Bay Street News

Natural Gas Services Group, Inc. Reports Second Quarter 2024 Financial and Operating Results; Provides Operational Update and Increases 2024 Guidance

Midland, Texas, Aug. 14, 2024 (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 June 30, 2024. The Company also updated its prior guidance for the full year, increasing its outlook for both Adjusted EBITDA and growth capital expenditures.

Second Quarter 2024 Highlights

Management Commentary and Outlook
  
“We delivered significant top and bottom-line growth this quarter, along with a material increase in net cash provided by operating activities, as we further grow and optimize our business,” said Justin Jacobs, Chief Executive Officer. “We continue to witness a strong market for oil production, particularly in the Permian Basin, and compression demand remains robust. As such, we are taking advantage of our industry position, innovative compression units, and strong customer relationships to increase investments in our large horsepower fleet as we look to drive growth in rental fleet horsepower, rental revenue, and cash flow.”

Jacobs continued, “We are also pleased to report the recent signing of new contracts with blue chip customers which will help us further diversify our customer mix and generate strong returns in the years ahead. Our material increase to guidance for growth capital expenditures partially reflects these contracts. as a significant portion of the spend on these new units will occur in 2025. Importantly, this expected increase in growth capital expenditures, enabled by our recent Credit Facility expansion, is entirely related to large horsepower compression investments, including a significant portion of electric driven compression units. Consistent with our recent growth in horsepower, all of these new contracts are long-term with return on invested capital projected above our target rate of 20%. We remain bullish on natural gas compression and the opportunities ahead, and we believe this higher level of investment will lead to meaningful and sustainable value creation for all NGS stakeholders.”

Corporate Guidance — 2024 Updated Outlook

The Company today provided updated guidance for the 2024 Fiscal Year ending December 31, 2024. Based on its first half performance and outlook for the remainder of the year, the Company now expects Adjusted EBITDA to be in the range of $64 million to $68 million, an increase from its previously announced outlook of $61 million to $67 million. Note the Company entered Fiscal Year 2024 anticipating Adjusted EBITDA to be in the range of $58 million to $65 million.

The Company has also increased its expected 2024 growth capital expenditures largely due to the aforementioned major contracts that were recently secured. The Company now anticipates 2024 growth capital expenditures to be in the range of $60 million to $80 million, an increase from its previously announced guidance of approximately $40 million to $50 million.   The wide range of the guidance is solely a function of the timing of investments as the Company is still determining the precise split of the spend between 2024 and 2025; to reiterate, all of the new units are already under long-term contracts with customers.   Maintenance capital expenditures remain unchanged and are anticipated to be in the range of $8 million to $11 million. Similarly, the Company’s target return on invested capital remains unchanged at 20%.

  FY 2024 Outlook
Adjusted EBITDA $64 million – $68 million
Growth Capital Expenditures $60 million – $80 million
Maintenance Capital Expenditures $8 million – $11 million
Target Return on Invested Capital At least 20%

Jacobs concluded, “We have multiple pathways to build on our industry-leading growth and drive shareholder value: fleet optimization, asset utilization (both unutilized units and non-cash assets), fabricating new rental units, and accretive mergers and acquisitions. We are executing against each of these and showing demonstrable progress. Given our strong balance sheet and expanded Credit Facility, we fully intend to take advantage of the opportunities to continue significant growth beyond 2024.”

2024 Second Quarter Financial Results

Revenue: Total revenue for the three months ended June 30, 2024, increased 42.8% to $38.5 million from $27.0 million for the three months ended June 30, 2023. This increase was due primarily to an increase in rental revenues. Rental revenue increased 44.9% to $34.9 million in the second quarter of 2024 from $24.1 million in the second quarter of 2023 due to the addition of higher horsepower packages and pricing improvements. As of June 30, 2024, we had 1,242 rented units (454,568 horsepower) compared to 1,249 rented units (372,596 horsepower) as of June 30, 2023, reflecting a 22.0% increase in total utilized horsepower. Sequentially, total revenue increased to $38.5 million in the second quarter of 2024 compared to $36.9 million in the first quarter of 2024 due to a 4% increase in rental revenues and a 93.3% increase in aftermarket service revenue primarily related to services for setting and installing new units.

