Natural Gas Services Group, Inc. Reports Third Quarter 2022 Financial and Operating Results
Natural Gas Services Group, Inc. (NGS) announced the resignation of Interim CEO John W. Chisholm, effective November 11, 2022, with Stephen C. Taylor appointed as his successor. In Q3 2022, NGS reported rental revenue of $18.6 million, a 15% increase year-over-year, contributing to total revenue of $20.7 million. The company recorded a net loss of $80,000, improving from a $1.3 million loss in Q3 2021. Adjusted EBITDA surged by 44% to $7.7 million. NGS noted inflationary pressures impacting operating expenses but emphasized continued demand for large horsepower compression.
- Q3 rental revenue rose 15% YoY to $18.6 million.
- Total revenue increased to $20.7 million, a 4.1% sequential rise.
- Adjusted EBITDA grew 44% YoY to $7.7 million.
- Seventh consecutive quarter of rental revenue growth.
- Strong demand for large horsepower installations, increasing rental margins.
- Net loss of $80,000 increased $10,000 from Q2 2022.
- Operating loss of $1.5 million, an increase from Q2 2022.
- Increased operating expenses due to inflation.
Announces Interim CEO Resignation
Third Quarter 2022 Highlights
- Rental revenue of
$18.6 million , an increase of15% when compared to the third quarter of 2021 and3% when compared to the second quarter of 2022. - Net loss of
$80,000 ($0.01 per basic share) an increase of$1,177,000 when compared to the third quarter of 2021 and an increase in loss of$10,000 when compared to the second quarter of 2022. - Adjusted EBITDA of
$7.7 million an increase of44% when compared to the third quarter of 2021 and a15% increase when compared to the second quarter of 2022. Please see Non-GAAP Financial Measures - Adjusted EBITDA, below.
MIDLAND, Texas, Nov. 14, 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, announced John W. Chisholm tendered his resignation as our Interim Chief Executive Officer and President effective November 11, 2022. In connection therewith, the Board of Directors of the Company appointed Stephen C. Taylor as our Interim Chief Executive Officer and President as of November 11, 2022. In addition, the Company announced financial results for the three and nine months ended September 30, 2022.
“I want to begin by thanking John Chisholm for his stewardship of the Company during his time as our Interim CEO and President,” said Steve Taylor, Interim President and Chief Executive Officer. “We wish him the best of luck in his future endeavors. While I am stepping back in as Interim President and CEO, the Nominating Committee of the Board is actively engaged in a search for a qualified, permanent CEO. I have remained engaged with John involving strategy and am confident there will be no gaps in execution. Turning to our quarterly results, we are pleased to report our seventh consecutive quarter of rental revenue growth and third consecutive quarter of EBITDA growth, with large horsepower installations continuing to lead the way. While our operating expenses have been impacted by inflationary pressures, we focused much of our attention in the third quarter reviewing our fleet and the associated rates in light of these increased costs. We have always worked with our customers as partners and have negotiated increased rates across the business that will improve our margins, beginning in the fourth quarter and into the first quarter of 2023.”
“Much like our peers, we continue to see strong demand for new large horsepower compression,” concluded Taylor. “We have worked diligently with our customers and vendors to understand our customers needs and secure vendor capacity to provide us with the opportunity to add meaningful large horsepower in 2023 at attractive long-term contractual rates, much of which is focused on electric large horsepower additions. We are very encouraged that, while high horsepower makes up approximately just
Revenue: Total revenue for the three months ended September 30, 2022 increased to
Gross Margins: Total gross margins increased to
Operating Income (Loss): Operating loss for the three months ended September 30, 2022 was
Net Income (Loss): Net loss for the three months ended September 30, 2022 was
Adjusted EBITDA: Adjusted EBITDA increased to
Cash flows: At September 30, 2022, cash and cash equivalents were approximately
Selected data: The tables below show, for the three and nine months ended September 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 endedSeptember 30, | Nine months ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Rental | $ | 18,631 | 90 | % | $ | 16,195 | 89 | % | $ | 53,905 | 88 | % | $ | 47,149 | 87 | % | |||||||
