NATURAL GAS SERVICES GROUP ANNOUNCES SECOND QUARTER 2022 RESULTS

Midland, Texas, UNITED STATES


FOR IMMEDIATE RELEASE          NEWS
August 15, 2022NYSE: NGS
  

Natural Gas Services Group, Inc.
Reports Second Quarter 2022 Financial and Operating Results

Second Quarter 2022 Highlights

  • Rental revenue of $18.1 million, an increase of 16% when compared to the second quarter of 2021 and 6% when compared to the first quarter of 2022.
  • Net loss of $70,000 ($0.01 loss per basic and diluted share) an increase of $1,848,000 when compared to the second quarter of 2021 while a decrease in income of $407,000 when compared to the first quarter of 2022.
  • Adjusted EBITDA of $6.7 million an increase of 49% when compared to the second quarter of 2021 and a 2% decrease when compared to the first quarter of 2022. Please see Non-GAAP Financial Measures - Adjusted EBITDA, below.

Midland, Texas, Aug. 15, 2022 (GLOBE NEWSWIRE) -- Natural Gas Services Group, Inc. (“NGS” or the “Company”) (NYSE:NGS), a leading provider of natural gas compression equipment and services to the energy industry, today announced financial results for the three and six months ended June 30, 2022.

"Our rental revenue continued to accelerate in the second quarter, the sixth consecutive quarter of steady growth in our core business, with large horsepower installations continuing to lead the way,” said John Chisholm, interim President and Chief Executive Officer. “We continue to see strong demand for compression from the wellhead to the pipeline, a trend we expect to continue for the foreseeable future. Our mission as we look through the balance of the year and into 2023 is to remain a leader in compression technology with our current customers, penetrate new markets, and improve our margins through a combination of rational pricing and improved operating efficiencies.”

“Like every other energy services concern – as well as the broader economy – we continued to battle inflationary and supply chain challenges in the second quarter which had an impact on our operating costs and margins,” continued Chisholm. “However, we are working with our supplier and service partners and have made meaningful progress in stabilizing costs and ensuring more predictable key component availability. We will remain vigilant in our efforts to combat costs and similarly steadfast in our pursuit of optimal rental and service pricing given the current energy market environment.”

“While energy producers continue to exhibit restraint in capital commitments for purchase of compression equipment, the rental market continues to gain momentum,” Chisholm concluded. “We continue to see strong demand for new and repurposed compression equipment, including a growing interest in electric equipment. As a result, we are now likely to spend between $40-$50 million in capital this year, the vast majority backed by strong contracts and including our recently announced electric conversion program.”

Revenue: Total revenue for the three months ended June 30, 2022 increased to $19.9 million from $17.7 million for the three months ended June 30, 2021. This increase was due to an increase in rental revenues partially offset by a slight decrease in sales and service and maintenance revenues. Rental revenue increased 16.2% to $18.1 million in the second quarter of 2022 from $15.6 million in the second quarter of 2021 due to the increased deployment of rental units, primarily higher horsepower packages. As of June 30, 2022 we had 1,281 rented units (311,379 horsepower) compared to 1,245 rented units (287,365 horsepower) as of June 30, 2021. Sequentially, total revenue decreased 2.0% to $19.9 million in the second quarter of 2022 compared to $20.3 million in the first quarter of 2022 primarily due to a $1.6 million decrease in sales revenues partially offset by a $1.0 million increase in rental revenues during the three months ended June 30, 2022.

Gross Margins: Total gross margins increased to $3.1 million for the three months ended June 30, 2022 compared to $0.5 million for the same period in 2021. Total adjusted gross margin, exclusive of depreciation, for the three months ended June 30, 2022, increased to $9.0 million from $6.6 million for the same period ended June 30, 2021. This increase was primarily attributable to increased rental revenues and associated gross margins during the current quarter. Sequentially, total gross margin increased to $3.1 million for the three months ended June 30, 2022 compared to $3.0 million for the three months ended March 31, 2022. Excluding depreciation, total adjusted gross margin increased to $9.0 million during the second quarter of 2022 compared to $8.9 million during the first quarter of 2022. This sequential increase was primarily due to sales revenues and associated margins as well as slightly improved rental margins related to increased rental revenues. Please see discussions of Non-GAAP Financial Measures - Adjusted Gross Margin, below.

