Natural Gas Services Group, Inc. Reports its Third Quarter 2023 Financial and Operating Results

Midland, Texas, Nov. 14, 2023 (GLOBE NEWSWIRE) --

Third Quarter 2023 Highlights

  • Rental revenue of $27.7 million, an increase of 49% when compared to the third quarter of 2022 and 15% when compared to the second quarter of 2023.
  • Net income of $2.2 million, or $0.18 per basic share, as compared to a net loss of $80,000 in the third quarter of 2022 and net income of $504,000 in the second quarter of 2023.
  • Adjusted EBITDA of $11.8 million, compared to $7.7 million in the third quarter of 2022 and $9.9 million in the second quarter of 2023. Please see Non-GAAP Financial Measures - Adjusted EBITDA, below.

MIDLAND, Texas November 14, 2023 (GLOBE NEWSWIRE) Natural Gas Services Group, Inc. (“NGS” or the “Company”) (NYSE:NGS), a leading provider of natural gas compression equipment, technology and services to the energy industry, today announced financial results for the three months ended September 30, 2023.

Commenting on the quarter, Stephen C. Taylor our Chairman and Interim Chief Executive Officer, added “We had a very successful third quarter. Our total revenue increased over 16% from the prior quarter with a year over year increase of 42%. These increases were lead by rental revenues that grew by $3.6 million, or 15%, sequentially and $9.1 million, or 49%, when compared to last year’s third quarter. Sales and Aftermarket Services revenue, combined being about 12% of total revenue, grew sequentially by approximately $0.8 million or 28%. Between the second and third quarters of this year, total gross margins grew by 14%. From the prior quarter, SG&A declined by over $2 million or 41% and operating income was up almost six times to $4.9 million. Sequential net income increased by over three times from the prior quarter and EBITDA grew 19% to $11.8 million. In the comparative year over year periods we saw similar growth dynamics and cost savings. Our 2023 capital program is proceeding as planned and, as we experienced in the last quarter, is continuing to show exceptional and positive financial impact.”

Revenue: Total revenue for the three months ended September 30, 2023 increased 42.3% to $31.4 million from $22.0 million for the three months ended September 30, 2022. This increase was due primarily to an increase in rental revenues. Rental revenue increased 48.7% to $27.7 million in the third quarter of 2023, from $18.6 million in the third quarter of 2022 due to the addition of higher horsepower packages and pricing improvements. As of September 30, 2023, we had 1,233 rented units (400,727 horsepower) compared to 1,196 rented units (305,953 horsepower) as of September 30, 2022, reflecting a 31.0% increase in total horsepower deployed. Sequentially, total revenue increased 16.4% to $31.4 million in the third quarter of 2023 compared to $27.0 million in the second quarter of 2023 primarily due to increases in rental revenues.

Gross Margins: Total gross margins, including depreciation increased to $7.9 million for the three months ended September 30, 2023, compared to $3.9 million for the same period in 2022 and $6.5 million for the three months ended June 30, 2023. Total adjusted gross margin, exclusive of depreciation, for the three months ended September 30, 2023, increased to $14.6 million compared to $9.8 million for the three months ended September 30, 2022 and $12.8 million for the second quarter of 2023. These increases are primarily attributable to increased rental revenues and rental gross margin.

Operating Income: Operating income for the three months ended September 30, 2023 was $4.9 million compared to an operating loss of $294,000 for the three months ended September 30, 2022 and operating income of $712,000 during the second quarter of 2023. Operating income in the three months ending June 30, 2023 was negatively impacted by a $779,000 non cash impairment expense relating to software.

Net Income: Net income for the three months ended September 30, 2023, was $2.2 million, or $0.18 per basic share compared to a net loss of $80,000 or $0.01 per basic share for the three months ended September 30, 2022. The increase in net income during the third quarter of 2023 was mainly due to increased rental revenue and gross margin and a decrease in selling, general and administrative expenses ("SG&A"). Sequentially, net income was $504,000 or $0.04 per basic share during the second quarter of 2023. This sequential improvement of $1.7 million was primarily due to higher rental revenue and lower SG&A and impairment costs.

Adjusted EBITDA: Adjusted EBITDA increased 53.1% to $11.8 million for the three months ended September 30, 2023, from $7.7 million for the same period in 2022. This increase was primarily attributable to higher revenues and adjusted gross margins. Sequentially, adjusted EBITDA increased 19.8% to $11.8 million for the three months ended September 30, 2023, compared to adjusted EBITDA of $9.9 million for the three months ended June 30, 2023.