Sales | 1,786 | 9 | % | 1,472 | 8 | % | 5,970 | 10 | % | 5,756 | 10 | % | |||||||||||
Service & Maintenance | 326 | 1 | % | 578 | 3 | % | 1,129 | 2 | % | 1,486 | 3 | % | |||||||||||
Total | $ | 20,743 | $ | 18,245 | $ | 61,004 | $ | 54,391 |
Gross Margin | |||||||||||||||||||||||||
Three months endedSeptember 30, | Nine months ended September 30, | ||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||
Rental | $ | 2,843 | 15 | % | $ | 1,231 | 8 | % | $ | 7,986 | 15 | % | $ | 3,804 | 8 | % | |||||||||
Sales | (272 | ) | (15 | )% | (160 | ) | (11 | )% | 346 | 6 | % | (411 | ) | (7 | )% | ||||||||||
Service & Maintenance | 133 | 41 | % | 236 | 41 | % | 511 | 45 | % | 822 | 55 | % | |||||||||||||
Total | $ | 2,704 | 13 | % | $ | 1,307 | 7 | % | $ | 8,843 | 14 | % | $ | 4,215 | 8 | % |
Adjusted Gross Margin (1) | ||||||||||||||||||||||||||
Three months endedSeptember 30, | Nine months ended September 30, | |||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||
Rental | $ | 8,643 | 46 | % | $ | 7,369 | 46 | % | $ | 25,445 | 47 | % | $ | 22,084 | 47 | % | ||||||||||
Sales | (201 | ) | (11 | )% | (91 | ) | (6 | )% | 554 | 9 | % | (199 | ) | (3 | )% | |||||||||||
Service & Maintenance | 140 | 43 | % | 251 | 43 | % | 536 | 47 | % | 861 | 58 | % | ||||||||||||||
Total | $ | 8,582 | 41 | % | $ | 7,529 | 41 | % | $ | 26,535 | 43 | % | $ | 22,746 | 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 endedSeptember 30, | Nine months ended September 30, | ||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||
(in thousands) | (in thousands) | ||||||||||||||
Total revenue | 20,743 | $ | 18,245 | $ | 61,004 | 54,391 | |||||||||
Costs of revenue, exclusive of depreciation | (12,161 | ) | (10,716 | ) | (34,469 | ) | (31,645 | ) | |||||||
Depreciation allocable to costs of revenue | (5,878 | ) | (6,222 | ) | (17,692 | ) | (18,531 | ) | |||||||
Gross margin | 2,704 | 1,307 | 8,843 | 4,215 | |||||||||||
Depreciation allocable to costs of revenue | 5,878 | 6,222 | 17,692 | 18,531 | |||||||||||
Adjusted Gross Margin | $ | 8,582 | $ | 7,529 | $ | 26,535 | $ | 22,746 |
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 (loss) income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||
(in thousands) | (in thousands) | |||||||||||||
Net (loss) income | $ | (80 | ) | $ | (1,257 | ) | $ | 187 | $ | (3,569 | ) | |||
Interest expense | 25 | 25 | 74 | 40 | ||||||||||
Income tax benefit | (73 | ) | (212 | ) | 288 | (425 | ) | |||||||
Depreciation and amortization | 6,016 | 6,387 | 18,118 | 19,010 | ||||||||||
Non-cash stock compensation expense | 583 | 421 | 1,337 | 1,316 | ||||||||||
Severance expenses | 1,258 | — | 1,407 | — | ||||||||||
Impairment of goodwill | — | — | — | — | ||||||||||
Inventory allowance | — | — | — | — | ||||||||||
Retirement of rental equipment | — | — | — | — | ||||||||||
Adjusted EBITDA | $ | 7,729 | $ | 5,364 | $ | 21,411 | $ | 16,372 |
Conference Call Details: The Company will host its earnings conference call on Thursday, November 10, 2022, at 10:00AM EDT (9:00am 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) 715-9871 using conference ID 2421165 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 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 September 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)
September 30, 2022 | December 31, 2021 | ||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 2,586 | $ | 22,942 | |||
Trade accounts receivable, net | 12,599 | 10,389 | |||||
Inventory | 21,761 | 19,329 | |||||
Federal income tax receivable (Note 4) | 11,538 | 11,538 | |||||
Prepaid income taxes | 43 | 51 | |||||
Prepaid expenses and other | 1,279 | 854 | |||||
Total current assets | 49,806 | 65,103 | |||||
Long-term inventory, net | 1,726 | 1,582 | |||||
Rental equipment, net | 224,964 | 206,985 | |||||
Property and equipment, net | 20,015 | 20,828 | |||||
Right of use assets - operating leases, net | 277 | 285 | |||||
Intangibles, net | 931 | 1,025 | |||||
Other assets | 2,394 | 2,698 | |||||
Total assets | $ | 300,113 | $ | 298,506 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 9,968 | $ | 4,795 | |||
Accrued liabilities | 15,522 | 14,103 | |||||
Current operating leases | 82 | 68 | |||||
Deferred income | — | 1,312 | |||||
Total current liabilities | 25,572 | 20,278 | |||||
Long-term debt | 2,000 | — | |||||
Deferred income tax liability | 39,573 | 39,288 | |||||
Long-term operating leases | 194 | 217 | |||||
Other long-term liabilities | 2,515 | 2,813 | |||||
Total liabilities | 69,854 | 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 | 135 | 134 | |||||
