Midland, Texas, Nov. 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 September 30, 2024. The Company also updated its prior guidance for the full year, increasing its outlook for Adjusted EBITDA, along with providing a preliminary view of expected level of FY 2025 growth capital expenditures.
Third Quarter 2024 Highlights
Rental revenue of $37.4 million, an increase of 35% when compared to the third quarter of 2023 and 7% sequentially.Net income of $5.0 million, or $0.40 per basic share, as compared to $2.2 million, or $0.18 per basic share in the comparable year-ago period and $4.2 million, or $0.34 per basic share for the quarter ended June 30, 2024.Adjusted EBITDA of $18.2 million, compared to $11.8 million in the third quarter of 2023 and $16.5 million in the second quarter of 2024. Please see Non-GAAP Financial Measures – Adjusted EBITDA, below.Cash flow generated from operating activities of $25.9 million for the third quarter of 2024 and $57.0 million for the nine months ended September 30, 2024Leverage ratio at September 30, 2024 of 2.25.Rented horsepower at quarter end of 475,534, a 19% increase over prior year and 5% sequentially.Horsepower utilization of 82.0%, up 330 basis points from September 30, 2023.
Management Commentary and Outlook
“We delivered another quarter of significant top and bottom-line growth, as well as a material increase in net cash provided by operating activities, as we further grow and optimize our business,” said Justin Jacobs, Chief Executive Officer. “Compression demand, particularly in the Permian Basin, remains robust. We continue to capitalize on our favorable 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 continue to evaluate new growth capital expenditure opportunities, which will help us further diversify our customer mix and generate strong returns in the years ahead. The pricing environment remains favorable and we feel that we have opportunities to continue our recent growth in horsepower at returns 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 and 2025 Outlook
The Company today provided updated guidance for the 2024 Fiscal Year ending December 31, 2024. Based on its performance through three quarters and outlook for the remainder of the year, the Company now expects Adjusted EBITDA to be in the range of $67 million to $69 million, an increase from its previously announced outlook of $64 million to $68 million. Note the Company entered Fiscal Year 2024 anticipating Adjusted EBITDA to be in the range of $58 million to $65 million.
Further, the Company now anticipates 2024 growth capital expenditures to be in the range of $65 million to $75 million, an update from its previously announced guidance of approximately $60 million to $80 million. The range of the FY 2024 guidance has tightened from the previous guidance as a result of a better view on the timing of the growth capital expenditures over the next five quarters. The range of expected growth capital expenditures for FY 2025 is $90 million to $110 million. To reiterate, all of the new units in construction are already under long-term contracts with customers. Maintenance capital expenditures for 2024 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%.
OutlookFY 2024 Adjusted EBITDA$67 million – $69 millionFY 2024 Growth Capital Expenditures$65 million – $75 millionFY 2024 Maintenance Capital Expenditures$8 million – $11 millionFY 2025 Growth Capital Expenditures$90 million – $110 millionTarget Return on Invested CapitalAt 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), new rental units (both electric motor and natural gas engine), and accretive mergers and acquisitions. Given our strong balance sheet, low relative leverage, and meaningful borrowing capacity, we are well positioned to continue to take advantage of the opportunities to continue significant growth beyond 2024.”
2024 Third Quarter Financial Results
Revenue: Total revenue for the three months ended September 30, 2024, increased 29.7% to $40.7 million from $31.4 million for the three months ended September 30, 2023. This increase was due primarily to an increase in rental revenues. Rental revenue increased 34.8% to $37.4 million in the third quarter of 2024 from $27.7 million in the third quarter of 2023 due to the addition of higher horsepower packages and pricing improvements. As of September 30, 2024, we had 1,229 rented units (475,534 horsepower) compared to 1,233 rented units (400,727 horsepower) as of September 30, 2023, reflecting a 18.7% increase in total utilized horsepower. Sequentially, total revenue increased to $40.7 million in the third quarter of 2024 compared to $38.5 million in the second quarter of 2024 due to a 6.9% increase in rental revenues and a 15.3% 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 $14.9 million for the three months ended September 30, 2024, compared to $7.9 million for the same period in 2023 and $13.4 million for the three months ended June 30, 2024. Total adjusted gross margin, exclusive of depreciation expense, for the three months ended September 30, 2024, increased to $22.9 million compared to $14.6 million for the three months ended September 30, 2023, and $21.0 million for the second 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 September 30, 2024, was $9.5 million compared to operating income of $4.9 million for the three months ended September 30, 2023, and operating income of $8.5 million, during the second quarter of 2024.
