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Natural Gas Services Group, Inc. Reports Second Quarter 2019 Financial and Operating Results

Midland, Aug. 06, 2019 (GLOBE NEWSWIRE) --

MIDLAND, Texas August 6, 2019 - Natural Gas Services Group, Inc. (“NGS” or the “Company”) (NGS), a leading provider of gas compression equipment and services to the energy industry, today announced financial results for the three and six months ended June 30, 2019.

For the quarter ended June 30, 2019, NGS reported rental revenue of $13.6 million compared to $11.4 million for the quarter ended June 30, 2018. Sequentially, rental revenue increased from $13.4 million.

The Company reported net income for the second quarter of $573,000 compared to $247,000 in the same quarter in 2018 and $357,000 in the prior quarter. Earnings per diluted share for the quarter ended June 30, 2019 was 4 cents.

Highlights of the quarter include:

Revenue: Total revenue for the three months ended June 30, 2019 was $19.9 million, an increase from $18.2 million compared to the three months ended June 30, 2018. This increase was primarily driven by a greater number of units on rent, with increased average rental rates. Sequentially, total revenue increased by $1.9 million to $19.9 million from $18.0 million, mainly due to higher compressor sales.

Operating Income: Operating income for the three months ended June 30, 2019 increased to $593,000 from $226,000 compared to the same period in 2018, mainly driven by an increase in rental revenue. Sequentially, operating income increased to $593,000 from $209,000 mainly due to an increase in compressor sales for the three months ended June 30, 2019.

Adjusted Gross Margins: Total adjusted gross margin for the three months ended June 30, 2019 increased $974,000 to $9.0 million from $8.0 million for the same period ended June 30, 2018. As a percentage of revenue, total adjusted gross margin slightly increased to 45% for the three months ended June 30, 2019 compared to 44% for the same period ended June 30, 2018. This increase is a result of a $2.0 million increase in rental revenues. Sequentially, adjusted gross margin of $9.0 million for the three months ending June 30, 2019 increased from $8.3 million for the three months ended in March 31, 2019. Adjusted gross margin as a percentage of revenue decreased slightly to 45% from 46% from the previous quarter, partially driven by the shift in revenues towards lower margin sales from higher margin rentals. Please see discussion of Non-GAAP Financial Measures - Adjusted Gross Margin at the conclusion of this release.

Net Income: Net income for the three months ended June 30, 2019 increased to $573,000 compared to net income of $247,000 for the same period in 2018. Sequentially, net income also increased to $573,000 from $357,000.

Earnings Per Share: Comparing the second quarter of 2019 versus 2018, earnings per diluted share was 4 cents, up 2 cents from the same period of 2018. Sequentially, diluted earnings per share increased to 4 cents from 3 cents.

Adjusted EBITDA: Adjusted EBITDA increased to $6.5 million compared to the same period ended June 30, 2018 of $5.8 million and remained flat as a percentage of revenue at 32% for both the three months ended June 30, 2019 and June 30, 2018. Adjusted EBITDA increased approximately $385,000 in the sequential quarters but decreased slightly as a percentage of revenue to 32% from 34%. Please see discussion of Non-GAAP Financial Measures - Adjusted EBITDA at the conclusion of this release.

Cash Flow: At June 30, 2019, cash and cash equivalents were $30.0 million with a bank debt level of $417,000, all classified as non-current. We had positive net cash flow from operating activities of $6.4 million during the six months ended of 2019.


Commenting on Second Quarter 2019 results, Stephen C. Taylor, President and CEO, said:

“The second quarter of 2019 represented another strong operational quarter of performance for NGS. Rental revenues continue to increase, up 19% over the comparative prior year quarter, as demand for our higher horsepower units remains robust. Additionally, we saw significant sales for the quarter, with the highest adjusted gross margin percentage for that segment since the first quarter of 2018. Quarterly, cash flow from operations was $10.3 million, or 52% of revenue. We ended the quarter with nearly $30 million in cash, virtually zero debt and remain in an enviable financial position when compared to other competitors operating in the oilfield services sector.

“While we continue to survey the oilfield landscape for strategic opportunities, we also remain disciplined in our approach with a focus on strategic fit and value. We will continue to look for opportunities to grow our operating portfolio but will also continue to be vigilant in protecting our balance sheet which has served us well, especially in periods of market volatility and uncertainty.”

