Good morning, everyone, and welcome to the Natural Gas Services Group Incorporated Quarter Four Earnings Call. At this time, all participants are in listen-only mode. I would now like to turn the call over to Ms. Anna Delgado. Please begin.

Thank you, Luke, and good morning, everyone. Before we begin, I would like to remind you that during the course of this conference call, the company will be making forward-looking statements within the meaning of federal securities laws. Investors are cautioned that forward-looking statements are not guarantees of future performance, and those actual results or developments may differ materially from those projected in the forward-looking statements. Finally, the company can give no assurance that such forward-looking statements will prove to be correct. Natural Gas Services Group disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's press release and in our filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2023. These documents can be found in the Investors section of our website located at www.ngsgi.com. Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may vary materially. In addition, our discussion today will reflect certain non-GAAP financial measures, including EBITDA, adjusted EBITDA, and adjusted gross margin, among others. For reconciliations of these non-GAAP financial measures to the most directly comparable measures under GAAP, please see yesterday's earnings release. I will now turn the call over to Justin Jacobs, our Chief Executive Officer.

Thank you, Anna, and good morning, everyone. Welcome to our fourth quarter 2023 earnings conference call. Thank you for joining us this morning. We appreciate your interest in Natural Gas Services Group. I'll start by introducing the team. Joining me on the call this morning is Brian Tucker, our President and Chief Operating Officer; Jim Hazlett, our Chief Technical Officer; John Bittner, our Interim Chief Financial Officer; and Steve Taylor, the Chairman of our Board of Directors. Steve was our longtime CEO and Interim CEO last year. I asked Steve to start us off with some thoughts on the quarter and the year. After that, John will review the quarter and year in detail, and then I will finish our prepared remarks with thoughts on the current state of the business, our updated guidance, and our growth strategy going forward. We will conclude with a question-and-answer session. Before turning it to Steve, I wanted to take a second to share with all shareholders my appreciation for the first-rate approach Steve has taken during his transition. He has been an invaluable resource for me and the team and a welcome presence in the office. As one of our largest shareholders, he is well aligned to continue to drive significant value for all shareholders. And from my perspective, he is, as the saying goes, walking the walk. Thank you, Steve, and the floor is yours.

Thanks, Justin. I appreciate the kind words and want to assure everyone listening that my feeling is mutual. We have a great management team in place and it's been my pleasure to work with them. I won't take long because I think the results speak for themselves. 2023 was a record year for revenue and EBITDA among other items. As we look at this year and particularly this quarter, we're happy with almost every aspect of our performance. But we talked about our successful bank funding throughout the year, our ability to obtain pre-contracted work of long duration at excellent rates, or the operational and environmental technology we're increasingly incorporating into our equipment, there are many areas to be happy with. We were especially proud of those items that we have accomplished that we can continue to build on in the future. Among them are the continued successful execution of our high horsepower strategy that has well established us in the 1,500 horsepower market and has moved us into the 2,500 horsepower realm. Our ability to secure additional blue-chip customers that will contribute to our growth in the future and our safety performance, which resulted in zero workplace incidents among our employees in 2023. I see these as legacy initiatives that we can continue to build on into the future. Whether you look at the recent fourth quarter or the full year, the company exhibited exceptional growth and results in 2023. I'm not going to recite the road numbers; John will go through those. But I will note that any time you have a year that exhibits 40% to 50% year-over-year growth in rental revenue, rental adjusted gross margin, and total EBITDA, it's a phenomenal year. I'll distill all this into the company's ability to identify opportunities and execute on them. We have many opportunities ahead and our management team, led by Justin Jacobs, the CEO, is well positioned and possesses the ability to continue the company's growth. As chairman and as a significant shareholder, I have great confidence in our employees and our management team to continue our success. I'll leave you with one final comment, which is the title of the song from 1986, 'The Future's So Bright, I Gotta Wear Shades.' Now, I'll turn it over to John Bittner to review the quarter and year in detail.

