Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group third quarter earnings conference call. [Operator Instructions] Your call leaders for today's call are Lindsay Naylor, IR coordinator; Steve Taylor, Chairman, President and CEO. I will now turn the call over to Ms. Naylor. You may begin.

Thank you, Erika, and good morning, listeners. Please allow me to take a moment to read the following forward-looking statements 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 they are made pursuant of the Safe Harbor provisions as outlined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements, as you may know, involve known and unknown 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 Group 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 they are not limited to, factors described in our recent press release and also under the caption Risk Factors, in the company's annual report on Form 10-K filed with the Securities and Exchange Commission. Having all that said, I will turn the call over to Steve Taylor, who is our President, Chairman, and CEO of Natural Gas Services Group. Steve?

Okay. Thanks, Lindsay, and thanks, Erica, and good morning and thank you, everyone, for joining me for our Natural Gas Services Group's third quarter 2013 earnings review. To summarize a bit before we get into the details, NGS performed well this quarter, led by significant growth and progress in our core oil and gas compression business. Rental revenues grew at a high rate, with year-over-year revenue gains of 26%, along with 7% revenue growth on a quarterly basis. We continue to anticipate further gains in this part of our business, and as a result, have ramped up our fabrication throughput by approximately 20% this year when compared to 2012. Our compression sales business, rebounded from last quarter's revenue levels, is on pace with the rate of growth we had forecast. After last quarter's exceptionally high levels, rental and sales margins returned to their typical range and we anticipate them continuing at that pace, which are among the highest, if not the highest, margins in the industry. Now, let's move on to the details and I'll expound more. Total revenue. Looking at total revenue in the year-over-year quarters, the third quarter of 2013 revenues increased 13% to $21.9 million from $19.3 million in the third quarter of 2012, with rental revenues showing a year-over-year increase of $3.7 million or 26%. The sequential quarters of the second quarter 2013 compared to the third quarter of this year, total revenues increased $1.6 million or 8% and rental revenue increased 7%. Comparing gross margins of the third quarter of this year to the third quarter of 2012, total gross margin increased 17% from $10.2 million to $11.9 million. Sequentially, gross margin decreased approximately $400,000 to $11.9 million or 54% of revenue. This decline was due to a combination of a mix shift towards lower…

[Operator Instructions] Our first question comes from Gary Farber from CL King. Gary Farber - CL King & Associates, Inc., Research Division: Just a couple of questions. One, just on the CapEx, it sounded like you were seeing possibly $40 million this year. Can you sort of give some -- give some thoughts as regarding next year, preliminarily? And then also talk about the pricing environment, what you're seeing? And you mentioned also taking share. Can you talk about, what -- do you think it's service that's driving your share gains? Is it something else?

Let's see, from a CapEx -- yes, right now, well, we haven't got full skull on 2014 yet from all the activity in all the areas. We're just kind of starting into the process for the last couple 3 weeks. I mean everything is looking positive. Yes, I'll say, I think, we'll at least be in that $40 million range and I'll put a plus or minus on that just to kind of have a number until they come in, but the year's looking to be a growing year, next year. As I mentioned, we're just not exactly sure how much. But we think it's -- that's going to equate into the 220 to maybe up to 240, maybe a little more compressors. So we think we'll be on track to put more out than we put out this year and then the capital budget will commensurately reflect that. Pricing-wise, it seems to be generally okay. We still see spots that don't make some sense in some respect. It seems like maybe -- yes, I think we pick up share just from the service standpoint, a lot of others try to pick up share through pricing. And of course, that tends to be what we see, I think, sometimes. So it's not fully rational yet, but maybe I can say semi-rational at this point. Much better than we have seen in the last year or 2. And again, from a share perspective, just like I mentioned, primarily, our service capability, we've got an excellent reputation in the field. [indiscernible] were sent to everybody, and we see that certainly in just some of our numbers but also, anecdotally, and we know of -- yes, we've seen in a couple of specific areas where we have overtly gone in and picked up some competitive share there. So, yes, we think that'll -- I would -- it's hard to predict that, when that will happen. So, let's not -- just have to [indiscernible] also up to the customer and the existing provider. So hard to say, but we've had pretty good luck with it this year. Gary Farber - CL King & Associates, Inc., Research Division: And one last, would you say it's accelerating the share gains?

It's higher this year than I think what was seen in the last couple of years. But again, I can't say it's a trend or if it will continue or anything else. It's just we've had pretty good luck this year.

[Operator Instructions] Our next question comes from Jason Wangler from Wunderlich Securities.

Just on the churn thing, and thank you for that, it's very interesting. Is there any way to maybe just add a little color, as far as, as you're adding 2 -- are you seeing those, basically, 2 going to oil markets and the 1 coming back from an oil market? Is it 2 in oil and 1 from gas? I mean, is there anything -- is there a generalization you could make on that or is it really case by case?

