will happen again as we had a significant amount of this in Q4. There's likely a little left, but I see it as a temporary expense that won’t be repeated. Additionally, we've encountered inflation and supply chain issues, which forced us to pay more for parts and compete for them. All of these factors compounded to create greater expenses than we anticipated this quarter. However, if we exclude the one-time or transient costs, I believe we can return to our targeted margins, which were in the mid-40s before, aiming for the 50s and up to the 60s in the first half of the year. Our core maintenance expenses have also increased by 14.9% year-over-year, which is manageable in this environment given the price pressures and supply chain complications. Once we eliminate the noise from the one-time and temporary costs from the fourth quarter and focus on core fleet maintenance costs, we remain competitive. I expect a swift return to normalcy in the first half of the year, and we anticipate favorable conditions thereafter. We’ve already received orders for some substantial equipment, indicating that if activity continues, our margins will improve with these costs stripped away.

Okay. Good. And my second question is really around the activity. Are you seeing or really, how many units are those high horsepower units sort of somewhere on standby, I assume those were in the field but how does that look?

We don't have any big horsepower standby units in the field anymore, as they are all fully utilized going forward. We have some committed orders, and we primarily order based on those commitments without relying too much on speculation. However, we do purchase some speculative units due to the long lead times, which can range from six to nine months to complete an order and deliver the equipment. Therefore, we need to maintain some inventory for that activity. The majority, around 75% to 80%, of the equipment we produce is backed by purchase orders, making it a stable business. We’re essentially sold out of our big horsepower units, so we are placing orders for both committed and speculative units to avoid losing business opportunities due to a lack of availability. This answers the first part of your question, but I couldn't hear the second part well.

Yeah. So my second part of the question is just really what's the demand environment overall with oil prices where they are? Are you seeing lower returns or what sort of the impact of what you're seeing with oil prices where they are?

Oil and gas prices have been favorable for some time, benefiting that segment of our business. While gas prices were also good in the past, there hasn't been much activity in gas-prone basins. The oil-prone basins, like the Permian, have been performing well, but gas basins have seen limited movement. Recently, we are beginning to notice some increased activity, though it's not on the same scale as the oil-driven areas. This has partly been due to operators' hesitance to begin drilling, especially considering we had $2 gas for a decade. Now, with prices around $5, I don't expect that to last long. Operators are taking advantage of the current price, but they're not initiating new drilling projects. We're starting to see a shift in attitudes among some small and medium horsepower operators, indicating they might increase their activity slightly. However, the major change has been in our utilization of large horsepower, which now makes up 45% of our utilized horsepower. This represents a significant transition over the past three to four years from mainly small to medium horsepower to now focusing more on medium to large horsepower.

Great. Thank you. I'll turn it over.

Thanks, Rob.

Thank you. Our next question comes from Eric Cinnamond from Palm Valley Capital. Your line is open.

Hi, Steve.

Hi, Eric.

Any update on the tax refund?

We don't have an update regarding the tax refund. We check on it regularly, and Tom inquired about it recently. It's still pending, and we haven't received any new information. They continue to indicate they are about a year behind schedule, which has been consistent for about a year now. While I can't provide any predictions, we remain hopeful that we will see movement on this every quarter.

And that would be $11 million?

Yes. Yeah, I think 11.1 maybe something like that’s right around 11.

Okay. Great. And assuming you receive that, what are your thoughts on more buybacks or you just going to fund the elevated levels of CapEx in 2022?

I’m not sure. We’ve discussed it, but regarding CapEx authorization, we did an initial one a few years back, around 2019 before the pandemic hit, which was for $10 million. We paused all activities in 2020 as a precaution to assess the market. We resumed in 2021 and have bought back almost 6% of shares so far. We carried out a second authorization approximately midway through the first for another $10 million. In total, we have spent just over $10 million, with about $8 million of that this year. We have around $5 million remaining from that authorization. We will continue with that and then, once we receive it, the Board will consider whether to conduct additional buybacks or allocate funds for capital expenditures, determining the best use of the funds.

And you've been spending a lot on the CapEx on the high horsepower and high horsepower compressors, just curious if you think maybe those compressors were underpriced looking back at all these elevated expenses and if so, what is your plan going forward to make sure you get an adequate return on capital for all that past CapEx?

They are not underpriced; in fact, some might say we are repriced, but I don’t believe we are repriced competitively. We are priced for a good return. The impact has been particularly evident in 2021, considering the rapid installation of equipment and the associated costs. Alongside these costs, there are operating efficiencies to consider. We hired a lot of people simultaneously, which caused some inefficiencies in addition to the raw expenses. I see 2021 as a shakeout year while we get all this equipment operational. We installed a significant amount of machinery; the second half of the year was our busiest period for installations. Thus, 2021 should be viewed as a year of adjustment from an expense perspective. Moving into 2022, while we have some one-time or transient expenses, unless we see a large increase in equipment that I don’t foresee, I believe our margins and returns will rise. The prices are correct, but expenses have increased more than expected. However, as I mentioned earlier, I believe our core expenses are solid, and we are working on managing the surrounding costs effectively.

In most of these compressors, Steve, they are under contract and what's the average age of those?

All of them are under contract, typically for terms of three to five years. On average, I would say some have been in place for about three years, especially those close to the Permian. It's difficult to pinpoint an exact average age because it varies, but I would estimate that around 90% to 95% are still under contract, although they are at different stages in their terms. Most of the horsepower we've ordered this year is covered by long-term contracts, usually five-year agreements, which is our goal. This allows us to secure larger horsepower with favorable pricing. We've encountered some challenges this year, but we will manage those effectively. Overall, I would say about 90% of the larger horsepower is still contracted under minimum terms.