Thank you, Steve, and good morning, everyone. To echo your comments, we had a very successful fourth quarter to finish a strong year. So let me jump first into a review of the fourth quarter first and then I will get to the full-year 2023 results. Total revenue for the three months ended December 31, 2023, increased to $36.2 million which was up $13.7 million or 61% from $22.5 million in Q4 2022. Our revenue was up 15.5% from $31.4 million for the three months ended September 30, 2023. Rental revenue for Q4 2023 was $31.6 million, up from $20.6 million in Q4 2022 for a 54% increase year-over-year, and up $3.9 million from $27.7 million in Q3 2023, a 14% increase. Our sales revenue for Q4 2023 was $2.9 million, up $1.6 million, or 125% from $1.3 million in Q4 2022, and up $1.5 million from Q3 2023 for a 107% increase. Aftermarket services, our AMS revenue was $1.7 million for Q4 2023, which was up $1 million or 153% for the same quarter in 2022 and down by approximately $600,000 sequentially, a 26% decrease. Our adjusted total gross margin of $20.3 million in the fourth quarter of 2023 increased approximately 89%, when compared to $10.7 million in the same period in 2022. Sequentially, adjusted total gross margin dollars increased 39% from $14.6 million last quarter. Adjusted gross margin as a percent of sales for Q4 2023 was 55.9% versus 47.6% for Q4 2022 and 46.4% in Q3 2023. This material increase in our margin percent was driven primarily by rental adjusted gross margins. Our rental adjusted gross margin dollars increased year-over-year to $19.2 million in Q4 2023 from $11.3 million in Q4 2022, representing a 70% increase. Sequentially, rental adjusted gross margin dollars increased from $14.2 million, or a 35% increase. Our rental adjusted gross margin as a percent of sales for Q4 2023 was 60.7% versus 54.8% for Q4 2022 and 51.4% in Q3 2023. Our rental adjusted gross margin was higher than we expected in Q4, primarily due to lower-than-expected labor, parts, and oil expenses. Our expectation is that rental adjusted gross margins going forward will be somewhere between what we experienced in Q3 and Q4 as we indicated our expectation for Q4 on the third-quarter earnings call. Adjusted gross margin dollars for our sales revenue increased year-over-year by $1.6 million to $2.9 million in Q4, an increase of 125% and increased by 107% sequentially. Adjusted gross margin as a percent of revenue for sales was $21.2 in Q4 2023 versus a negative 65% in Q4 2022 and a negative 7% in Q3 2023. Our AMS adjusted gross margin for Q4 2023 of $440,000 represented a $152,000 increase from the prior year or 53% and an increase of $35,000 or 9% from Q3 2023. AMS adjusted gross margin as a percent of revenue was 26.3% in Q4 2023 versus 45% in Q4 2022 and 18% in Q3 2023. As mentioned on last quarter's call, we've seen a significant increase in AMS revenue from historical levels beginning in Q2 2023. This increase is primarily due to pass-through services that we provide to or arrange for our customers when installing our large horsepower units. These revenues will fluctuate with the volume of equipment set in each quarter and they carry low pass-through margins, hence the decline in gross margin percentage from the prior year period. The volume of new unit sets saw the highest levels of activity in Q2 and Q3 of 2023 decrease somewhat in Q4 2023. Our fourth quarter 2023 adjusted EBITDA was $16.3 million, compared to $7.8 million in Q4 2022, or 110% increase year-over-year, and a 38% sequential increase from $11.8 million in Q3. Our Q4 2023 adjusted EBITDA benefited from our unexpectedly high rental adjusted gross margin and positive contribution from our sales adjusted gross margin. Pretax operating earnings were $4.4 million for Q4 2023, which improved from an operating loss of approximately $300,000 in Q4 2022. Our Q4 2023 operating income was down approximately $500,000 sequentially from Q3. However, it's important to note, we did take one-time charges of approximately $4 million to increase our inventory reserve as a result of the cessation of fabrication operations at our Midland facility, and additionally, a charge of approximately $500,000 for the retirement of idle units, both of which as disclosed in our 10-K filed yesterday. Without these charges, our pro forma operating income would have been $8.9 million for Q4 or a sequential increase of $4 million from $4.9 million in Q3 2023. Net income in Q4 2023 was $1.7 million, compared to a net loss of approximately $800,000 in Q4 2022, but down from net income of $2.2 million in Q3. Again, the Q4 net income results include the impact of the one-time items discussed above. Earnings per share for Q4 2023 were $0.14 and $0.13 on a basic and fully diluted basis, respectively, compared to a loss of $0.05 per share for Q4 2022 and earnings of $0.18 per share in Q3 2023. On a full-year