Net Income: Net income for the three months ended September 30, 2024, was $5.0 million, or $0.40 per basic share compared to net income of $2.2 million or $0.18 per basic share for the three months ended September 30, 2023, and $4.2 million or $0.34 per basic share for the second quarter of 2024. The increase in net income during the third quarter of 2024 was mainly due to increased rental revenue and rental gross margin. Sequentially, the net income increase of $0.8 million was primarily due to higher rental gross margin partially offset by increased SG&A costs during the third quarter of 2024.
Adjusted EBITDA: Adjusted EBITDA increased 53.7% to $18.2 million for the three months ended September 30, 2024, from $11.8 million for the same period in 2023. This increase was primarily attributable to higher rental revenue and rental adjusted gross margin. Sequentially, adjusted EBITDA increased 10.5% to $18.2 million for the three months ended September 30, 2024, compared to adjusted EBITDA of $16.5 million for the three months ended June 30, 2024.
Cash Flows: At September 30, 2024, cash and cash equivalents were approximately $0.4 million, while working capital was $25.5 million. For the nine months of 2024, cash flows provided by operating activities were $57.0 million, while cash flows used in investing activities was $56.7 million. Cash flow used in investing activities included $57.4 million in capital expenditures.
Debt: Outstanding debt on our revolving credit facility as of September 30, 2024, was $163 million. Our leverage ratio at September 30, 2024, was 2.25 and our fixed charge coverage ratio was 2.71. The Company is in compliance with all terms, conditions and covenants of the credit agreement.
Selected data: The tables below show revenue by product line, gross margin and adjusted gross margin for the trailing five quarters. Adjusted gross margin is the difference between revenue and cost of sales, exclusive of depreciation.
Revenues Three months ended September 30, 2023December 31, 2023March 31, 2024June 30, 2024September 30, 2024 ($ in 000) ($ in 000) ($ in 000) ($ in 000) ($ in 000) Rentals$ 27,705 $ 31,626 $ 33,734 $ 34,926 $ 37,350 Sales 1,413 2,921 2,503 2,270 1,843 Aftermarket services 2,251 1,674 670 1,295 1,493 Total$ 31,369 $ 36,221 $ 36,907 $ 38,491 $ 40,686
Gross Margin Three months ended September 30, 2023December 31, 2023March 31, 2024June 30, 2024September 30, 2024 ($ in 000) ($ in 000) ($ in 000) ($ in 000) ($ in 000) Rentals$ 7,683 12,366 13,761 13,211 $ 15,043 Sales (156) 553 253 (50) (258) Aftermarket services 373 421 163 269 151 Total$ 7,900 $ 13,340 $ 14,177 $ 13,430 $ 14,936
Adjusted Gross Margin (1) Three months ended September 30, 2023December 31, 2023March 31, 2024June 30, 2024September 30, 2024 ($ in 000) ($ in 000) ($ in 000) ($ in 000) ($ in 000) Rentals 14,243 19,199 20,620 20,698 22,908 Sales (92) 620 323 21 (185) Aftermarket services 405 440 170 283 169 Total$ 14,556 $ 20,259 $ 21,113 $ 21,002 $ 22,892
Adjusted Gross Margin % Three months ended September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024 September 30, 2024 % margin % margin % margin % margin % marginRentals 51.4 % 60.7 % 61.1 % 59.3 % 61.3 %Sales (6.5) % 21.2 % 12.9 % 0.9 % (10.0) %Aftermarket services 18.0 % 26.3 % 25.4 % 21.9 % 11.3 %Total 46.4 % 55.9 % 57.2 % 54.6 % 56.3 %
