Good morning and welcome to Kirby Corporation's 2018 Fourth Quarter and Full Year Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. We ask that you limit yourself to one question and one follow-up. [Operator Instructions] Please also note this event is being recorded. I would now like to turn the conference over to Mr. Eric Holcomb, Kirby's Vice President of Investor Relations. Please go ahead.

Good morning and thank you for joining us. With me today are David Grzebinski, Kirby's President and Chief Executive Officer; and Bill Harvey, Kirby's Executive Vice President of Finance and Chief Financial Officer. A slide presentation for today's conference call, as well as the earnings release that was issued earlier today can be found on our website at kirbycorp.com. During this conference call, we may refer to certain non-GAAP or adjusted financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings press release and are also available on our website in the Investor Relations section under Financials. As a reminder, statements contained in this conference call with respect to the future are forward-looking statements. These statements reflect management's reasonable judgment with respect to future events. Forward-looking statements involve risks and uncertainties and our actual results could differ materially from those anticipated, as a result of various factors. A list of these risk factors can be found in Kirby's Form 10-K for the year ended December 31, 2017, as well as subsequent filing on Form 10-Q for the quarter ended September 30, 2018. I will now turn the call over to David.

Thank you, Eric, and good morning, everyone. Earlier today we announced adjusted earnings per share of $0.75. This is without impairment charges and compares to our guidance range of $0.55 to $0.75 per share. GAAP earnings were a loss of $0.41 per share for the 2018 fourth quarter. This loss includes one-time after tax charges of $1.16, primarily related to non-cash impairments of coastal vessels that would require ballast water treatment systems as well as the impairment of the remaining portion of goodwill in our Osprey business. For the full year GAAP earnings were $1.31 per share. Including the impairment charges and other one-time items that were identified in these quarters 2018 earnings per share was $2.86 per share. This represents a 44% increase in earnings relative to 2017 earnings per share net of the one-time items. Today we also announced the signing of a definitive agreement to purchase the marine transportation fleet of Cenac Marine Services for approximately $244 million in cash. Cenac's marine transportation fleet is an ideal complement to Kirby's inland fleet with well-maintained 30,000-barrel barges with an average age of four years and modern towboats with an average age of six years. I will discuss more about the Cenac acquisition in a few minutes. In the fourth quarter, our inland marine transportation business experienced robust levels of activity, which resulted in tight market conditions and barge utilization levels for our fleet in the low to mid-90% range. With these tight market conditions spot market grades increased in the mid to high single digit range compared to the third quarter. During the quarter, we experienced seasonal wind and fog along the Gulf Coast and extensive block delays resulting in a 28% increase in delay days compared to the third quarter. While these conditions had adverse effects on…

Thank you, David, and good morning, everyone. In the 2018 fourth quarter, our Marine Transportation segment revenues were $382.5 million with an operating income of $44.5 million and an operating margin of 11.6%. Compared to the same quarter in 2017, this represents a 16% increase in revenue and 56% increase in operating income. Compared to the third quarter, revenues increased slightly and operating income decreased by $4 million. The reduction in income is attributable to increase delay days in inland and planned shipyard maintenance on several large capacity vessels in coastal that we discussed on our last earnings call. In the inland business, revenues were approximately 20% higher than the fourth quarter of 2017 due to the Higman acquisition, increased customer demand and additions to our pressure barge fleet. Compared to the third quarter, inland revenues increased primarily due to rising spot market pricing. During the quarter, the inland business contributed approximately 75% of marine transportation revenue which is unchanged sequentially. Long-term inland marine transportation contracts or those contracts with a term of one year or longer, contributed approximately 65% of revenue with 59% attributable to time charters and 41% from contracts of affreightment. Term contracts that renewed in the fourth quarter were generally higher with a few exceptions. Spot market rates increased in the mid to high single-digit range sequentially. During the fourth quarter, the operating margin in the inland business was in the mid to high teens. In the coastal business, fourth quarter revenues were up approximately 3% year-over-year. Compared to the third quarter, however, revenues declined approximately 3% as a result of seasonal activity reductions in Alaska and planned shipyard maintenance for several large vessels. Overall, our utilization was unchanged in the 80% range. With regards to pricing, although, rates are contingent on various factors, such as…

