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

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

Second Quarter 2023 Highlights

• Rental revenue of $24.1 million, an increase of 33% when compared to the second quarter of 2022 and 6% when compared to the first quarter of 2023.
• Net income of $504,000, or $0.04 per basic share, as compared to a net loss of $70,000 in the second quarter of 2022 and net income of $370,000 when compared to the first quarter of 2023.
• Adjusted EBITDA of $9.9 million, compared to $6.7 million in the second quarter of 2022 and $7.8 million in the first quarter of 2023. Please see Non-GAAP Financial Measures - Adjusted EBITDA, below.

MIDLAND, Texas August 15, 2023 (GLOBE NEWSWIRE) Natural Gas Services Group, Inc. (“NGS” or the “Company”) (: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, 2023.

Commenting on the quarter, Stephen C. Taylor our Chairman and Interim President and Chief Executive Officer, added “Total revenue and rental revenue grew when compared to both sequential and year-over-year quarters, Sequentially, our sales revenues declined, but our strategically important rental revenues continued to grow at a brisk pace, reflecting our tenth consecutive quarter of rental revenue growth. Our overall gross margins improved, led by higher rental margins and lower operating expenses and operating income and net income both increased over the comparative quarters. We are starting to see the results of our 2023 capital program in our revenues, margins and bottom lines. The overall environment in our industry continues to be positive and we anticipate further improvement.”

Revenue: Total revenue for the three months ended June 30, 2023 increased 35.3% to $27.0 million from $19.9 million for the three months ended June 30, 2022. This increase was due primarily to an increase in rental revenues. Rental revenue increased 32.9% to $24.1 million in the second quarter of 2023, from $18.1 million in the second quarter of 2022 due to the addition of higher horsepower packages and pricing improvements. As of June 30, 2023, we had 1,249 rented units (372,596 horsepower) compared to 1,281 rented units (311,379 horsepower) as of June 30, 2022, reflecting an 19.7% increase in total horsepower deployed. Sequentially, total revenue increased 1.3% to $27.0 million in the second quarter of 2023 compared to $26.6 million in the first quarter of 2023 primarily due to increases in rental revenues largely offset by a decline in sales revenues.

Gross Margins: Total gross margins, including depreciation increased to $6.5 million for the three months ended June 30, 2023, compared to $3.1 million for the same period in 2022 and $5.1 million for the three months ended March 31, 2023. Total adjusted gross margin, exclusive of depreciation, for the three months ended June 30, 2023, increased to $12.8 million compared to $9.0 million for the same period ended June 30, 2022 and $11.1 million for the first 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 June 30, 2023 was $712,000 compared to $658,000 for the three months ended June 30, 2022 and $402,000 during the first 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 June 30, 2023, was $504,000, or $0.04 per basic share compared to a net loss of $70,000 or $0.01 per basic share for the three months ended June 30, 2022. The increase in net income during the second quarter of 2023 was mainly due to increased rental revenue and gross margin partially offset by an increase in selling, general and administrative expenses. Sequentially, net income was $370,000 or $0.03 per basic share during the first quarter of 2023. This sequential improvement of $0.1 million was primarily due to higher rental revenue and lower operating costs.

Adjusted EBITDA: Adjusted EBITDA increased 47.4% to $9.9 million for the three months ended June 30, 2023, from $6.7 million for the same period in 2022. This increase was primarily attributable to higher revenues and adjusted gross margins. Sequentially, adjusted EBITDA increased 27.0% to $9.9 million for the three months ended June 30, 2023, compared to adjusted EBITDA of $7.8 million for the three months ended March 31, 2023.

Cash flows: At June 30, 2023, cash and cash equivalents were approximately $4.3 million, while working capital was $18.9 million. For the six months of 2023, cash flows from operating activities were $22.6 million, while cash flows used in investing activities was $93.6 million. Cash flow used in investing activities included $93.5 million in capital expenditures, of which $92.3 million was dedicated to rental capital expenditures.

Debt: Outstanding debt on our revolving credit facility as of June 30, 2023 was $100 million. Our leverage ratio at June 30, 2023 was 2.53 and our fixed charge coverage ratio was 4.17. The company is in compliance with all terms, conditions and covenants of the credit agreement.

Selected data: The tables below show, the six months ended June 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.

(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:

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 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 income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:

Conference Call Details: The Company will host its earnings conference call on Tuesday, August 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