Cash flows: At September 30, 2023, cash and cash equivalents were approximately $0.2 million, while working capital was $22.1 million. For the nine months of 2023, cash flows from operating activities were $25.7 million, while cash flows used in investing activities was $128.7 million. Cash flow used in investing activities included $128.6 million in capital expenditures, of which $126.4 million was dedicated to rental capital expenditures.

Debt: Outstanding debt on our revolving credit facility as of September 30, 2023 was $128 million. Our leverage ratio at September 30, 2023 was 2.71 and our fixed charge coverage ratio was 2.76. The company is in compliance with all terms, conditions and covenants of the credit agreement.

Selected data: The tables below show, the nine months ended September 30, 2023 and 2022, revenues and percentage of total revenues, along with our gross margin and adjusted gross margin (exclusive of depreciation and amortization), as well as, related percentages of revenue for each of our product lines. Adjusted gross margin is the difference between revenue and cost of sales, exclusive of depreciation.

 Revenue
 Three months ended September 30,  Nine months ended September 30,
  2023   2022   2023   2022 
 (in thousands)
Rental$        27,705                 88        % $        18,631                 85        % $        74,533                 88        % $        53,905                 86        %
Sales         1,413                 5        %          3,086                 14        %          6,000                 7        %          7,270                 12        %
Aftermarket services         2,251                 7        %          326                 1        %          4,413                 5        %          1,129                 2        %
Total$        31,369           $        22,043           $        84,946           $        62,304          


 Gross Margin
 Three months ended September 30,  Nine months ended September 30,
  2023   2022   2023   2022 
 (in thousands)
Rental$7,683  28% $2,844 15% $19,408  26% $7,985 15%
Sales (156) (11)%  932 30%  (811) (14)%  1,550 21%
Aftermarket services 373  17%  134 41%  919  21%  513 45%
Total$7,900  25% $3,910 18% $19,516  23% $10,048 16%
                


 Adjusted Gross Margin (1)
 Three months ended September 30,  Nine months ended September 30,
  2023   2022   2023   2022 
 (in thousands)
Rental$        14,243                  51        % $        8,643                 46        % $        38,083                  51        % $        25,445                 47        %
Sales         (92)         (7)        %          1,003                 33        %          (618)         (10)        %          1,758                 24        %
Aftermarket services         405                  18        %          140                 43        %          989                  22        %          536                 47        %
Total$        14,556                  46        % $        9,786                 44        % $        38,454                  45        % $        27,739                 45        %


(1) For a reconciliation of adjusted gross margin to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Non-GAAP Financial Measures - Adjusted Gross Margin” below.

Non-GAAP Financial Measure - Adjusted Gross Margin: “Adjusted Gross Margin” is defined as total revenue less cost of sales (excluding depreciation expense). Adjusted gross margin is included as a supplemental disclosure because it is a primary measure used by management as it represents the results of revenue and cost of sales (excluding depreciation expense), which are key operating components. Adjusted gross margin differs from gross margin in that gross margin includes depreciation expense. We believe adjusted gross margin is important because it focuses on the current operating performance of our operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those operations. Depreciation expense reflects the systematic allocation of historical property and equipment values over the estimated useful lives.

Adjusted gross margin has certain material limitations associated with its use as compared to gross margin. Depreciation expense is a necessary element of our costs and our ability to generate revenue. Management uses this non-GAAP measure as a supplemental measure to other GAAP results to provide a more complete understanding of the company's performance. As an indicator of operating performance, adjusted gross margin should not be considered an alternative to, or more meaningful than, gross margin as determined in accordance with GAAP. Adjusted Gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate adjusted gross margin in the same manner.

The following table calculates gross margin, the most directly comparable GAAP financial measure, and reconciles it to adjusted gross margin:


 Three months ended September 30,  Nine months ended September 30,
  2023   2022   2023   2022 
 (in thousands) (in thousands)
Total revenue$        31,369          $        22,043          $        84,946                   62,304         
Costs of revenue, exclusive of depreciation         (16,813)          (12,257)          (46,492)          (34,565)
Depreciation allocable to costs of revenue         (6,656)          (5,876)          (18,938)          (17,691)
Gross margin         7,900                   3,910                   19,516                   10,048         
Depreciation allocable to costs of revenue         6,656                   5,876                   18,938                   17,691         
Adjusted Gross Margin$        14,556          $        9,786          $        38,454          $        27,739         


Non-GAAP Financial Measures - Adjusted EBITDA: “Adjusted EBITDA” reflects net income or loss before interest, taxes, depreciation and amortization, non-cash stock compensation expense, severance expenses, impairment expenses, increases in inventory allowance and retirement of rental equipment. Adjusted EBITDA is a measure used by management, analysts and investors as an indicator of operating cash flow since it excludes the impact of movements in working capital items, non-cash charges and financing costs. Therefore, Adjusted EBITDA gives the investor information as to the cash generated from the operations of a business. However, Adjusted EBITDA is not a measure of financial performance under accounting principles GAAP, and should not be considered a substitute for other financial measures of performance. Adjusted EBITDA as calculated by NGS may not be comparable to Adjusted EBITDA as calculated and reported by other companies. The most comparable GAAP measure to Adjusted EBITDA is net income (loss).