Gross Margins: Total gross margins, including depreciation expense increased to $13.4 million for the three months ended June 30, 2024, compared to $6.5 million for the same period in 2023 and $14.2 million for the three months ended March 31, 2024. Total adjusted gross margin, exclusive of depreciation expense, for the three months ended June 30, 2024, increased to $21.0 million compared to $12.8 million for the three months ended June 30, 2023, and $21.1 million for the first quarter of 2024. These increases in year over year performance primarily are attributable to increased rental revenues and a continuation of our relatively high rental adjusted gross margin.

Operating Income: Operating income for the three months ended June 30, 2024, was $8.5 million compared to operating income of $0.7 million for the three months ended June 30, 2023, and operating income of $9.3 million, during the first quarter of 2024.

Net Income: Net income for the three months ended June 30, 2024, was $4.3 million, or $0.34 per basic share compared to a net income of $0.5 million or $0.04 per basic share for the three months ended June 30, 2023, and $5.1 million or $0.41 per basic share for the first quarter of 2024. The increase in net income during the second quarter of 2024 was mainly due to increased rental revenue and rental gross margin. Sequentially, the net income decline of $(0.8) million was primarily due to higher rental costs and increased SG&A costs during the second quarter of 2024.

Adjusted EBITDA: Adjusted EBITDA increased 66.6% to $16.5 million for the three months ended June 30, 2024, from $9.9 million for the same period in 2023. This increase was primarily attributable to higher rental revenue and rental adjusted gross margin. Sequentially, adjusted EBITDA decreased 2.5% to $16.5 million for the three months ended June 30, 2024, compared to adjusted EBITDA of $16.9 million for the three months ended March 31, 2024.

Cash Flows: At June 30, 2024, cash and cash equivalents were approximately $3.6 million, while working capital was $40.3 million. For the six months of 2024, cash flows from operating activities were $31.1 million, while cash flows used in investing activities was $27.9 million. Cash flow used in investing activities included $28.3 million in capital expenditures.

Debt: Outstanding debt on our revolving credit facility as of June 30, 2024, was $163 million. Our leverage ratio at June 30, 2024, was 2.51 and our fixed charge coverage ratio was 2.68. The Company is in compliance with all terms, conditions and covenants of the credit agreement.

Selected data: The tables below show revenue by product line, gross margin and adjusted gross margin for the three trailing five quarters.   Adjusted gross margin is the difference between revenue and cost of sales, exclusive of depreciation.

  Revenues
  Three months ended
  June 30, 2023 September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024
  ($ in 000)   ($ in 000)   ($ in 000)   ($ in 000)   ($ in 000)  
Rentals $         24,105           $         27,705           $         31,626           $         33,734           $         34,926          
Sales           1,595                     1,413                     2,921                     2,503                     2,270          
Aftermarket services           1,257                     2,251                     1,674                     670                     1,295          
Total $         26,957           $         31,369           $         36,221           $         36,907           $         38,491          
  Gross Margin
  Three months ended
  June 30, 2023 September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024
  ($ in 000)   ($ in 000)   ($ in 000)   ($ in 000)   ($ in 000)  
Rentals $         6,579                       7,683                       12,366                     13,761           $         13,211            
Sales           (345 )             (156 )             553                     253                     (50 )  
Aftermarket services           266                       373                       421                     163                     269            
Total $         6,500             $         7,900             $         13,340           $         14,177           $         13,430            
                     
  Adjusted Gross Margin (1)
  Three months ended
  June 30, 2023 September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024
  ($ in 000)   ($ in 000)   ($ in 000)   ($ in 000)   ($ in 000)  
Rentals           12,762                       14,243                       19,199                     20,620                     20,698          
Sales           (281 )             (92 )             620                     323                     21          
Aftermarket services           288                       405                       440                     170                     283          
Total $         12,769             $         14,556             $         20,259           $         21,113           $         21,002          
                     