Compression Units (at end of period): Three months ended September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024 September 30, 2024Horsepower Utilized400,727 420,432 444,220 454,568 475,534 Total Horsepower509,198 520,365 542,256 552,599 579,699 Horsepower Utilization 78.7 % 80.8 % 81.9 % 82.3 % 82.0 % Units Utilized1,233 1,247 1,245 1,242 1,229 Total Units1,947 1,876 1,894 1,899 1,909 Unit Utilization 63.3 % 66.5 % 65.7 % 65.4 % 64.4 %
(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 September 30, 2023December 31, 2023March 31, 2024June 30, 2024September 30, 2024 (in thousands)Total revenue$ 31,369 $ 36,221 $ 36,907 $ 38,491 $ 40,686 Costs of revenue, exclusive of depreciation (16,813) (15,962) (15,794) (17,489) (17,794)Depreciation allocable to costs of revenue (6,656) (6,919) (6,936) (7,572) (7,956)Gross margin 7,900 13,340 14,177 13,430 14,936 Depreciation allocable to costs of revenue 6,656 6,919 6,936 7,572 7,956 Adjusted Gross Margin$ 14,556 $ 20,259 $ 21,113 $ 21,002 $ 22,892
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, 2023 December 31, 2023 March 31, 2024 June 30, 2024 September 30, 2024 (in thousands)Net income$ 2,171 1,702 $ 5,098 $ 4,250 $ 5,014 Interest expense 1,600 2,297 2,935 2,932 3,045 Income tax expense (benefit) 1,046 431 1,479 1,294 1,383 Depreciation and amortization 6,807 7,160 7,087 7,705 8,086 Non-cash stock compensation expense 209 228 274 242 522 Severance expenses — — — 33 — Impairment — — — — 136 Inventory allowance — 3,965 — — — Retirement of rental equipment — 505 5 — — Adjusted EBITDA$ 11,833 $ 16,288 $ 16,878 $ 16,456 $ 18,186
Conference Call Details: The Company will host a conference call to review second-quarter financial results on Friday, November 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) September 30,
2024 December 31, 2023ASSETS Current Assets: Cash and cash equivalents$ 410 $ 2,746 Trade accounts receivable, net of allowance for credit losses of $1,248 and $823, respectively 24,809 39,186 Inventory, net of allowance for obsolescence of $2,836 for each of the dates presented, respectively 20,175 21,639 Federal income tax receivable 11,382 11,538 Prepaid expenses and other 2,207 1,162 Total current assets 58,983 76,271 Long-term inventory, net of allowance for obsolescence of $1,168 for each of the dates presented, respectively 1,043 701 Rental equipment, net of accumulated depreciation of $211,841 and $191,745, respectively 407,761 373,649 Property and equipment, net of accumulated depreciation of $18,609 and $17,649, respectively 21,538 20,550 Intangibles, net of accumulated amortization of $2,478 and $2,384, respectively 681 775 Other assets 8,063 6,783 Total assets$ 498,069 $ 478,729 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable$ 26,473 $ 17,628 Accrued liabilities 7,041 15,085 Total current liabilities 33,514 32,713 Long-term debt 163,000 164,000 Deferred income tax liability 45,691 41,636 Other long-term liabilities 4,678 4,486 Total liabilities 246,883 242,835 Commitments and contingencies Stockholders’ Equity: Preferred stock, 5,000 shares authorized, no shares issued or outstanding — — Common stock, 30,000 shares authorized, par value $0.01; 13,741 and 13,688 shares issued, respectively 137 137 Additional paid-in capital 117,410 116,480 Retained earnings 148,643 134,281 Treasury shares, at cost, 1,310 shares for each of the dates presented, respectively (15,004) (15,004)Total stockholders’ equity 251,186 235,894 Total liabilities and stockholders’ equity$ 498,069 $ 478,729