basis, the total revenue for the company increased by 43% to $121.2 million in 2023 from $84.8 million in 2022. Our rental revenue was also up 43% to $106.1 million in 2023 from $74.5 million in 2022. Our sales revenue was up approximately $353,000 or 4% to $8.9 million in 2023 from $8.6 million in 2022. Our AMS revenue was up 240% to $6.1 million in 2023 from $1.8 million in 2022. Our adjusted gross margin dollars increased by 53% year-over-year to $58.7 million in 2023 from $38.5 million. Our adjusted gross margin for rental was $57.3 million, which was up $20.6 million or 56% from 2022. Our adjusted rental gross margin as a percent of sales for 2023 was 54%, compared to 49.3% in 2022. Adjusted gross margin dollars for sales was zero in 2023, compared to a positive $918,000 in 2022, which was approximately 10.7% of sales. Adjusted gross margin for our AMS business was $1.4 million for 2023, compared to $835,000 in 2022. Adjusted gross margin as a percent of revenue for AMS was 23.5% for the full year 2023, compared to 46.6% of revenue in 2022. Again, the decline in gross margin percentage was driven primarily by the increase in low-margin pass-through billings associated with the new unit sets in 2023. Our adjusted EBITDA for 2023 was $45.8 million, as compared to $29.2 million in 2022, or a 57% increase in 2023. Our operating income for 2023 was $10.5 million compared to approximately $400,000 for 2022. Our SG&A expense was $2.8 million higher in 2023, as compared to 2022, at $16.5 million in '23 versus $13.6 million in 2022. However, our second half '23 run rate was less than our first half '23 due to some non-recurring items experienced in the first half of the year. Also deducting from our operating income in 2023, we did have a non-cash non-recurring charge of $779,000 for an asset impairment in the second quarter and the one-time charges of $4 million for the inventory reserve and the $500,000 for the retirement of idle units discussed above, both of which were taken in Q4. Our net income for 2023 was $4.7 million, compared to a net loss of approximately $600,000 for the full-year 2022. Our basic EPS for 2023 was $0.39 and $0.38 on a fully diluted basis, compared to a net loss of $0.05 per share in 2022 for both measures. As of December 31, we had 1,247 utilized rental units representing just over 420,000 horsepower, compared to 1,221 rented units, representing just over 318,000 horsepower as of December 31, 2022. We have added approximately 95,000 net horsepower to our fleet over the course of the last year, representing approximately a 22% increase in total fleet horsepower. Our total fleet size just passed over 500,000 horsepower in September, and we ended the year with a total of 520,365 horsepower. This is up from approximately 425,000 horsepower fleet size at the end of last year. During the same period, our rented horsepower grew by over 102,000 horsepower. We ended the fourth quarter with 66.5% on a per unit utilization level and 80.8% utilization on a horsepower basis. Our revenue per horsepower increased 17% over the year, demonstrating the impact of the growth in high horsepower units and also the price increases we've been able to implement over the past year. Our total fleet as of December 31, 2023, consisted of 1,876 units and roughly 520,000 horsepower or 277 horsepower per unit. Our average horsepower per unit has grown by 22% over the past year and notably, approximately 98% of our high horsepower fleet is utilized and drawing rent currently. Turning to the balance sheet, we ended the year with $2.7 million in cash and $164 million outstanding on our amended and restated revolving credit facility. In looking at our two financial covenants contained in our credit agreement, our leverage ratio at the end of Q4 was 2.53 times, which was down from 2.71 times at the end of Q3. Our fixed charge coverage ratio for Q4 was 3.88 times, up from 2.78 times in Q3. So we were comfortably in compliance with both our financial covenants as of December 31, 2023. Our accounts receivable balance as of December 31, 2023, was in excess of $39 million, which is elevated from normal and expected levels due primarily to a significant increase in rental activity and certain process-related billing delays, which we expect to address during 2024. The net book value of our rental fleet at year-end was approximately $374 million. We generated cash flow from operations of $18 million compared to $27.8 million for 2022. The decrease is primarily related to the slower collections in our accounts receivable as discussed in the previous paragraph. We had capital expenditures of approximately $154 million during 2023. And we increased the balance on our amended and restated credit facility by $139 million during 2023. With that, I will turn it back over to Justin for a discussion of the current operating environment.