Yes. We didn't break it down much. We could -- we just haven't gone to that much detail.

You'll be in danger by giving us some detail, I understand.

Well, I mean my feel is certainly the last 2 to 3 years, it's primarily been oil going out and gas coming back. But I think, this year, certainly, the oil growth has continued. But this quarter, again adding 5% more attributes [ph] on the gas side, we've seen oil going out and gas going out. And I think, primarily still, the returns we get are primarily out of dry gas, but we've been able to offset those pretty well this quarter. In the past and you've seen the numbers, we stayed pretty constant. X gas going out and x gas come in, so it stayed pretty flat. But now we've gotten 105x [ph] going out and x coming back. So both of them -- oil is still the grower, but just a little...

Gas is kind of being a little bit -- being a little better, I guess, I could say is maybe...

Yes. And again, I think it's primary from our share gains.

Sure. Okay, and then just on the utilization -- it's not the utilization, but the compressors getting the throughput up to the 20%. I know you've talked about it in the past, I think you're pretty darn close to putting as much out of there as you can. I mean, do you see much more or are you kind of at that level where, look, we're about as good as we can get and anything else we're going to need to look to outsource or go somewhere else?

Yes, we're still looking at expanding capacity and how we might want to do that. And again, there's couple ways we can, either build onto our existing facilities or outsource and we're still looking at both those to see which might be a little better. Of course, the advantage when you do it yourself is you control it a little more and have a little more, check on your supply chain. Whereas if when you outsource, you've got to -- sometimes you're in line behind some other people at times. But we're looking at both just to see where the dollars look best and balancing that against our ability to control that supply chain a little better.

Our next question comes from Jeffrey Kerr from Kerr Financial.

Oil, I missed the percentage of the fleet in oil plays.

Yes, it's right around 40%.

40%. I guess the other question to kind of follow-up what you just said about building or outsourcing and like that. Do you think about using the capital -- you've talked in the past about maybe doing acquisitions or whatever. And is it -- would it be correct to think about the -- maybe doing an add-on to the current footprint as replacing the acquisition strategy? And would that be kind of the use of capital now?

Yes, I mean it's -- I think they fit together, from a perspective of how we go about growing. As I mentioned in the past, we looked at a lot of cash in the past, but there's always been one issue or the other, either the price or the quality of the fleet that has kept us from doing anything there. And again, it's not just us. You look over the past 4 or 5 years, there's not been a whole lot of acquisitions in this business, presumably due to the same thing. So yes, when you look at our rental fleet growth, particularly, it's been a 20% growth over the last 3 years. So from a -- if you're looking at -- it's not that we're saying, okay, organic is the only way to go in oil, you cannot do anything else. We still look at stuff but if you look at the organic growth being in that kind of range, yes, we're growing fairly quickly that way, not having to have any M&A, although we don't discount it. So when you look at that and just looking at ways to increase that capacity, yes, as I mentioned, adding onto existing facility is one way to do it. And the advantage of that, of course, is, as I mentioned, control over some of that. Now, control, if it doesn't come at too high a price. But the good thing about out here in the West Texas, where although it's busy and things are a little higher priced than what they had been, it's not an extraordinary expense to add roof on to some of our facilities, depends on what we do and how much we do. So right now, frankly, that probably looks attractive. But we are going out to get some market indications of what other fabricators may be able to do for us, too. It'll make the financial decision, number one; the control decision from supply chain, number two. And also, outsourcing certainly gives you more of a swing capacity if things do tail off at some point. Much easier to get rid of that than the bricks and mortar we've now got.

How fast do you kind of think about being able to add on that bricks and mortar, if you choose to go that strategy?

Yes, we've got a couple of bids on that. I think it could be a 90-day sort of situation. So it's not extremely long. And again, we made, as we're looking at this to potentially be a combination of a process for maybe we outsource a little, while this place is getting built too, if we decided to go that way. So there's a little flexibility on what we -- how we can go forward.

How about workforce? Would there be any issue in growing the workforce or finding the capable people to put in a new building?

Well, it's gotten better here in Midland. A year ago, that's when we really started looking at outsourcing, because we weren't going to outsource here in Midland necessarily, because there weren't any people anywhere. Yes, we're looking within 100-mile radius, at least keep it close to the house. So -- but now, about 12 months later, the market has loosened up a bit, so now we're able to staff up to where we want based on -- that's how we've got some of the throughput now. And then we think we can -- we think we could -- if we do decide to build ourselves, we think we could staff it.

Our next question comes from Peter Van Roden from Spitfire Capital.

I just wanted to talk a little bit about gross margins. I know that you said that this is going to be kind of the new normal going forward. But was there any sort of increase in maintenance activity in the quarter? And if you do kind of pick between the 62 and the 58, are we going to end up in the middle for the year and going forward? Just a little bit color there will be great.