Adjusted Gross Margin (1)
Three months ended
    June 30, 2023   September 30, 2023   December 31, 2023   March 31, 2024   June 30, 2024
    % margin   % margin   % margin   % margin   % margin
Rentals           52.9         %           51.4         %           60.7         %           61.1         %           59.3         %
Sales           (17.6)        %                (6.5)        %           21.2         %           12.9         %           0.9         %
Aftermarket services           22.9         %           18.0         %           26.3         %           25.4         %           21.9         %
Total           47.4         %           46.4         %           55.9         %           57.2         %           54.6         %
  Compression Units (at end of period):
  Three months ended
  June 30, 2023   September 30, 2023   December 31, 2023   March 31, 2024   June 30, 2024
Horsepower Utilized 372,596     400,727             420,432             444,220     454,568  
Total Horsepower 473,884     509,198             520,365             542,256     552,599  
Horsepower Utilization         78.6         %           78.7         %           80.8         %           81.9         %           82.3         %
                   
Units Utilized 1,249     1,233             1,247             1,245     1,242  
Total Units 1,911     1,947             1,876             1,894     1,899  
Unit Utilization         65.4         %           63.3         %           66.5         %           65.7         %           65.4         %

(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 shows gross margin, the most directly comparable GAAP financial measure, and reconciles it to adjusted gross margin:

           
  Three months ended
  June 30, 2023 September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024
  (in thousands)
Total revenue $         26,957           $         31,369           $         36,221           $         36,907           $         38,491          
Costs of revenue, exclusive of depreciation           (14,188 )           (16,813 )           (15,962 )           (15,794 )           (17,489 )
Depreciation allocable to costs of revenue           (6,268 )           (6,656 )           (6,919 )           (6,936 )           (7,572 )
Gross margin           6,501                     7,900                     13,340                     14,177                     13,430          
Depreciation allocable to costs of revenue           6,268                     6,656                     6,919                     6,936                     7,572          
Adjusted Gross Margin $         12,769           $         14,556           $         20,259           $         21,113           $         21,002          

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
  June 30, 2023   September 30, 2023   December 31, 2023   March 31, 2024   June 30, 2024
  (in thousands)
Net income $         504           $         2,171           $         1,702           $         5,098           $         4,250        
Interest expense           185                     1,600                     2,297                     2,935                     2,932        
Income tax expense (benefit)           249                     1,046                     431                     1,479                     1,294        
Depreciation and amortization           6,418                     6,807                     7,160                     7,087                     7,705        
Non-cash stock compensation expense           1,130                     209                     228                     274                     242        
Severance expenses           612                     —                     —                     —                     33        
Impairment expense           779                     —                     —                     —                     —        
Inventory allowance           —                     —                     3,965                     —                     —        
Retirement of rental equipment           —                     —                     505                     5                     —        
Adjusted EBITDA $         9,877           $         11,833           $         16,288           $         16,878           $         16,456        

Conference Call Details: The Company will host a conference call to review second-quarter financial results on Thursday, August 15, 2024 at 8:30 a.m. (EST), 7:30 a.m. (CST). To join the conference call, kindly access the Investor Relations section of our website at www.ngsgi.com or dial in at (800) 550-9745 and enter conference ID 167298 at least five minutes prior to the scheduled start time. Please note that using the provided dial-in number is necessary for participation in the Q&A section of the call. A recording of the conference will be made available on our Company’s website following its conclusion. Thank you for your interest in our Company’s updates.

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 compressors for oil and natural gas production and plant facilities. NGS is headquartered in Midland, Texas, with a fabrication facility located in Tulsa, Oklahoma, a rebuild shop located in Midland, Texas, and service facilities located in major oil and natural gas producing basins in the U.S. Additional information can be found at www.ngsgi.com.