Thank you, Bill. Before I discuss our guidance for 2019, I'd like to comment more on today's announcement regarding the purchase of Cenac's marine transportation fleet. Cenac's young fleet consists of 63 inland 30000-barrel tank barges and 34 inland towboats which operate on the lower Mississippi River system and the Gulf Intercoastal Waterway. The purchase also includes one oceangoing barge and two offshore tugboats. This acquisition is a clear strategic win as it will improve our ability to service customers lower the average age of the Kirby fleet and reduce future capital expenditures. The purchase price of approximately $244 million will be financed through additional borrowings and we expect the deal to close late in the first quarter subject to normal closing conditions and regulatory approvals. In 2019, we expect this acquisition will be net neutral to slightly positive to Kirby's earnings. And that's taking into account integration costs, inherited contracts, time needed to integrate the fleet and higher interest expense. Beyond 2019 as existing contracts expire and we realize the benefits of anticipated synergies, this acquisition will provide enhanced earnings for Kirby and higher returns. In our press release this morning, we announced our 2019 guidance of $3.25 to $3.75 per share. The midpoint of our guidance range reflects more than a 20% year-on-year growth in earnings per share compared to 2018 excluding one-time charges. Our capital spending for 2019 is also expected to be between $225 million and $245 million and that includes some capital for the Cenac fleet. This represents a year-on-year reduction in capital spending of approximately 20%. Looking at our segments in the marine transportation segment, we expect the inland barge demand – that inland barge demand will remain strong throughout 2019 driven by modest increases in GDP additional petrochemical capacity scheduled to startup and…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ben Nolan with Stifel.

Great. Caught me little off guard. Thanks. First, really quick, noticed that this quarter you didn't provide one quarter, or Q1 guidance. Just curious, if maybe that's a little bit of a change in approach or what to think about that?

Good morning, Ben. Yeah, there's a bit of a change. We have canvassed our large shareholders and long-term shareholders. And to a person they've recommended us to get out of the quarterly guidance business. And we agree with that, because we want people focusing on the long term and not just the quarterly numbers. So that's what caused that change or what led us to that change.

Okay. Sounds good. So, now onto the real business. So this Cenac acquisition looks pretty good. But trying to frame in exactly how to maybe think about the value and appreciating that it probably is going to take about a year to get the accretion out of it. But two things related to that. A, let's say, next year after it's fully integrated how accretive do you think something like this could possibly be? And then, B, with maybe say relative to replacement cost where does this – where would this fall do you think?

Yeah. So I'll share the exact numbers there in a second here. But look Cenac is a great acquisition for us, because it's really good equipment, very top-notch group of mariners, very well-run company. And there are some major synergies that come with it particularly or in – especially around capital spending. It's a very young fleet. And to your point, we are buying this at a significant discount to replacement value. It's probably about 35% approximately. 35% discount to replacement value. If you discount it for the four to five year age on average, it's still approximately 25% discount to the discounted replacement value. So it's a great win for us. It helps get our fleet even younger with some really well-run and well-maintained equipment and we're quite excited about it. And now in terms of accretion as we said in the call in our prepared remarks, it's kind of neutral to slightly positive. And to your point that's about – takes a while for the synergies to come in plus some of the contracts have to roll-off that were set a while ago. But it's more meaningful next year. It's hard to say to put precise numbers on it. One of the things with Cenac is we're buying assets, so we don't know their financials. We know them in context of our financials. We know roughly what it would cost to run that fleet under our scenario. So we think it's going to be fairly meaningful for 2020. Don't want to give you a precise number, but it's a win-win for us.

Okay. Great. I have other questions, but I think I’ve used up my two question limit. I appreciate it. Thanks, David.

Thanks, Ben.

Our next question comes from Michael Webber with Wells Fargo.

Hi. Good morning, guys. How are you?

Good morning, Michael.

I just want to follow up on the Cenac acquisition. And David I'm trying to kind of rectify the idea that it's acquired at a 25% discount or a steep discount to replace in or even kind of a discounted kind of a look back onto where you would've been acquiring at the time versus the lack of accretion FY 1? Does it imply that? I mean that business is just loss generating for the first year? I'm just trying to just kind of to rectify those two kind of [disposing] [ph] views.