Thank you, John. Overall, we continue to see solid demand for both our rental services and new equipment with generally attractive pricing. We see a favorable environment for potential growth over the near to medium term and believe we are well positioned to expand our market share while continuing to perform at high levels for our customers. Approximately 75% of our active fleet is located in oil and liquids-oriented basins, where activity is primarily driven by crude oil prices. As such, I'll turn first to oil. On a macro level, oil prices appear to be relatively steady, which should continue to drive activity. We have reasonable confidence in the oil markets for the near term. Activity and forecast generally shows stable to increasing production levels for the near to medium term. Natural gas markets are a different story. Pricing is weak, and gas-oriented rigs are at a relatively low level. The current moratorium on future LNG facilities has likely negatively impacted sentiment about gas production, at least temporarily. Overall, I would describe the natural gas production market as unsteady. From the company's perspective, we do not currently see natural gas production as a growth story, but our people are doing a good job maintaining our presence in the gas-oriented areas, and we continue to profitably rent equipment in these basins. While the overall environment can be described as favorable, we will remain in a constant state of awareness that commodity markets can change negatively in a hurry. As such, we will consistently plan our growth with an appropriate margin of safety to withstand any potential downturn. I'll turn to our 2024 outlook with an update to the guidance provided on our third-quarter earnings call. For a written summary of our outlook, I would point you to our earnings release filed after the market closed yesterday. And I would also remind you of the disclaimer provided at the beginning of this call, which addresses forward-looking guidance. Our current outlook for 2024 adjusted EBITDA is $58 million to $65 million. This is a material increase from the guidance provided on our third-quarter call. As noted in the earnings release, we believe the low end of the range represents our current view of the annualized amount of fourth-quarter 2023 adjusted EBITDA that is run rate or recurring. As it relates to the fourth quarter of 2023, there are two items to which I would draw your attention. First, we had sales adjusted gross margin of $0.6 million in the fourth quarter. But for the first three quarters of the year, we had negative $0.6 million. We believe the first three quarters of the year are a much better forward indicator than the fourth quarter. Second, as John noted earlier in the call, the fourth quarter 2023 rental adjusted gross margin of 61% exceeded our expectations. I would describe margins at that level as everything went right. Taking both of these points into account leads us to believe the low end of the range is a bit of an approximation of the run rate adjusted EBITDA of the fourth quarter of 2023. I would further note that we believe there are some areas of investment required in 2024. While we have not yet quantified these investments, they are focused on improving the scalability and efficiency of our operations, both in the field and the corporate offices to drive material future growth. Along those lines, I'm pleased to announce that our new website went live yesterday. Although a relatively small investment, it is indicative of our intent to ensure all aspects of our business are in line with the technologically innovative equipment we provide to our customers. I would like to thank our team who made this happen. I'll move next to new unit capital expenditures. For 2024, our new unit capital expenditures expected range is $40 million to $50 million. Of that, approximately $15 million is capital to build new units from the 2023 plan that will be completed and installed in 2024. The balance is 2024 capital planned expenditures that are currently expected to be completed and installed in late 2024 and/or early 2025. In terms of return on invested capital, we are targeting at least 20%. This applies to any growth capital expenditures, which I would define as new units, unit upgrades, and unit conversions. This target is an average rate across our growth capital expenditures. I would also like to discuss our forward growth strategy. While each of these items will help us meet or hopefully exceed our 2024 outlook, they also reflect our long-term intention to grow our revenue and cash flow. There are four parts to our growth strategy: number one, optimize the existing utilized fleet; number two, improve our asset utilization; number three, expand the rental fleet; and number four, execute accretive mergers and acquisitions. Let me describe each of these points in a little detail. First, optimize the existing utilized fleet. We believe there are opportunities to modestly improve the profitability of our existing utilized rental fleet through targeted price increases, particularly in geographic areas that have experienced higher rates of cost inflation, along with operational efficiencies by using improved data collection and analysis to optimize our costs in labor, parts, and maintenance. Second, improve our asset utilization. We believe we can improve the overall cash flow of the business by increasing utilization of the fleet, as well as creating investable cash for non-cash assets. We have a significant number of currently unutilized units. Unutilized fleet on the books as of year-end 2023 was more than 600 unutilized units consisting mostly of medium and small horsepower units. We will review these unutilized units to determine where investment can improve the marketability and cash flow potential of the units. We also have a significant amount of capital tied up in non-cash assets. Notable examples of this include the income tax receivable and the higher accounts receivable, which John discussed earlier. We believe these non-cash assets can be monetized and invested back in the fleet at or above our target levels of return on invested capital. Third, expand the rental fleet. We intend to prudently increase the size of our rental fleet, mainly through pre-contracted agreements with our customers. We believe our future growth in this part of our strategy will be primarily driven through our placement of larger horsepower centralized station natural gas compressors for unconventional oil production with select increases in medium horsepower units to meet customer demand beyond our existing fleet. Fourth, identify and execute accretive mergers and acquisitions. We believe there may be opportunities in mergers with or acquisitions of rental compression companies or related businesses providing similar services. While there is no certainty of the probability of any particular deal, we will continue to evaluate potential acquisitions, joint ventures, and other opportunities that could enhance value for our shareholders. At this point, we will not provide overall growth goals for the medium to long term nor will we provide a breakout for each of the components of the growth strategy in terms of contribution. However, it is the framework for how we intend to drive material growth over the next three to five years, and we'll look to provide further detail in the future. I remain optimistic about our growth potential and look forward to delivering against that potential to drive value for our shareholders. This concludes our prepared remarks. So I will ask the operator to queue up for the question-and-answer portion of our call.

Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. We are ready to start and have some questions lined up. Please go ahead.

Thank you. Good morning. Maybe you could just talk a little bit about what takes you to the high end of your guidance of the 65?

As we consider our growth strategy, the focus is primarily on optimizing the fleet and assessing our ability to implement targeted price increases alongside potential improvements in operational efficiencies. Additionally, regarding the expansion of the fleet, it’s all about the timing of the installation of units that were included in the 2023 plan but have been pushed to 2024.

Understood. And then in terms of your CapEx, in terms of sort of the new units, can you talk about how much horsepower you're planning on adding, I guess, between the '23 carryover and into '24?

I would give those numbers really just in aggregate, which is if you look at the amount of capital that we spent in 2023 and the horsepower that was added, the ratio, as you look at that for 2024 will be roughly the same.

Got it. You mentioned gross margin and indicated a difference between Q3 and Q4 if I understood correctly. Everything in Q4 makes sense. Can you elaborate on which specific areas you are seeing potentially increase, thus impacting your gross margin?

It was really, as we look at the performance in the fourth quarter, as we said, it surpassed our expectations, and there's really no particular line item that stood out. It was really across the board with the major line items we highlighted, which are labor, parts, and consumer expenses largely oil. And so as we looked at those and looked at the performance of the machinery and just the timing, we would say that really, it's kind of across the board; our expectation is those will come down. So there's no particular line item that we would point to; it was really that everything went exceptionally well.

Got it. And then just last one for me and then I'll turn it over. You talked about natural gas prices, and you don't really see that as being the growth story. Can you just say how much of your compression is located in those basins?

Sure. So as we look at the breakout, where rough numbers, 75% in oil basins the balance, so roughly 25% in natural gas.

Great. I'll take the rest offline. Thank you so much.

Thank you.

Thank you, sir. I'll go ahead and open up again for Mr. Hughes. Mr. Hughes, please go ahead.

Hello there. Yes. My name is Frank Hughes, I'm a former Director and shareholder. First, I'd like to say congratulations to Justin on your appointment as the CEO and to Steve on the next phase of your retirement. I believe this entire transition has been managed expertly. Justin, my question is for you, and it's more on a personal level. Could you take a moment to discuss your personal journey from Managing Director at Mill Road to becoming a Board member at NGS and then to CEO? I would appreciate gaining some insight into that transition for you.

Sure. First, thank you for the comments. I'll speak for Steve here for a second, but we appreciate that the shareholder perception is as it actually is, which has been, I think, a very constructive partnership. So I appreciate the positive comments there and noting that. From a personal perspective, prior to Mill Road, I worked really a combination of operational role and investor, particularly in turnaround situations. And so for me, this is a little bit of going back to earlier in my career. As I looked at the opportunity with Natural Gas Services having been on the Board and a shareholder through Mill Road for several years prior to that, I see what I believe is really some great potential. Certainly, as you look at the results over the past year, the business has grown significantly. And I think there's an opportunity to continue growth in the future for several years. So that was a very attractive opportunity of my relationship with Steve and having been on the Board gave me confidence that I'd be able to step in and really hit the ground running with a great transition. And so overall, it was just an exciting opportunity for me. And in speaking with my team, our now-former team at Mill Road who were longtime friends and colleagues, they were just incredibly supportive in that opportunity and really joining one of their larger investments. And so all around, it was a great opportunity that I excited to have been able to take.

