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 | $ | - | |||