Operating Income (Loss): Operating income for the three months ended June 30, 2022 was $0.7 million compared to an operating loss of $2.3 million for the three months ended June 30, 2021. Operating income increased due to higher rental margins. Similarly, operating income increased due to greater revenue and rental margins in the second quarter of 2022 to $0.7 million from $0.4 million during the first quarter of 2022.

Net Income (Loss): Net loss for the three months ended June 30, 2022 was $(70,000) ($(0.01) per basic and diluted shares) compared to net loss of $(1,918,000) ($(0.14) per basic and diluted shares) for the three months ended June 30, 2021. The decrease in net loss during the second quarter of 2022 was mainly due to increased rental margins partially offset by a marginal decrease in sales margins. Sequentially, net loss during the second quarter of 2022 of $(70,000) ($(0.01) per basic and diluted shares) compares to net income of $0.3 million ($0.03 per basic and diluted shares) during the first quarter of 2022. This sequential decline was primarily due to a $0.4 million reduction in income tax benefit.

Adjusted EBITDA: Adjusted EBITDA increased to $6.7 million for the three months ended June 30, 2022 from $4.5 million for the same period in 2021. This increase was primarily attributable to higher rental margins. Sequentially, adjusted EBITDA decreased marginally to $6.7 million for the three months ended June 30, 2022 from $6.8 million in the previous quarter. This decrease was primarily attributable to lower sales margins.

Cash flows: At June 30, 2022, cash and cash equivalents were approximately $9.8 million, while working capital was $32.1 million with no outstanding debt. For the six months of 2022, cash flows from operating activities was $13.2 million, while cash flows used in investing activities was $19.2 million. Cash flows used in investing activities included $19.2 million in capital expenditures, of which $18.8 million was dedicated to rental capital expenditures. In addition, the Company used $6.7 million in cash to repurchase 534,505 shares of common stock on the open market.

Selected data: The tables below show, for the three and six months ended June 30, 2022 and 2021, 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 June 30,  Six months ended June 30,
  2022   2021   2022   2021 
 (in thousands)
Rental$18,144 91% $15,613 88% $35,274 88% $30,954 85%
Sales 1,292 7%  1,573 9%  4,184 10%  4,284 12%
Service & Maintenance 490 2%  563 3%  804 2%  908 3%
Total$19,926   $17,749   $40,262   $36,146  


 Gross Margin
 Three months ended June 30,  Six months ended June 30,
  2022   2021   2022   2021 
 (in thousands)
Rental$3,078  17% $450  3% $5,142 15% $2,572  8%
Sales (216) (17)%  (275) (17)%  619 15%  (251) (6)%
Service & Maintenance 246  50%  298  53%  380 47%  586  65%
Total$3,108  16% $473  3% $6,141 15% $2,907  8%


 Adjusted Gross Margin (1)
 Three months ended June 30,  Six months ended June 30,
  2022   2021   2022   2021 
 (in thousands)
Rental$        8,902                  49        % $        6,531                  42        % $        16,802                 48        % $        14,715                  48        %
Sales         (148)         (11)        %          (204)         (13)        %          756                 18        %          (108)         (3)        %
Service & Maintenance         256                  52        %          313                  56        %          397                 49        %          610                  67        %
Total$        9,010                  45        % $        6,640                  37        % $        17,955                 45        % $        15,217                  42        %

(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 June 30,  Six months ended June 30,
  2022   2021   2022   2021 
 (in thousands) (in thousands)
Total revenue 19,926  $17,749  $40,262   36,146 
Costs of revenue, exclusive of depreciation (10,916)  (11,109)  (22,307)  (20,929)
Depreciation allocable to costs of revenue (5,902)  (6,167)  (11,814)  (12,310)
Gross margin 3,108   473   6,141   2,907 
Depreciation allocable to costs of revenue 5,902   6,167   11,814   12,310 
Adjusted Gross Margin$9,010  $6,640  $17,955  $15,217 