Well, again, thank you very much for those comments. I've been involved with Natural Gas Services for 25 years, and is initially an investor when it was still a private company. So I'm very glad to see that this managed to work out on behalf of the company and yourself. So again, thank you, Justin.

Thank you.

I’m sorry. Our next question comes from Mr. Rob Brown. Go ahead, sir.

Hi, it’s Rob Brown with Lake Street Capital Markets. And congratulations on all the progress.

Thank you. Ron, did we lose you there?

Let's try it again. Mr. Brown.

Congratulations on all the progress. Rob Brown with Lake Street. My first question is about the pricing environment. You mentioned some opportunities with your fleet. How is the overall pricing environment? Are prices still increasing for new unit placements? What is the market opportunity for pricing?

Yes. I would hit that first at just a high level, and I think our comments are earlier words that we're seeing both for existing units and for new unit generally attractive pricing. The pricing was really driven over the past several years by significant cost inflation, depending on what metrics you want to look at. But I think the general feel is that level of inflation has moderated some, although still there. And as we look at the areas where we are largest in terms of our business, we're still seeing that labor inflation, particularly when we look at the Permian Basin where it is still very difficult to attract people in the field. And so as we are going through our existing fleet and looking at new units, we're certainly taking a close look at pricing to say are we able to maintain and try and improve our margin over time.

Okay. Great. Got it. Regarding the CapEx spending outlook, you mentioned some potential upside. What factors contribute to that potential increase in CapEx? Are you noticing customer quotes or interest that might drive this upside, or does it seem stable for the 2024 period?

Well, we're certainly seeing incremental customer demand. We haven't made any decisions around that, but that is a near-term or relative near-term review for us in looking at the availability and making sure we're maintaining prudent levels of leverage in the future while also looking to capitalize on the ability to pre-contract with some great customers for new units at quite attractive prices. So not something we've made a decision on yet. But it is certainly something that we're looking at, and we'll update on the next quarter to the extent that our capital plan increases.

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

Thanks, Rob.

Thank you. Thank you, Mr. Brown. Our next question comes from Tim O'Toole. Mr. O’Toole, please go ahead.

Good morning. Can you hear me, alright?

We can hear you, Tim.

Great. First of all, welcome, Justin, and congratulations to Steve on his retirement after a couple of tries. We'll catch up offline soon, Steve. I have a couple of quick questions. One is regarding the balance sheet and the debt level, which was $164 million at the end of the fourth quarter. As we're closing the books on the first quarter, could you discuss the current debt levels? Additionally, if you're projecting $60 million to $65 million of EBITDA for the year, absent any M&A, where do you aim for that ratio to be by year-end? Also, I believe your debt facility has a grid or matrix related to leverage ratios and the spread to SOFR. How much could that vary? While we can't control the Fed's actions regarding short-term rates and the outcome for SOFR, that spread will connect to the coverage ratio. Could you elaborate on that and the leverage as well?

Sure. And maybe I'll ask John Bittner to address the second question first just as it relates to the pricing on the interest rate.

The pricing on the interest rate increases by 25 basis points when our leverage exceeds 2.75, which we are currently below. Therefore, we are positioned in the mid-tier of the pricing grid for the upcoming quarters, specifically Q4 2023 and Q1 2024.

To address your question about target levels, there isn't a specific target level I would point to. Looking at the Q4 numbers, we are quite comfortable with them. As mentioned in the press release, we have a solid cushion on both of our financial covenants. Considering the availability and various scenarios we might model for the future, whether they are positive or negative in terms of the overall market environment, I remain confident in the current level. I won't make any projections for the future, but we've provided guidance that should allow you to gauge where we’re heading regarding our debt situation. It's a matter of finding the right balance for us—taking on some additional debt to seize potentially attractive new unit opportunities with existing customers, which could lead to those customers becoming larger for us, while also keeping in mind that some of our shareholders are generally comfortable with our leverage levels, perhaps even a bit higher, as we strategize for the future.

Thank you for that. You mentioned monetization, and I'm curious about the aspects we can adjust. The accounts receivable days are quite high. Could you discuss your targets for that and how many quarters it might take to normalize those figures? Additionally, regarding other assets, specifically the fab facilities, have they been monetized, or is that something you're currently working on?