The following table reconciles our net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:


 Three months ended September 30,  Nine months ended September 30,
  2023  2022   2023  2022
 (in thousands) (in thousands)
Net income$        2,171         $        (80) $        3,045         $        187        
Interest expense         1,600                  25                   1,785                  74        
Income tax expense (benefit)         1,046                  (73)          1,442                  288        
Depreciation and amortization         6,807                  6,016                   19,390                  18,118        
Non-cash stock compensation expense         209                  583                   1,826                  1,337        
Severance expenses         —                  1,258                   1,224                  1,407        
Impairment expense         —                  —                   779                  —        
Adjusted EBITDA$        11,833         $        7,729          $        29,491         $        21,411        


Conference Call Details: The Company will host its earnings conference call on Wednesday, November 15, 2023, at 10:00am CDT (11:00am EDT). To listen to the call, participants should access the webcast on www.ngsgi.com under the Investor Relations section. To participate, please call (800) 550-9745 using conference ID 167298 approximately five minutes prior to the start of the call. Following the conclusion of the conference call, a recording of the call will be available on the Company’s website.

About Natural Gas Services Group, Inc. (NGS): NGS is a leading provider of natural gas compression equipment, technology and services to the energy industry. The Company manufactures, fabricates, rents, sells, and maintains natural gas compression technology for oil and natural gas upstream providers and midstream facilities. NGS is headquartered in Midland with manufacturing and fabrication facilities located in Tulsa, and Midland. The Company maintains service facilities in major energy producing basins in the U.S. Additional information can be found at www.ngsgi.com.

Cautionary Note Regarding Forward-Looking Statements: Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause NGS's actual results in future periods to differ materially from forecasted results. Those risks include, among other things: a prolonged, substantial reduction in oil and natural gas prices which could cause a decline in the demand for NGS's products and services; the loss of market share through competition or otherwise; the introduction of competing technologies by other companies; and new governmental safety, health and environmental regulations which could require NGS to make significant capital expenditures. The forward-looking statements included in this press release are only made as of the date of this press release, and NGS undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. A discussion of these factors is included in the Company's most recent Annual Report on Form 10-K, as well as the Company’s Form 10-Q for the quarterly period ended September 30, 2023, as filed with the Securities and Exchange Commission.

For More Information, Contact:Anna Delgado, Investor Relations
 (432) 262-2700
ir@ngsgi.com
 www.ngsgi.com


 NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited)
    
 September 30,
2023
 December 31, 2022
ASSETS   
Current Assets:   
Cash and cash equivalents$        197          $        3,372         
Trade accounts receivable, net of allowance for doubtful accounts of $529 and $338, respectively         28,041                   14,668         
Inventory         26,115                   23,414         
Federal income tax receivable (Note 4)         11,538                   11,538         
Prepaid income taxes         —                   10         
Prepaid expenses and other         1,436                   1,145         
Total current assets         67,327                   54,147         
Long-term inventory, net of allowance for obsolescence of $40 and $120, respectively         2,172                   1,557         
Rental equipment, net of accumulated depreciation of $193,795 and $177,729, respectively         355,382                   246,450         
Property and equipment, net of accumulated depreciation of $17,737 and $16,981, respectively         21,074                   22,176         
Right of use assets - operating leases, net of accumulated amortization $864 and $721, respectively         261                   349         
Intangibles, net of accumulated amortization of $2,353 and $2,259, respectively         806                   900         
Other assets         4,791                   2,667         
Total assets$        451,813          $        328,246         
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current Liabilities:   
Accounts payable$        30,550          $        6,481         
Accrued liabilities         14,608                   23,726         
Current operating leases         98                   155         
Deferred income         —                   37         
Total current liabilities         45,256                   30,399         
Long-term debt         128,000                   25,000         
Deferred income tax liability         41,206                   39,798         
Long-term operating leases         163                   194         
Other long-term liabilities         3,223                   2,779         
Total liabilities         217,848                   98,170         
Commitments and contingencies   
Stockholders’ Equity:   
Preferred stock, 5,000 shares authorized, no shares issued or outstanding         —                   —         
Common stock, 30,000 shares authorized, par value $0.01; 13,688 and 13,519 shares issued, respectively         136                   135         
Additional paid-in capital         116,254                   115,411         
Retained earnings         132,579                   129,534         
Treasury shares, at cost, 1,310 shares         (15,004)          (15,004)
Total stockholders' equity         233,965                   230,076         
Total liabilities and stockholders' equity$        451,813          $        328,246         


NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share)
(unaudited)
    
 Three months ended Nine months ended
 September 30,  September 30,
  2023   2022   2023   2022 
Revenue:       
Rental income$        27,705          $        18,631          $        74,533          $        53,905         
Sales         1,413                   3,086                   6,000                   7,270         
Aftermarket services         2,251                   326                   4,413                   1,129         
Total revenue         31,369                   22,043                   84,946                   62,304         
Operating costs and expenses:       
Cost of rentals, exclusive of depreciation stated separately below         13,462                   9,988                   36,450                   28,460         
Cost of sales, exclusive of depreciation stated separately below         1,505                   2,083                   6,618                   5,512         
Cost of aftermarket services, exclusive of depreciation stated separately below         1,846                   186                   3,424                   593         
Selling, general and administrative expenses         2,845                   4,064                   12,267                   8,875         
Depreciation and amortization         6,807                   6,016                   19,390                   18,118         
Impairment expense         —                   —                   779                   —         
Total operating costs and expenses         26,465                   22,337                   78,928                   61,558         
Operating income (expense)         4,904                   (294)          6,018                   746         
Other income (expense):       
Interest expense         (1,600)          (25)          (1,785)          (74)
Other income (expense), net         (87)          166                   254                   (197)
Total other income (expense), net         (1,687)          141                   (1,531)          (271)
Income (loss) before provision for income taxes         3,217                   (153)          4,487                   475         
Income tax benefit (expense)         (1,046)          73                   (1,442)          (288)
Net income (loss)$        2,171          $        (80) $        3,045          $        187         
Earnings (loss) per share:       
Basic$        0.18          $        (0.01) $        0.25          $        0.02         
Diluted$        0.18          $        (0.01) $        0.25          $        0.02         
Weighted average shares outstanding:       
Basic         12,378                   12,192                   12,295                   12,344         
Diluted         12,403                   12,192                   12,372                   12,434         


NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Nine months ended
 September 30,
  2023   2022 
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income$        3,045          $        187         
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization         19,390                   18,118         
Amortization of debt issuance costs         287                   35         
Deferred income tax expense         1,408                   285         
Stock-based compensation         1,826                   1,337         
Bad debt allowance         199                   —         
Impairment expense         779                   —         
Gain on sale of assets         (281)          (106)
Loss (gain) on company owned life insurance         49                   551         
Changes in operating assets and liabilities:   
Trade accounts receivables         (13,572)          (2,210)
Inventory         (2,608)          (2,576)
Prepaid expenses and prepaid income taxes         (281)          (417)
Accounts payable and accrued liabilities         14,951                   6,592         
Deferred income         (37)          (1,312)
Other         543                   (309)
NET CASH PROVIDED BY OPERATING ACTIVITIES         25,698                   20,175         
CASH FLOWS FROM INVESTING ACTIVITIES:   
Purchase of rental equipment, property and other equipment         (128,563)          (35,250)
Purchase of company owned life insurance         (378)          (272)
Proceeds from sale of property and equipment         231                   167         
NET CASH USED IN INVESTING ACTIVITIES         (128,710)          (35,355)
CASH FLOWS FROM FINANCING ACTIVITIES:   
Proceeds from loan         103,000                   2,000         
Payments of other long-term liabilities, net         (50)          (2)
Payments of debt issuance cost         (2,131)          —         
Purchase of treasury shares         —                   (6,660)
Taxes paid related to net share settlement of equity awards         (982)          (515)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES         99,837                   (5,177)
NET CHANGE IN CASH AND CASH EQUIVALENTS         (3,175)          (20,357)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD         3,372                   22,942         
CASH AND CASH EQUIVALENTS AT END OF PERIOD$        197          $        2,585         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:   
Interest paid$        4,347          $        25         
NON-CASH TRANSACTIONS   
Right of use asset acquired through an operating lease$        63          $        91         
Transfer of rental equipment to inventory$        708          $        —         



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