Non-GAAP Financial Measures - Adjusted EBITDA: “Adjusted EBITDA” reflects net income or loss before interest, taxes, depreciation and amortization, non-cash stock compensation expense, impairment of goodwill, 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 (loss) income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:

 Three months ended June 30,  Six months ended June 30,
  2022   2021   2022  2021 
 (in thousands) (in thousands)
Net (loss) income$(70) $(1,918) $267 $(2,313)
Interest expense 24   14   49  16 
Income tax benefit 372   (339)  361  (213)
Depreciation and amortization 6,042   6,326   12,103  12,623 
Non-cash stock compensation expense 331   421   754  895 
Adjusted EBITDA$6,699  $4,504  $13,534 $11,008 

Concluding Comments: “The opportunities in our core business continue to grow in 2022 and, we believe, into 2023,” said Chisholm. “Existing clients are exhibiting strong demand for new equipment and inquiries from prospective clients continue to increase. We believe pricing should continue to firm. Our biggest challenge – a challenge faced by many of our compression and energy service brethren – is to match supply of equipment with demand for equipment. Those challenges create significant opportunities with good line of sight into future business for our Company.”

“My first two-plus months in the role as your interim President and CEO has been productive, at times challenging, and very rewarding,” concluded Chisholm. “As I noted last quarter, Steve Taylor, our now Chairman, left your Company in an exceptional position. My mission is simple: to build on that solid foundation, do my best to continue to enhance the operating culture of the enterprise and lead an effort to seize the opportunities presented by a robust energy market. We are excited about the opportunities ahead of us in the balance of this year and next. Our goal remains to evaluate opportunities to grow NGS in ways that will enhance value for you, our shareholders.”

Conference Call Details: The Company will host its earnings conference call on Tuesday, August 16, 2022, at 8:30AM EDT (7:30am CDT). To participate in the call, participants should access the webcast on www.ngsgi.com under the Investor Relations section. To connect telephonically, call (800) 550-9745 approximately five minutes prior to the start of the call using passcode 522022. 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 gas compression 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: the potential impacts of the COVID-19 pandemic on the Company’s business; 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 June 30, 2022, as filed with the Securities and Exchange Commission.

For More Information, Contact: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,
2022
 December 31,
2021
ASSETS   
Current Assets:   
Cash and cash equivalents$9,828  $22,942 
Trade accounts receivable, net of allowance for doubtful accounts of $380 and $1,129, respectively 11,861   10,389 
Inventory 18,478   19,329 
Federal income tax receivable (Note 4) 11,538   11,538 
Prepaid income taxes 41   51 
Prepaid expenses and other 1,612   854 
Total current assets 53,358   65,103 
Long-term inventory, net of allowance for obsolescence of $37 and $64, respectively 1,630   1,582 
Rental equipment, net of accumulated depreciation of $183,414 and $172,563, respectively 214,702   206,985 
Property and equipment, net of accumulated depreciation of $16,667 and $15,784, respectively 20,170   20,828 
Right of use assets - operating leases, net of accumulated amortization of $641 and $555, respectively 290   285 
Intangibles, net of accumulated amortization of $2,196 and $2,134, respectively 963   1,025 
Other assets 2,365   2,698 
Total assets$293,478  $298,506 
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current Liabilities:   
Accounts payable$5,238  $4,795 
Accrued liabilities 15,958   14,103 
Current operating leases 88   68 
Deferred income    1,312 
Total current liabilities 21,284   20,278 
Line of credit     
Deferred income tax liability 39,644   39,288 
Long-term operating leases 202   217 
Other long-term liabilities 2,592   2,813 
Total liabilities 63,722   62,596 
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; 13,499 and 13,394 shares issued, respectively 135   134 
Additional paid-in capital 114,255   114,017 
Retained earnings 130,370   130,103 
Treasury Shares, at cost, 1,310 and 775 shares, respectively (15,004)  (8,344)
Total stockholders' equity 229,756   235,910 
Total liabilities and stockholders' equity$293,478  $298,506 