Forward-Looking Statements

Certain statements herein (and oral statements made regarding the subjects of this release) constitute “forward-looking statements” within the meaning of the federal securities laws. Words such as “may,” “might,” “should,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” “predict,” “forecast,” “project,” “plan,” “intend” or similar expressions, or statements regarding intent, belief, or current expectations, are forward-looking statements. These forward-looking statements are based upon current estimates and assumptions.

These forward–looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and factors that could cause actual results to differ materially from such statements, many of which are outside the control of the Company. Forward–looking information includes, but is not limited to statements regarding: guidance or estimates related to EBITDA growth, projected capital expenditures; returns on invested capital, fundamentals of the compression industry and related oil and gas industry, valuations, compressor demand assumptions and overall industry outlook, and the ability of the Company to capitalize on any potential opportunities.

While the Company believes that the assumptions concerning future events are reasonable, investors are cautioned that there are inherent difficulties in predicting certain important factors that could impact the future performance or results of its business. Some of these factors that could cause results to differ materially from those indicated by such forward-looking statements include, but are not limited to: (i) achieving increased utilization of assets, including rental fleet utilization and unlocking other non-cash balance sheet assets; (ii) failure of projected organic growth due to adverse changes in the oil and gas industry, including depressed oil and gas prices, oppressive environmental regulations and competition; (iii) inability to finance capital expenditures; (iv) adverse changes in customer, employee or supplier relationships; (v) adverse regional and national economic and financial market conditions, including in our key operating areas; (vi) impacts of world events, including pandemics; the financial condition of the Company’s customers and failure of significant customers to perform their contractual obligations; (vii) the Company’s ability to economically develop and deploy new technologies and services, including technology to comply with health and environmental laws and regulations; and (viii) failure to achieve accretive financial results in connection with any acquisitions the Company may make.

In addition, these forward-looking statements are subject to other various risks and uncertainties, including without limitation those set forth in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Thus, actual results could be materially different. The Company expressly disclaims any obligation to update or alter statements whether as a result of new information, future events or otherwise, except as required by law.

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)
       
  June 30,
2024
  December 31, 2023
ASSETS      
Current Assets:      
Cash and cash equivalents $         3,616             $         2,746          
Trade accounts receivable, net of allowance for doubtful accounts of $1,110 and $823, respectively           33,001                       39,186          
Inventory, net of allowance for obsolescence of $2,836           20,254                       21,639          
Federal income tax receivable           11,386                       11,538          
Prepaid expenses and other           2,139                       1,162          
Total current assets           70,396                       76,271          
Long-term inventory, net of allowance for obsolescence of $1,168           937                       701          
Rental equipment, net of accumulated depreciation of $204,632 and $191,745, respectively           388,331                       373,649          
Property and equipment, net of accumulated depreciation of $18,273 and $17,649, respectively           19,584                       20,550          
Intangibles, net of accumulated amortization of $2,447 and $2,384, respectively           712                       775          
Other assets           9,205                       6,783          
Total assets $         489,165             $         478,729          
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current Liabilities:      
Accounts payable $         23,336             $         17,628          
Accrued liabilities           6,803                       15,085          
Total current liabilities           30,139                       32,713          
Long-term debt           163,000                       164,000          
Deferred income tax liability           44,290                       41,636          
Other long-term liabilities           6,076                       4,486          
Total liabilities           243,505                       242,835          
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; 13,727 and 13,688 shares issued, respectively           137                       137          
Additional paid-in capital           116,898                       116,480          
Retained earnings           143,629                       134,281          
Treasury shares, at cost, 1,310 shares           (15,004 )             (15,004 )
Total stockholders’ equity           245,660                       235,894          
Total liabilities and stockholders’ equity $         489,165             $         478,729          
NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share)
(unaudited)
       