No, no. It's certainly not loss generating. It's neutral to slightly accretive in the first year, probably less than $0.05, but it's still accretive for the first year. It just takes a while for us to get those synergies in. And a lot of the synergies are around horsepower management and integrating their team into our team. It just takes a while.

Yes. I'm just trying to compare it to Higman, right? Which took like I said quarter and half, two quarters versus four for this?

Well, yes. Hopefully, we're closer to Higman.

Okay.

But we're looking at it realistically. It's a great fleet and but there's a lot of work to integrate these fleets as you might imagine.

Sure.

And Michael, we should assume of course that this thing will close at the end of the first quarter, so we're talking three quarters. And when we do accretion we of course put a financing cost against it.

Yes.

So we expect it to be accretive. If we just want to be conservative about how much it can really impact just after you have those integration costs in the first nine months.

Yes. Okay. That's fair. That's fair. And then David on I think it's slide 6. You kind of talk about D&S in the kind of the Q4 look forward to 2019. It's obviously a big area of focus. And the last bullet there you kind of mentioned improvement in new orders in terms of the backlog and visibility and kind of a stable level of activity through Q2 of 2019. Is that the right way -- is the right lens to kind of look at your visibility into D&S? And I mean does that imply -- what does that imply for I guess how much variability is reflected in the D&S annual guidance? If I think about that Q2 2019 figure versus say if those Q4 2019?

Yes. That's good question. The backlog really gets us through well into the second quarter. Obviously, we'd need additional orders to fill up manufacturing in the back half. We think they'll come. And you hear the pressure on the pressure pumping companies for capital discipline. We actually think that's very healthy. We're having great conversations with our customers. And there is now a balance between maintenance and new equipment orders. But let's be very clear, they're very busy. I mean, there's still huge amount of activity out there. And they're running this equipment as you know very hard. So, there's a nice mix of needed replacement and maintenance. Now, the good news is they are spending within their cash flow now. I saw some numbers for 2018 where about 65% of them were spending within cash flow. And I saw some recent numbers that said it’s closer to 90%, 95% are spending within their cash flow. I think that's really healthy. But we -- it's hard to predict six months out. But based on the activity levels, we think they'll continue to do what they've been doing which is order periodic replacement equipment and then do the maintenance. So, it feels a lot healthier the way they're headed. Of course you watch the crude price move around and it gives you a little pause here. But everything we're seeing and hearing from the customers, I mean, I'm sure you've listened to -- or read some of the transcripts from some of the pressure pumping companies, it's relatively positive. Permian's still going strong. We saw some statistics; it said that 80% of the drilling in the Permian is for replacement of declining production and the decline curve. So, there's a lot going on out there. The activity is going to increase and so that's good. And by the way we do have other things in our manufacturing group besides just frac equipment. We do blenders and hydration units and nitrogen units on the frac side, but we also do seismic equipment that largely goes international. We do supply some international oilfield equipment. But then we've got non-oilfield equipment like Rail King. As you know we do make Rail King units. So, all of that's pretty healthy and -- so we're pretty excited about our visibility in the first half, but to your point, it gets a little less clear when you look into the second half.

Okay. That's helpful. I appreciate the time guys. Thank you.

Yes, thanks Michael.

Our next question comes from Jon Chappell with Evercore.

Thank you. Good morning David.

Hey, good morning, Jon.

Just one more on the Cenac acquisition. One of the comments you made in the press release was about the contracts and how their existing contracts or legacy contracts is one of the reasons why it would probably just be neutral this year. Is there any way to kind of gauge or get any information on the timing of their contract rollovers? Are they typically kind of one year in nature, so we should expect mark-to-market to happen soon after the one year anniversary? And also any way to put -- in just broad terms, maybe how much below market your contracts they are as we think about the potential step-up next year?

Yes. No, I think your characterization is pretty accurate there. The average contract is probably one year. They do have some multiyear contracts. So, it's just going to -- should roll off in the next 12 months roughly the bulk of it. And yes, as you would expect the prices -- as you've seen spot prices have been going up sequentially. We've been announcing them. So, it's just going to -- there are some of those older contracts that just kind of have to reprice to the market. You could probably look at what we've been saying about sequential increases in spot rates and use that as a gauge if you're trying to figure out how much of a repricing would be there. That's a rough guide.