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,
  2022   2021   2022   2021 
Revenue:       
Rental income$18,144  $15,613  $35,274  $30,954 
Sales 1,292   1,573   4,184   4,284 
Service and maintenance income 490   563   804   908 
Total revenue 19,926   17,749   40,262   36,146 
Operating costs and expenses:       
Cost of rentals, exclusive of depreciation stated separately below 9,242   9,082   18,472   16,239 
Cost of sales, exclusive of depreciation stated separately below 1,440   1,777   3,428   4,392 
Cost of service and maintenance, exclusive of depreciation stated separately below 234   250   407   298 
Selling, general and administrative expenses 2,310   2,607   4,811   5,255 
Depreciation and amortization 6,042   6,326   12,103   12,623 
Total operating costs and expenses 19,268   20,042   39,221   38,807 
Operating income (loss) 658   (2,293)  1,041   (2,661)
Other income (expense):       
Interest expense (24)  (14)  (49)  (16)
Other income (expense), net (332)  50   (364)  151 
Total other income (expense), net (356)  36   (413)  135 
Income (loss) before provision for income taxes 302   (2,257)  628   (2,526)
Income tax benefit (372)  339   (361)  213 
Net loss$(70) $(1,918) $267  $(2,313)
Loss per share:       
Basic$(0.01) $(0.14) $0.02  $(0.17)
Diluted$(0.01) $(0.14) $0.02  $(0.17)
Weighted average shares outstanding:       
Basic 12,305   13,305   12,421   13,284 
Diluted 12,305   13,305   12,528   13,284 


NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Six months ended
 June 30,
  2022   2021 
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income (loss)$267  $(2,313)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
Depreciation and amortization 12,103   12,623 
Amortization of debt issuance costs 24   7 
Deferred income tax (benefit) expense 356   (224)
Stock-based compensation 754   895 
Bad debt allowance    65 
Gain on sale of assets (151)   
Loss (gain) on company owned life insurance 557   (188)
Changes in operating assets and liabilities:   
Trade accounts receivables (1,472)  (410)
Inventory 803   (1,543)
Prepaid expenses and prepaid income taxes (748)  (369)
Accounts payable and accrued liabilities 2,298   4,281 
Deferred income (1,312)  (410)
Other (231)  338 
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,248   12,752 
CASH FLOWS FROM INVESTING ACTIVITIES:   
Purchase of rental equipment, property and other equipment (19,173)  (12,567)
Purchase of company owned life insurance (236)  (55)
Proceeds from sale of property and equipment 224    
NET CASH USED IN INVESTING ACTIVITIES (19,185)  (12,622)
CASH FLOWS FROM FINANCING ACTIVITIES:   
Payments of other long-term liabilities, net (2)  (1)
Repayments of long-term debt    (237)
Repayments of line of credit    (417)
Purchase of treasury shares (6,660)  (1,892)
Taxes paid related to net share settlement of equity awards (515)  (335)
NET CASH USED IN FINANCING ACTIVITIES (7,177)  (2,882)
NET CHANGE IN CASH AND CASH EQUIVALENTS (13,114)  (2,752)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 22,942   28,925 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$9,828  $26,173 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:   
Interest paid$25  $9 
NON-CASH TRANSACTIONS   
Right of use asset acquired through an operating lease$91  $ 

NATURAL GAS SERVICES GROUP ANNOUNCES EARNINGS SCHEDULE FOR SECOND QUARTER 2022 RESULTS

Natural Gas Services Group, Inc. (NYSE: NGS) today announced the Company’s schedule for releasing its second quarter 2022 results for the three months ended June 30, 2022.

In a press release to be issued after market close on Monday, August 15, 2022, the Company will release its second quarter 2022 financial and operating results for the three months ended June 30, 2022.

The Company will host its earnings conference call on Tuesday, August 16, 2022, at 8:30AM EDT (7:30am CDT). To participate in the call, participants should access the webcast on www.ngsgi.com under the Investor Relations section. To connect telephonically, call (800) 550-9745 approximately five minutes prior to the start of the call using passcode 522022. 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 is a leading provider of gas compression 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.

Natural Gas Services Group, Inc.
Investor Relations
432-262-2700
ir@ngsgi.com

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