Sure. Let me start with accounts receivable. As you noted, our days receivable are significantly higher than historical levels. Looking back over several years, we aim to return to those historical figures, and we believe we can achieve that within the year without any issues. While I won’t provide exact quarterly targets right now, we are confident in our plan to reduce it to more typical levels throughout the year. Regarding our fabrication facilities, we are in the process of assessing the capabilities we need to enhance our rental business. We have talented individuals and the necessary resources to support our work on these facilities, and this evaluation is currently underway.

Okay. Great, thank you for that. Another quick question, balance sheet question is the tax receivable has been out there for quite a long time, obviously. Any quick update on that? I mean any visibility in terms of the government moving on that?

So nothing incremental that I would view other than what we put in our disclosure in terms of forward-looking. I certainly will say it is at or near the top of our list of something that we would turn from a current noncash asset into a cash asset to be able to invest back in the fleet. So it's something that is right at the capital one.

Sure, you can control it. Could you discuss capital allocation? All of your peers seem to evaluate not just on EBITDA, but also on discretionary cash flow, which can be tracked, and I do. Many in this industry use it as a valuation metric. How do you allocate that capital based on a year's discretionary cash flow? Is there a possibility of introducing a modest dividend as part of that capital allocation strategy?

Sure. I believe you are right to highlight discretionary cash flow, and looking back at previous quarters, it's a topic that we should address to provide our shareholders with a clearer understanding of our capital allocation strategy. In this quarter, we have offered some additional guidance on this matter compared to what we have done in the past, and Steve provided guidance for the first time during the previous quarter's call. Overall, capital allocation is an important topic, and we want to improve how we communicate with our investors over time, although I can't specify when exactly we will do this or what it will entail. The question of dividends is definitely something the Board is considering within the broader context of capital allocation. However, I can't provide any specific timing or additional details at this moment. It is evident that for larger companies, dividends play a significant role in their valuation, and both I and the Board are aware of this.

Okay, great. Thanks for all the discussion and congratulations to you both and the whole team there. Keep up the good work. Thanks.

Thanks for your question, Tim.

Thank you, Mr. O’Toole. The last question looks like it comes from Tate Sullivan. Mr. Sullivan, please go ahead.

Great. Thank you. I'm Tate Sullivan from Maxim Group and Steve, great working with you and look forward to staying in touch. And I heard earlier you mentioned that, I mean, good progress we've seen moving into that 1,500 horsepower market and continue to go to 2,500 in your website; your new website shows how large these units are. Can you talk about the length of the rental contracts with some of the larger units going out the doors? I mean, are we talking two to three years, five years? Or can you get some context of that?

Sure. For the large horsepower units, we're going to be at the high end of the range. And I think in the public disclosure in our 10-K, we've listed those are up to 60 months in terms of contracted.

Can you discuss the customer mix and your interactions with customers thus far? Is Oxy still a significant customer, and does the demand from them remain strong? Are you considering diversifying your customer base? Please share your insights on the conversations you've had with customers.

Sure. I won't get into specific customer names, but Oxy is our largest and very important customer. We are seeing demand from across our customer base, including new customers. We are focused on diversifying our customer base in terms of revenue so that it’s not solely reliant on Oxy; this will take some time, and we certainly want to keep growing our business with Oxy. We believe there are opportunities to add a couple of additional large customers, although they won't reach Oxy's size in the short to medium term, but we are seeing potential there, which factors into our capital planning decisions.

And lastly for me, the sales growth and adjusted gross profit margin have both turned positive after a period of decline. Do you have more sales projects? Could you comment on your backlog? And could this indicate a new trend for positive margins in sales moving forward?

Yes. I'd go back to our prepared remarks. We certainly were happy with the positive contribution in the fourth quarter. But as we think about what our run rate is of the fourth quarter to apply to our 2024 outlook on the sales, the interest margin we'd really look more towards the first three quarters of the year as the go forward as opposed to the fourth quarter.

Great. Thank you very much.

Thank you, Mr. Sullivan. There are no more questions in queue.

Great. Thank you, and thanks for all of your questions and participation in the call. We sincerely appreciate your support, and I want to thank all of our employees who did the real work to deliver these numbers for shareholders. It is sometimes a thankless job, but this is our opportunity to thank you for a job well done. I believe we are in an enviable position. Our markets are generally strong, and we have customers who value our equipment and services and more of them. We look forward to updating you on our progress in the next quarter. Thank you.

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