Okay, that's helpful. And then second on the inland margin guidance. You're talking mid- to high teens which is still -- seems to be a sequential or year-over-year improvement over 2018 which was probably the trough. But you had mentioned back in the Investor Day in May that you thought that peak margins could be higher than they were last peak. Granted we're far from peak, but given the Higman transaction and the full integration in 2019 and some synergies there the pricing improvements that you've spoken about both on the spot and the term side, is it realistic to think that you could at least may be touch the 20s at some point in 2019, or is that still just too ambitious at this point in the cycle?

It's probably a little ambitious. The cycle – well, we're in early days of the cycle, right? I mean, last year our inland business I think was over 14%, 15% in terms of operating income margins. We would expect that to be higher mid-teens -- mid- to high teens this year. I guess at the end of the year, we could approach that if things continue on the same pace, but it may take longer than that and we like that we don't want a spiky thing. This needs to rollout nice and orderly. And it's really about the supply and demand and the demand is picking up as the petrochemical plants come online and GDP continues to be positive. So it should be more rateable and not a big ramp up in margins.

Okay. That's helpful. Thanks, David.

Thanks, Jon.

Our next question comes from Greg Jerry Lewis with BTIG.

Hey, guys. How are you? Good morning.

Great, Jerry. How are you?

I'm doing great. So I have -- I guess, the first question I would ask is you guys did a good job of kind of taking -- growing through over the last couple of years of the down cycle through acquisitions. As we think about the Cenac acquisition, should we be thinking about that as in terms of fleet growth. I guess, how much of that do we think maybe could be renewal versus absolute incremental growth?

Well, I would view Cenac as mostly incremental growth, but it makes our total portfolio of age much lower. Let me just give you some statistics. In the last 12 months, we have done in the marine space little less than $900 million in acquisitions, if you add them all up. So if you look at our barge capacity, at the beginning of 2018 to right now including Cenac, the number of barges we have is up about 26% and the barrel capacity is up 36%. So, when you think about the earnings power of the company, it's the highest it's ever been. And we're just now coming out of the kind of the bottom of the cycle starting to get into a decent return kind of environment. So with those kind of barrel capacity increases and barge capacity -- just the barge numbers increasing that's incremental. And the earnings power is much higher than it's ever been for the company. And that's all into the context of having the average age of our barge fleet. If you look at the beginning of 2018 average age of our barges was probably about 14.5 years. I think with Cenac, we will be maybe 13, maybe a little below 13. Haven't done the math myself here, but it's probably around 13. So we took another 1.5 year off the average age of our fleet, while expanding it. So it's -- I guess said earlier when I characterized Cenac, it's kind of a strategic win.

Okay, perfect guys. And then just one other. There was -- I think it was in the journal today talking about how you've seen increased crude by rail in the back half or the fourth quarter of 2018. I mean as we think about U.S. crude production, I mean have you seen any of that also increases in crude oil volumes and on the inland system as of the -- over the last few months?

Yes, we have. There are more barges moving crude. It's interesting with Venezuela backing out of the market potentially here, we actually may see more as the Gulf Coast refineries like that heavy crude. So if Venezuela is backing out, we could see more demand for Canadian crude. I don't know their capacity, there's supply more demand. But that might bring more volumes to the water in that -- come down to the St. Louis area by pipeline and then transfer to barges and then come south. We'll see. But in general to answer your question, we have seen a pickup in the number of barges moving crude. It's not astronomical, but it is more than it was at this time last year for sure.

Okay guys. Thank you very much for the time.

All right, Greg. Thanks.

Our next question comes from Kevin Sterling with Seaport Global Securities.

Hey, good morning, David and Bill. How are you? So David going back to Cenac, by the way congrats on that acquisition, you guys do a great job continue to consolidate the industry. But how much -- I know we talked a little bit about some of their contracts and things. How much of their business was spot versus contract?

Yes most of it was contracted. They had very little spot. I don't know the precise number but it was -- is largely contracted fleet.