Selected data: The tables below show revenues and percentage of total revenues, along with our adjusted gross margin, exclusive of depreciation and amortization, and related percentages of each of our product lines for the three and six months ended June 30, 2019 and 2018. Adjusted gross margin is the difference between revenue and cost of sales, exclusive of depreciation and amortization.

Revenue

Adjusted Gross Margin(1)

Three months ended June 30,

Three months ended June 30,

2019

2018

2019

2018

(in thousands)

Rental

$

13,572

68

%

$

11,427

63

%

$

7,213

53

%

$

6,232

55

%

Sales

5,814

29

%

6,383

35

%

1,395

24

%

1,459

23

%

Service & Maintenance

509

3

%

394

2

%

350

69

%

293

74

%

Total

$

19,895

$

18,204

$

8,958

45

%

$

7,984

44

%


Revenue

Adjusted Gross Margin(1)

Six months ended June 30,

Six months ended June 30,

2019

2018

2019

2018

(in thousands)

Rental

$

26,959

71

%

$

22,898

70

%

$

14,715

55

%

$

12,999

57

%

Sales

9,939

26

%

9,381

28

%

1,821

18

%

2,266

24

%

Service & Maintenance

988

3

%

643

2

%

682

69

%

477

74

%

Total

$

37,886

$

32,922

$

17,218

45

%

$

15,742

48

%

(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 and amortization 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 and amortization expense), which are key operating components. Depreciation expense is a necessary element of costs and the ability to generate revenue and selling, general and administrative expense is a necessary cost to support operations and required corporate activities. 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, operating income 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 reconciliation of operating income to adjusted gross margin is as follows:

Three months ended June 30,

Six months ended June 30,

(in thousands)

(in thousands)

2019

2018

2019

2018

Operating Income

$

593

$

226

$

802

$

576

Depreciation and amortization

5,683

5,449

11,241

10,836

Selling, general, and administration expenses

2,682

2,309

5,175

4,330

Adjusted Gross Margin

$

8,958

$

7,984

$

17,218

$

15,742

Non GAAP Financial Measures - Adjusted EBITDA: Adjusted EBITDA: “Adjusted EBITDA” reflects net income or loss before interest, taxes, depreciation and amortization. Adjusted EBITDA is a measure used by 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.

The reconciliation of net income to Adjusted EBITDA and gross margin is as follows:

Three months ended June 30,

Six months ended June 30,

(in thousands)

(in thousands)

2019

2018

2019

2018

Net income

$

573

$

247

$

930

$

472

Interest expense

4

3

8

6

Provision for income taxes

197

54

350

103

Depreciation and amortization

5,683

5,449

11,241

10,836

Adjusted EBITDA

$

6,457

$

5,753

$

12,529

$

11,417


Conference Call Details:

Teleconference: Tuesday, August 6, 2019 at 10:00 a.m. Central (11:00 a.m. Eastern). Live via phone by dialing 877-358-7306, pass code “Natural Gas Services”. All attendees and participants to the conference call should arrange to call in at least 5 minutes prior to the start time.

Live Webcast: The webcast will be available in listen only mode via our website www.ngsgi.com, investor relations section.

Webcast Reply: For those unable to attend or participate, a replay of the conference call will be available within 24 hours on the NGS website at www.ngsgi.com.

Stephen C. Taylor, President and CEO of Natural Gas Services Group, Inc. will be leading the call and discussing the financial results for the three and six months ended June 30, 2019.

About Natural Gas Services Group, Inc. (NGS): NGS is a leading provider of gas compression equipment to the natural gas industry with a primary focus on the non-conventional gas and oil industry, i.e., coalbed methane, gas and oil shales and tight gas. The Company manufactures, fabricates, rents, sells and maintains natural gas compressors and flare systems for gas and oil production and plant facilities. NGS is headquartered in Midland, Texas with fabrication facilities located in Tulsa, Oklahoma and Midland, Texas and service facilities located in major gas and oil 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 loss of market share through competition or otherwise; the introduction of competing technologies by other companies; a prolonged, substantial reduction in oil and gas prices which could cause a decline in the demand for NGS's products and services; 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 filed with the Securities and Exchange Commission.