  Three months ended   Six months ended
  June 30,   June 30,
    2024       2023       2024       2023  
Revenue:              
Rental income $         34,926             $         24,105             $         68,660             $         46,828          
Sales           2,270                       1,595                       4,773                       4,587          
Aftermarket services           1,295                       1,257                       1,965                       2,162          
Total revenue           38,491                       26,957                       75,398                       53,577          
Operating costs and expenses:              
Cost of rentals, exclusive of depreciation stated separately below           14,228                       11,343                       27,342                       22,988          
Cost of sales, exclusive of depreciation stated separately below           2,249                       1,876                       4,429                       5,113          
Cost of aftermarket services, exclusive of depreciation stated separately below           1,012                       969                       1,512                       1,578          
Selling, general and administrative expenses           4,791                       4,860                       9,493                       9,422          
Depreciation and amortization           7,705                       6,418                       14,792                       12,583          
Impairment expense           —                       779                       —                       779          
Retirement of rental equipment           —                       —                       5              
Total operating costs and expenses           29,985                       26,245                       57,573                       52,463          
Operating income           8,506                       712                       17,825                       1,114          
Other income (expense):              
Interest expense           (2,932 )             (185 )             (5,867 )             (185 )
Other income (expense), net           (30 )             226                       163                       341          
Total other income (expense), net           (2,962 )             41                       (5,704 )             156          
Income before provision for income taxes           5,544                       753                       12,121                       1,270          
Income tax benefit (expense)           (1,294 )             (249 )             (2,773 )             (396 )
Net income (loss) $         4,250             $         504             $         9,348             $         874          
Earnings (loss) per share:              
Basic $         0.34             $         0.04             $         0.75             $         0.07          
Diluted $         0.34             $         0.04             $         0.75             $         0.07          
Weighted average shares outstanding:              
Basic           12,384                       12,292                       12,392                       12,253          
Diluted           12,483                       12,394                       12,484                       12,374          
NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
  Six months ended
  June 30,
    2024       2023  
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $         9,348             $         874          
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization           14,792                       12,583          
Amortization of debt issuance costs           315                       184          
Deferred income tax expense           2,654                       396          
Stock-based compensation           516                       1,617          
Provision from credit losses           287                       128          
Impairment expense           —                       779          
Gain on sale of assets           (229 )             (206 )
Retirement of rental equipment           5                       —          
Gain on company owned life insurance           (173 )             (80 )
Changes in operating assets and liabilities:      
Trade accounts receivables           5,898                       (6,332 )
Inventory           1,149                       (4,438 )
Prepaid expenses and prepaid income taxes           (825 )             (301 )
Accounts payable and accrued liabilities           (2,575 )             16,888          
Deferred income           (418 )             (37 )
Other           375                       588          
NET CASH PROVIDED BY OPERATING ACTIVITIES           31,119                       22,643          
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchase of rental equipment, property and other equipment           (28,262 )             (93,479 )
Purchase of company owned life insurance           (17 )             (329 )
Proceeds from sale of property and equipment           355                       231          
Proceeds from sale of deferred compensation mutual fund           43                       —          
NET CASH USED IN INVESTING ACTIVITIES           (27,881 )             (93,577 )
CASH FLOWS FROM FINANCING ACTIVITIES:      
Proceeds from loan           8,000                       75,011          
Repayment of loan           (9,000         )             —          
Payments of other long-term liabilities, net           (385 )             (50 )
Payments of debt issuance cost           (885 )             (2,131 )
Taxes paid related to net share settlement of equity awards           (98 )             (982 )
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES           (2,368 )             71,848          
NET CHANGE IN CASH AND CASH EQUIVALENTS           870                       914          
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD           2,746                       3,372          
CASH AND CASH EQUIVALENTS AT END OF PERIOD $         3,616             $         4,286          
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:      
Interest paid $         10,458             $         1,966          
NON-CASH TRANSACTIONS      
Transfer of rental equipment components to inventory $         —             $         708          
Right of use asset acquired through a finance lease $         1,751             $         63          


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