Additional paid-in capital | 114,838 | 114,017 | |||||
Retained earnings | 130,290 | 130,103 | |||||
Treasury Shares, at cost, 1,310 and 775 shares, respectively | (15,004 | ) | (8,344 | ) | |||
Total stockholders' equity | 230,259 | 235,910 | |||||
Total liabilities and stockholders' equity | $ | 300,113 | $ | 298,506 |
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, | ||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||
Revenue: | |||||||||||||||
Rental income | $ | 18,631 | $ | 16,195 | $ | 53,905 | $ | 47,149 | |||||||
Sales | 1,786 | 1,472 | 5,970 | 5,756 | |||||||||||
Service and maintenance income | 326 | 578 | 1,129 | 1,486 | |||||||||||
Total revenue | 20,743 | 18,245 | 61,004 | 54,391 | |||||||||||
Operating costs and expenses: | |||||||||||||||
Cost of rentals, exclusive of depreciation stated separately below | 9,988 | 8,826 | 28,460 | 25,065 | |||||||||||
Cost of sales, exclusive of depreciation stated separately below | 1,987 | 1,563 | 5,416 | 5,955 | |||||||||||
Cost of service and maintenance, exclusive of depreciation stated separately below | 186 | 327 | 593 | 625 | |||||||||||
Selling, general and administrative expenses | 4,064 | 2,705 | 8,875 | 7,960 | |||||||||||
Depreciation and amortization | 6,016 | 6,387 | 18,118 | 19,010 | |||||||||||
Total operating costs and expenses | 22,241 | 19,808 | 61,462 | 58,615 | |||||||||||
Operating loss | (1,498 | ) | (1,563 | ) | (458 | ) | (4,224 | ) | |||||||
Other income (expense): | |||||||||||||||
Interest expense | (25 | ) | (25 | ) | (74 | ) | (40 | ) | |||||||
Other income, net | 1,370 | 119 | 1,007 | 270 | |||||||||||
Total other income, net | 1,345 | 94 | 933 | 230 | |||||||||||
Income (loss) before provision for income taxes | (153 | ) | (1,469 | ) | 475 | (3,994 | ) | ||||||||
Income tax benefit | 73 | 212 | (288 | ) | 425 | ||||||||||
Net loss | $ | (80 | ) | $ | (1,257 | ) | $ | 187 | $ | (3,569 | ) | ||||
Loss per share: | |||||||||||||||
Basic | $ | (0.01 | ) | $ | (0.10 | ) | $ | 0.02 | $ | (0.27 | ) | ||||
Diluted | $ | (0.01 | ) | $ | (0.10 | ) | $ | 0.02 | $ | (0.27 | ) | ||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 12,192 | 13,121 | 12,344 | 13,225 | |||||||||||
Diluted | 12,192 | 13,121 | 12,434 | 13,225 | |||||||||||
NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended | |||||||
September 30, | |||||||
2022 | 2021 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income (loss) | $ | 187 | $ | (3,569 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||
Depreciation and amortization | 18,118 | 19,010 | |||||
Amortization of debt issuance costs | 35 | 18 | |||||
Deferred income tax (benefit) expense | 285 | (442 | ) | ||||
Stock-based compensation | 1,337 | 1,316 | |||||
Bad debt allowance | — | 65 | |||||
Gain on sale of assets | (1,449 | ) | (127 | ) | |||
Loss (gain) on company owned life insurance | 551 | (162 | ) | ||||
Changes in operating assets and liabilities: | |||||||
Trade accounts receivables | (2,210 | ) | 225 | ||||
Inventory | (2,576 | ) | (1,682 | ) | |||
Prepaid expenses and prepaid income taxes | (417 | ) | (256 | ) | |||
Accounts payable and accrued liabilities | 6,592 | 5,599 | |||||
Deferred income | (1,312 | ) | (410 | ) | |||
Other | (256 | ) | 373 | ||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 18,885 | 19,958 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Purchase of rental equipment, property and other equipment | (35,338 | ) | (19,080 | ) | |||
Purchase of company owned life insurance | (272 | ) | (98 | ) | |||
Proceeds from sale of property and equipment | 1,546 | 141 | |||||
NET CASH USED IN INVESTING ACTIVITIES | (34,064 | ) | (19,037 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Proceeds from loan | 2,000 | — | |||||
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 | ) | (4,432 | ) | |||
Taxes paid related to net share settlement of equity awards | (515 | ) | (335 | ) | |||
NET CASH USED IN FINANCING ACTIVITIES | (5,177 | ) | (5,422 | ) | |||
NET CHANGE IN CASH AND CASH EQUIVALENTS | (20,356 | ) | (4,501 | ) | |||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 22,942 | 28,925 | |||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 2,586 | $ | 24,424 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||
Interest paid | $ | 38 | $ | 25 | |||
NON-CASH TRANSACTIONS | |||||||
Right of use asset acquired through an operating lease | $ | 118 | $ | — |
FAQ
What were the key financial results for NGS in Q3 2022?
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How did NGS's Adjusted EBITDA perform in Q3 2022?
What is the impact of inflation on NGS's operating expenses?