In the pricing on those contracts, is that set throughout the contract term, or is there any way you can adjust assuming inflation continues to excel in the maintenance cost?

Yeah. We've got the ability on the majority of them to go back and ask for increases. Now they're mutually agreeable increases, so there's always negotiations around that, but we've got the ability to do that. In fact, we're doing that. We're still, I mentioned, there were some price increases last quarter and we've started that and we're still in the midst of doing that. So, we're in constant contact with customers on this stuff and going forward, increases.

Well, Steve, we’ve got $4 or $5 gas now and $100 oil; a lot of these energy service companies are taking them a while to catch up with demand and a lot of people are facing the same problems you are, do you have any prediction of when the revenues will catch up to expenses and we'll see a profit?

Well, I'm hoping this year, like I just mentioned, I think, yeah, the, if you look at the expenses and I mean. I would say, on the other day, is like five or six different kinds, we saw in the fourth quarter that were either one-time or transient or higher than anticipated. So it is a double or triple whammy this quarter. So certainly, in 2022 the rental expenses, we'll get back into the ground that we want them. We were on a decent path to higher margin before the fourth quarter hit. So we'll resume that path and certainly aim for that 50% margin by the end of the year, and then after that into next year, we are a climate of that 60% and that's our target on them.

Alright. Thanks, Steve and good luck.

Okay. Thanks, Eric.

And our next question comes from Justin Jacobs from Mill Road Capital. Your line is open.

Hi, Steve. Thanks for taking the questions. Just to go back on the gross margin questions for a second and all these you've stated that the, if you look at your adjusted gross margin on rental income Q4 this year versus prior year declined from 51% to 30%, if I apply that same 51% margin to a year ago implies about $3.5 million of incremental cost. And you've talked about different categories, both the release and your comments kind of one-time which are mobilization, commissioning, start-up, and in your comments you just mentioned you got some increased labor cost and then increased deferred maintenance. Can you give a sense in dollars of that kind of roughly $3.5 million or some number around there? How much of those incremental expenses are for each of those different categories you've talked about?

In the fourth quarter, we had approximately $2 million in expenses, which included a catch-up on deferred maintenance that we or the customer had postponed. Additionally, we faced some anticipatory expenses due to increased volumes and oil prices. We had to adjust our operations to meet the customer's demand for 100% capacity, which was necessary to maximize their production and pricing. About $2 million accounted for these adjustments, which we had not anticipated. The remaining $1 million to $1.5 million can be attributed to startup, commissioning, and mobilization expenses, which are significant and also include labor costs that have risen sharply. Approximately $0.75 million of that is related to commissioning, mobilization, and startup expenses, with the other $0.75 million covering miscellaneous costs such as higher labor rates, expensive rotators, part price increases, and a 15% rise in core maintenance costs related to parts and lubricants. Overall, we are experiencing higher costs across various categories.

Okay. That's helpful. And that actually is a good segue into my second question, I heard you mention two numbers, a $1.7 million of contracted labor and $2 million of increased customer-induced costs. Let’s go to that 2 million for a second, so all of that was in the fourth quarter?

Yes.

Okay. If you expect that cost to continue in Q1 now of this year in ‘22 and maybe even Q2?

No, I mean, there might be a little carryover that Justin. But that was like, say, some catch-up and some I guess what I’m calling anticipatory expenses not anticipatory, but optimization expenses I guess from the operator, come out here, right, let's to get this stuff going on. You've got a lot of oil or gas to move price are good et cetera, et cetera. So there’s a lot of that going on. So I don't anticipate a whole lot, going forward for that $2 million and I think that was, it was a surprise to us, we thought that most of the stuff has been done and that equipment was operating as it should. But there is still some capacity things we had to address, just had to turn them up to a very high degree where they weren't used to that. So I don't think we'll see hardly any of that carry over.

Okay. That's helpful. And then back on the $1.7 million of contracted labor that was I believe a total number for 2021?

Right.

And is that, when I think about that contracted labor, is that labor that you just didn't have available and so you had a contract, but it's kind of the labor cost of running the business or is that some kind of incremental cost that was outside? I was not quite sure how to think of that if it's third-party labor coming in?

Moving forward, I expect it to be incremental, but initially, it was a necessary cost because we struggled to hire enough people and obtain equipment promptly. We faced customer-imposed deadlines, which forced us to bring in external help, and that's the straightforward reality. Now, we're roughly 80% staffed, with more employees on the payroll to manage the workload, reducing our reliance on third-party assistance. While we had to make those hires, it was a challenging process. We've focused on increasing our workforce, but due to customer demands regarding equipment setup, we couldn't manage it all before hiring outside help. This resulted in transition expenses. Going forward, we will continue to have some third-party support, but it will be significantly less than before, likely less than half, as we have made efforts to reduce that cost.

I see. And so, you have the people or you will have the people going in 2022, it's just there'll be NGS employees versus third-party contracted labor you're bringing in?

Right, exactly. Yeah. We just had to use third-party to plug the gaps.

Got it. And what's the incremental cost of doing it $5.7 million (ph) if that's kind of the third-party rate? How much do you save on that when they come in-house?

Probably a third.

Okay.

A third to a half of those.

Okay. Got it. That's helpful. Okay. Those are all my questions. Thanks for taking the time.

Okay. Yeah. Thanks, Justin.

And we have no further questions in queue at this time.

Okay. Thanks, Paul. And thank you everyone for joining me on the call. Appreciate your time this morning and look forward to visiting with you again next quarter. Thank you.

This concludes today's conference call. Thank you for attending.