For More Information, Contact:

Alicia Dada, Investor Relations

(432) 262-2700
Alicia.Dada@ngsgi.com

www.ngsgi.com


NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)

June 30,
2019

December 31, 2018

ASSETS

Current Assets:

Cash and cash equivalents

$

29,911

$

52,628

Trade accounts receivable, net of allowance for doubtful accounts of $333 and $291, respectively

11,383

7,219

Inventory

30,302

30,974

Prepaid income taxes

3,146

3,148

Prepaid expenses and other

1,880

2,430

Total current assets

76,622

96,399

Long-term inventory, net of allowance for obsolescence of $21 and $19, respectively

3,873

3,980

Rental equipment, net of accumulated depreciation of $173,282 and $165,428, respectively

190,704

175,886

Property and equipment, net of accumulated depreciation of $11,777 and $11,556, respectively

20,146

16,587

Right of use assets - operating leases, net of accumulated amortization $83

494

Goodwill

10,039

10,039

Intangibles, net of accumulated amortization of $1,821 and $1,758, respectively

1,338

1,401

Other assets

1,339

1,109

Total assets

$

304,555

$

305,401

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$

2,579

$

2,122

Accrued liabilities

3,999

8,743

Current operating leases

129

Deferred income

113

81

Total current liabilities

6,820

10,946

Line of credit, non-current portion

417

417

Deferred income tax liability

32,514

32,158

Long-term operating leases

365

Other long-term liabilities

1,869

1,699

Total liabilities

41,985

45,220

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; 13,138 and 13,005 shares issued and outstanding, respectively

131

130

Additional paid-in capital

109,218

107,760

Retained earnings

153,221

152,291

Total stockholders' equity

262,570

260,181

Total liabilities and stockholders' equity

$

304,555

$

305,401


NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except earnings per share)
(unaudited)

Three months ended

Six months ended

June 30,

June 30,

2019

2018

2019

2018

Revenue:

Rental income

$

13,572

$

11,427

$

26,959

$

22,898

Sales

5,814

6,383

9,939

9,381

Service and maintenance income

509

394

988

643

Total revenue

19,895

18,204

37,886

32,922

Operating costs and expenses:

Cost of rentals, exclusive of depreciation and amortization stated separately below

6,359

5,195

12,244

9,899

Cost of sales, exclusive of depreciation and amortization stated separately below

4,419

4,924

8,118

7,115

Cost of service and maintenance

159

101

306

166

Selling, general, and administrative expense

2,682

2,309

5,175

4,330

Depreciation and amortization

5,683

5,449

11,241

10,836

Total operating costs and expenses

19,302

17,978

37,084

32,346

Operating income

593

226

802

576

Other income (expense):

Interest expense

(4

)

(3

)

(8

)

(6

)

Other income, net

181

78

486

5

Total other income (expense), net

177

75

478

(1

)

Income before provision for income taxes

770

301

1,280

575

Income tax expense

197

54

350

103

Net income

$

573

$

247

$

930

$

472

Earnings per share:

Basic

$

0.04

$

0.02

$

0.07

$

0.04

Diluted

$

0.04

$

0.02

$

0.07

$

0.04

Weighted average shares outstanding:

Basic

13,134

12,963

13,100

12,941

Diluted

13,462

13,261

13,368

13,215


NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Six months ended

June 30,

2019

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

930

$

472

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

11,241

10,836

Deferred income taxes

356

170

Stock-based compensation

1,137

1,076

Bad debt allowance (recovery)

55

(102

)

Gain on sale of assets

(37

)

(49

)

(Gain) loss on company owned life insurance

(131

)

55

Changes in operating assets and liabilities:

Trade accounts receivables, net

(4,219

)

(739

)

Inventory

1,200

2,673

Prepaid expenses and prepaid income taxes

(22

)

321

Accounts payable and accrued liabilities

(4,287

)

(4,327

)

Deferred income

32

302

Other

192

172

NET CASH PROVIDED BY OPERATING ACTIVITIES

6,447

10,860

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

(29,402

)

(16,945

)

Purchase of company owned life insurance

(111

)

(191

)

Proceeds from sale of property and equipment

26

49

Proceeds from insurance claims of property and equipment

11

NET CASH USED IN INVESTING ACTIVITIES

(29,476

)

(17,087

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments from other long-term liabilities, net

(10

)

(19

)

Proceeds from exercise of stock options

505

157

Taxes paid related to net share settlement of equity awards

(183

)

(629

)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

312

(491

)

NET CHANGE IN CASH AND CASH EQUIVALENTS

(22,717

)

(6,718

)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

52,628

69,208

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

29,911

$

62,490

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest paid

$

8

$

6

Income taxes paid

$

45

$

66

NON-CASH TRANSACTIONS

Transfer of rental equipment components to inventory

$

347

$

144

Transfer of prepaids to rental equipment and inventory

$

574

$

Right of use acquired through an operating lease

$

126

$