Would you say, was it a distress sale? Had they gotten a little bit too far in front of their skis with maybe a little bit more leveraged? Since its look like given their young fleet they've had a lot of growth here the past couple of years in a tough environment or was it just the owner just looking to kind of exit the business?

Yes, it's latter. There were not distressed at all. It was a very well-run company, well -- very well capitalized. Well, we don't have their financials, but from what we know they were well-capitalized and well-run. This was not a distressed situation it's more about the owner ready to make a change.

Okay. And then last question here David. It looks like after probably call it say four years of muted inland barge deliveries 2019, could be the first year that we see tank barge deliveries increase possibly doubling. How should we think about that? Does that give you a little bit pause for concern, or is that mainly you think for replacement?

Yes. It's mostly replacement. There is some addition there. But let me put it in context here, we've had a decline for the last four years in terms of net barges. I think last year the delivery -- well you know River Transport News published by Sandor Toth is a great, great journal that's put out on our business. I think in his latest version that came out this week, he was saying 2018 the number of new barges delivered was something like 77 which is pretty much a low for the last decade or so, and if not the lowest in a long while. And he was estimating maybe 150 barges in 2019. It may be more than that, but it's more about pent-up demand. If you think about our business, people have been a little cash-strapped, some may be more than others. And there's a bit of pent-up demand to replace some older equipment. So we're not overly concerned. We do think there'll be some retirements here. We may see a little fleet growth, but it's probably on the order of 1%, maybe on the outside 2%. But we're not overly concerned at all.

Okay. Well, that’s all I had. Thank you for your time this morning. I would echo what you said Sandor, he does a great job with the industry. Thank you, David.

Thanks, Ken.

The next question comes from Jack Atkins with Stephens.

David, Bill, Eric, good morning.

Hi. Good morning, Jack.

So just let me get started here on the coastal side. David, you referenced the early retirement of some of those older vessels, then you kind of gave us the timeline. Is there a way to think about the number of barrels, or just the number of vessels that you plan on retiring early? We're just -- I'm just trying to think about what the go-forward or steady-state fleet will look like after these retirements?

Yes. There's essentially five vessels being retired. One has been retired just now. We just retired it. It was actually one of the leased barges. Then the other four will come out basically starting in 2020 all the way through 2023. And again, you might just say, one per year approximately, coming out as they come for their regulatory shipyard. We'll plan on retiring them.

Okay.

So, yes, I can not -- it's not an immediate five vessels come out and impact the earnings. They'll work off their contracts.

Okay, okay. It makes a lot of sense. On the distribution and services side, Bill, could you maybe give us an update on sort of where things stand in terms of equipment delivery deferrals, because of the vendor bottleneck issues? It sounds like you guys have made a lot of progress getting those vendor issues resolved. But do you still have some equipment that needs to be delivered in the first quarter? Just trying to get a feel for where that stands. A – Bill Harvey: Well, there's always some equipment and there's always some delays. But the big bottleneck was over, and you saw that in the results for the fourth quarter. A lot of that was towards, as we mentioned, in September -- or October, excuse me, was towards the end of the quarter. So in effect, that inventory -- the inventory we had is --- we know and through -- going through AR. And as David mentioned, earlier the backlog got bigger by the end of the quarter. And that was just -- and so what we're doing now is, just basically settling down to more steady manufacturing.

Okay, okay. That's good to hear. One last one, if I could squeeze it in here. Just in terms of the guidance for 2019, in terms of inland revenue up, call it, 10% to 15%, including Cenac. Is there a way to think about acquired revenue including Cenac in 2019? Sort of, what your assumption is for that including, I think, maybe a couple of months of Higman and some of the other small acquisitions. Just trying to get a feel for -- because I know there's been quite a few acquisitions over the last 12 months that the acquired revenue that you guys are assuming for 2019.

Yes. I don't have the number off the top of our head here. We don't have it prepared. Part of the problem is Higman and Targa are already fully integrated.

Right. Yes.

CBGM is pretty much fully integrated. I think in Cenac if you want to think about it, incremental revenue could be $70 million to $100 million, but... Q – Jack Atkins: On a full year basis? A – David Grzebinski: Yes on a full year basis. Yes that's a rough number. It gives you a ballpark to shoot in. Q – Jack Atkins: Okay, that’s helpful, David. Thanks very much. Thanks again for the time. A – David Grzebinski: All right, thanks Jack.