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, 2024 2023 2024 2023 Revenue: Rental$ 37,350 $ 27,705 $ 106,010 $ 74,533 Sales 1,843 1,413 6,616 6,000 Aftermarket services 1,493 2,251 3,458 4,413 Total revenue 40,686 31,369 116,084 84,946 Operating costs and expenses: Cost of rentals, exclusive of depreciation stated separately below 14,442 13,462 41,784 36,450 Cost of sales, exclusive of depreciation stated separately below 2,028 1,505 6,457 6,618 Cost of aftermarket services, exclusive of depreciation stated separately below 1,324 1,846 2,836 3,424 Selling, general and administrative expenses 5,213 2,845 14,706 12,267 Depreciation and amortization 8,086 6,807 22,878 19,390 Impairments 136 — 136 779 Retirement of rental equipment — — 5 — Total operating costs and expenses 31,229 26,465 88,802 78,928 Operating income 9,457 4,904 27,282 6,018 Other income (expense): Interest expense (3,045) (1,600) (8,912) (1,785)Other income (expense), net (15) (87) 148 254 Total other expense (3,060) (1,687) (8,764) (1,531)Income before provision for income taxes 6,397 3,217 18,518 4,487 Income tax expense (1,383) (1,046) (4,156) (1,442)Net income$ 5,014 $ 2,171 $ 14,362 $ 3,045 Earnings per share: Basic$ 0.40 $ 0.18 $ 1.16 $ 0.25 Diluted$ 0.40 $ 0.18 $ 1.15 $ 0.25 Weighted average shares outstanding: Basic 12,427 12,378 12,404 12,295 Diluted 12,526 12,403 12,511 12,372
NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited) Nine months ended September 30, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income$ 14,362 $ 3,045 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 22,878 19,390 Amortization of debt issuance costs 530 287 Deferred income tax expense 4,055 1,408 Stock-based compensation 1,038 1,826 Provision for credit losses 433 199 Impairments 136 779 Gain on sale of assets (475) (281)Retirement of rental equipment 5 — Gain on company owned life insurance (152) 49 Changes in operating assets and liabilities: Trade accounts receivables 13,944 (13,572)Inventory 1,122 (2,608)Prepaid expenses and prepaid income taxes (1,025) (281)Accounts payable and accrued liabilities 1,271 14,951 Deferred income (418) (37)Other (667) 543 NET CASH PROVIDED BY OPERATING ACTIVITIES 57,037 25,698 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of rental equipment, property and other equipment (57,350) (128,563)Purchase of company owned life insurance (13) (378)Proceeds from sale of property and equipment 504 231 Proceeds from sale of deferred compensation mutual fund 178 — NET CASH USED IN INVESTING ACTIVITIES (56,681) (128,710)CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from credit facility borrowings 8,000 103,000 Repayment of credit facility borrowings (9,000 ) — Payments of other long-term liabilities, net (622) (50)Payments of debt issuance cost (962) (2,131)Proceeds from exercise of stock options 70 — Taxes paid related to net share settlement of equity awards (178) (982)NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (2,692) 99,837 NET CHANGE IN CASH AND CASH EQUIVALENTS (2,336) (3,175)CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,746 3,372 CASH AND CASH EQUIVALENTS AT END OF PERIOD$ 410 $ 197 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid$ 14,445 $ 4,347 NON-CASH TRANSACTIONS Transfer of rental equipment components to inventory$ — $ 708 Right of use assets acquired through a finance lease$ 2,174 $ 63 Right of use asset acquired through an operating lease$ 520 $ —
CONTACT: Investor Relations
IR@ngsgi.com
432-262-2700