Yes. Well, as I mentioned, right now, year-to-date, 9 months, we're 59% gross margin on rentals, and last year we're at 58%. So we've actually made some progress there. The contrast -- the big contrast we have between Q2 and currently, of course, between 63% and 58% was -- part of it was that extra pay period, it was actually about 3 points. That's more than half of the difference. We've had about -- relatively added another $400,000 in payroll across this quarter. So you saw little of that. But there wasn't any more maintenance activity Q3 than what we had Q2. So really if you get down, thrown out that pay period fluctuation, you've got a 1 or 2 percentage point swing in the margin, which is really going to be kind of your normal quarterly variation. It's just -- it's exacerbated by the, number one, 63 being very high and, number two, that payroll is so -- on a relative basis, it makes a little more tougher comparison. But yes, I think -- I mean, again, we're 59% running now. Yes, we want to get up into that 60% range pretty consistently. And we have kind of averaged that, 58, 62, depending on what the quarter is. But next year we want to aim for -- have it at a pretty good solid consistent 60.

Okay, that's helpful. And then just a quick update on, what's my favorite topic, the VRU rollout.

Okay. All right. That's for -- if everybody hasn't followed it, there's an EPA regulation that just come out, called regulation OOOO, which is quad O, and it's actually starting to take effect now. I know there's a lot of pushback on the regulation from the industry, mainly because it's not a very economic sort of exercise. But it's intended to control methane emissions or really just natural gas emissions off of locations. There are couple ways you can control these emissions, one is roof flares, and one was with VRUs, that's cover units which has small gas compressors. So both those fit right into our present business lines and bailiwick. And we had seen some VRU activity last year. I'd announced that a couple of contracts we've gotten, one has been in full swing and then one of them, probably really won't start up much until next year. Beyond that, we haven't seen a whole lot of additional movement out of that market yet. Now we think, either, we're talking to a lot of customers out there on what they're seeing, what they're planning, what they're doing. There seems to be a general feel that maybe this thing gets pushed off again. It's been pushed off a couple times. I don't know if that's -- if that general feel is based on fact or just hope. I think maybe more the latter. So we're still -- April -- April 2014 is when this regulation is supposed to take full effect so -- as we get closer to it, I expect to see a little more activity than we're seeing now, but really, we haven't seen as much as I would have thought. And of course, we haven't anticipated anything from a -- or any comments we've made from the point of business or anything else. But just seeing that as icing that may come on top of the growth cake we've got anyway. But we're not seeing any more than what's been happening in the last few quarters. So we're still waiting to either see, push -- EPA actually push it back a little or there should be some movement coming in the next couple quarters, I would think.

And then one last question on the, I guess, a little bit more macro, is that I saw that a couple more shales are going to push to outlaw flaring. I think the Utica is about to do that. Are you starting to look at ramping up activity in those areas?

Yes, we're already in the Utica. This flaring issue, that's kind of the funny thing about it. The EPA is all for it and nobody else is now. So, figure that one out. And of course, we're in the flare business and the compressor business, but -- and we've always said the flare business, really our ramp up in that and it's about tripled the last 3 years. It's just an opening window and that window will be closed at some point. And it's not closing yet. But I think -- certainly, the pushback is coming. I mean -- it doesn't go to 0, but it does throttle down. But whether it's the Utica or the Bakken, I think the pushback is interestingly not coming from Washington or ilk of that sort. But really more from a local and state pushback. State politicians and then local populace. So we've already started seeing that in the Bakken pretty heavy and you've seen large operators up there announced that within x number of years, they won't be flaring anymore. Now part of that is -- part of it is, okay, we'll get out front. But part of it, as I've always talked about, there just hasn't been the infrastructure out there anyway. So it didn't matter whether you want to flare or not, you didn't have any choice for you to produce oil but to flare. But that's getting alleviated on its own, too, because there's pipelines, gas lines going in. So part of this, I think, is, yes, we're not going to flare. But ultimately, we're not going to flare anyway because that gas can go into a pipeline.

Yes. I actually meant it more as a positive in terms of not flaring the gas. They might actually want to use a compressor...

Yes, and I should've followed up with that. Yes, the logical extension for us is, when you don't have flares out there and you have a pipeline, you put a compressor in there. So yes, we think that's certainly a future growth area and I'm actually going to look at it in the Bakken for a bit. We're up there with a little compression but really not a whole lot. And we think the big push will come when those pipelines get in. And that flaring does go away. So I appreciate you finishing my sentence here, Peter.

[Operator Instructions] Steve, at this time, I have no further questions.

Okay, Erika, thanks and thank you, everyone, for joining on the call. I appreciate your time this morning and look forward to visiting you again next quarter. Thank you.