Our next question comes from Randy Giveans with Jefferies. Q – Randy Giveans: Hey guys, good morning. So just looking specifically at the new pressure pumping equipment orders improving your manufacturing backlog, I'm assuming January is a pretty strong month for orders historically. So how have you seen orders over the last three or four weeks? And then for those orders today let's call it when would that equipment likely be delivered? Is that a lead time of three months, six months, longer? A – Bill Harvey: Yes. I think it's -- January is not -- at least in our business it tends to be not much different from any other month. So we're not seeing any big surge or anything. This is just steady. Towards the end of the year, we just continue to build. And three to six months is -- delivery is probably a pretty good estimate, yes. Now some of that was ongoing. When we talk about barrel, some of it was ongoing and being delivered in the first three months of the year as well. This is a mix of the things. It's not the big lumpy backlog. Q – Randy Giveans: Got it. So it's not just like this year is an anomaly. If we were looking at January 2015, 2016, 2017, you wouldn't have much guidance for the back half of those years either in terms of backlog? A – Bill Harvey: Actually that's a great point. That's -- we would not see much past the next six months at any point in time. Q – Randy Giveans: Okay, good, just wanted to clarify that. And then you mentioned backup power systems, backup power generation that's kind of an area of growth. I guess what are the margins on that business? And how…

Perfect. That’s it for me. Thank you.

Thanks, Randy.

Our next question comes from David Beard with Coker & Palmer.

Good morning, gentlemen.

Good morning, David.

Good morning, David.

Just -- a lot of my questions have been answered. But a little bigger picture question on coast lives relative to game theory. With you guys taking capacity out, does that tip your hat that other people may keep the boats in or convert them betting that prices will rise? And if that's not the case could you actually make a decision later on if the market gets stronger to put these ships through drydock?

Yeah. Game theory is a good way to put it. Look it's -- they've got capital discipline and they're looking at barges that are 23 to 30 years old. The math really doesn't work. My -- I can't see -- the market's improving, but it would take a lot for the math to start working. So it just depends on their capital discipline. Hard for us to say. We try and be very rigid on our capital discipline for obvious reasons and that's just kind of the way we think. That said to your core question if we get to those shipyards say in 2023 and the math is significantly differing, we could actually add the ballast water treatment and spend the money on the shipyard and extend the life another five years. So we do have some optionality there. But based on the math that we look at now and think about, we don't think that'll happen. But that option is there if the market does recover or becomes more robust.

Yeah, David. In our -- looking at in detail at the economics in it -- projections and looking at different pricing scenarios, we -- the realistic scenario and the -- our judgment at this point is that we needed to take action from -- and mark these to mark -- or take the amortization down right now. So there's optionality, but it's not a high probability.

Good, good. And then switching to inland, again bigger picture relative to the petrochemical build-out because we've been waiting or talking about this for quite a while. Are there any data points you can point to either longer term contracts or volume of product moved that's starting to impact the market, or is it still a bit too early just given the -- how the product mix is rolling out?

Yeah, there are some studies out there. I just put some studies up that you can look at some of the things like methanol volumes in there. But I don't know of any public free databases that show those volumes. I mean, we've seen volumes increasing. And matter of fact Eric in the back of our IR presentation shows some of the volumes that are increasing. He's got a chart that shows things like butadiene, propylene, methanol and other products growing. But -- and that comes from a third-party source. But I don't know of any other data points that you can look at. You could probably -- Sandor Toth sometimes quotes locks -- volume through locks, you could look at that. That's -- that might be a source. But I don't have any of that on the tip of my fingers here David.

No, no, that's fair. Appreciate the color on that and -- as well as the offshore game theory. Thank you.

Thanks, David.

Our next question comes from Bill Baldwin with Anthony Securities.

Hi, good morning. David, Bill and Eric.

Thanks.

Congratulations on another fine acquisition.

Thank you. - Bill Harvey: Yes, thanks. Now the real work starts as you know Bill.

I know but you've got a lot of experience at that. So, you guys have done a heck of a job during this downturn in terms of enhancing the earning power of your company.

Yes. Well thank you.

On the D&S side, you mentioned had some initiatives on new equipment. I believe you stated also a service and maintenance type business. Any color you can shed their as to what those initiatives might be in that segment of the business?

Yes. Over the last -- well through most of 2018, we've invested in some roofline and employees in the Permian in particular we've ramped that facility up. It's available for our customers. We probably have 100 units sitting on the premise now. Some of them waiting for budget the other -- and some of that may be trickling through. But we've expanded Joe Rainier and his team have expended that facility and added maintenance techs throughout our D&S business. So we've expended that ways. It's more -- it's not a lot of capital as you know it's -- but it is people. We've added the techs across a system to deal with the maintenance and the service opportunities. That's basically the summary there Bill.

Are those techs primarily folks that go out to sites where the equipment is? Are these techs that work their location and they're deployed...

It's both, it's both.

Both, okay. Back during the Analyst Day, you indicated I think it was indicated the target operating margins I believe or D&S were forecast somewhere in the 11% to 12% area based on after synergies have been realized and integration of Stewart & Stevenson. Is that still pretty much the thinking over the next several years? Is that...

Yes, over the next several years I would say. This year we're probably still in that high single-digit range. Part of it is the mix that we talked about on the power generation. But there is some cost synergies that Joe and his team have identified and they're going after. But they're going to be harder ones to get. The easy cost synergies we got we have gotten already. But there's some tougher ones that we're going after. And those will roll in over the next two years. I'll give you one example like Oracle. We're rolling out Oracle across all of the D&S locations. We had it in some of the locations, but as you know in any ERP roll out it takes -- unfortunately it takes about a year sometimes a year and half to get it all up and running. But once we have everybody in Oracle things like sharing inventory et cetera and leveraging the G&A costs across the organization becomes much, much easier. But it just takes time in investment to get there. And that's just one example.

Okay. And just one last quick one here, roughly how much of your D&S business is international, or as a percent of revenues? Just…

Yeah, 10% maybe 15%. It's lumpier I would say. There's some orders that – you can get a decent sized order, but its lumpy right? But we are seeing more activity in international which is nice. It helps with our -- kind of our revenue distribution if you will.

Right. I know that Schlumberger and even Halliburton both indicated they’re seeing an inflection points on the international have been for a little bit. Is your business related to oil and gas activity drilling and completion activity primarily overseas the D&S?

Yeah primarily almost exclusively is oil and gas.

Okay. Thank you very much.

Thanks, Bill.

All right. Kevin, we’ve got time for one more.

Our last question comes from John Daniel with Simmons Energy.

Hey, David. Thanks for putting me in. You noted higher expected reman activity for the frac business. So congratulation there, if I'm not mistaken I think that makes you the busiest fabricator in the business. Now I'm curious, how you would characterize the reman projects at this point? Are they customers embarking on call it a shave and a haircut approach or are they full blown rebuilds? And then to the extent the full blown –

Yes.

Okay. I'll let you to answer that and then I'll do my follow-up.

Yeah. No, sorry. Yeah it is it's a mix. We've got some that shave and a haircut it's a very good description kind of just fix this. We know you could do more. But we need to get it back out. We want to keep our capital spending down and our R&M spending down. So there is some shaving and haircut stuff and then there's some that just will do the full reman. I mean, you know the customer base very well John, so you probably know who does what, but it is a mix. It's a broad mix of between those two extremes.

Okay. And when someone is bringing in units today and again I kind of apologize for the technical question here, but we keep hearing about the virtues of the higher horsepower power ins. And then obviously the tier four engines are now out there. Are people bringing trailers in and upgrading the pumps to higher horsepower? Are you guys adding the third axle putting on the newer engine, or we – can you just describe a little bit of what the big rebuilds are entailing these days?

There is some of that but not a lot. I would tell you, we have – some of our newer orders are the higher horsepower up to 3,000 horsepower. So, but the remans very little, well there's some, some upgrading through the higher horsepower.

I appreciate. Thank you.

Thank you.

All right. Well thank you everyone for your interest in Kirby and for participating in our call today. If you have any questions or comments you can reach me directly at 713-435-1545. Thanks and have a great day.

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