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 November 5, 2015 - 6:00 AM EST
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NGS Reports Third Quarter 2015 Earnings of 20 cents per Diluted Share

 MIDLAND, Texas November 5, 2015 - Natural Gas Services Group, Inc. (NYSE:NGS), a leading provider of gas compression equipment and services to the natural gas industry, announces its financial results for the three and nine months ended September 30, 2015.

Revenue: Total revenue was $21.2 million, a decrease from $25.6 million, or 17%, for the three months ended September 30, 2015 compared to the same period ended September 30, 2014. This change was attributable to lower unit sales and a fall in rental revenue related to reduced activity in the upstream oil and gas industry due to low commodity prices. Total revenue decreased between consecutive quarters by $3.0 million to $21.2 million from $24.2 million, primarily due to the lower activity levels noted above. On a nine month year-to-date basis, 2014 and 2015 revenues were essentially flat with 2015 revenues of $70.2 million being one-half percent higher than 2014.

Gross Margins: Total gross margin for the three months ended September 30, 2015 decreased $1.8 million to $12.1 million from $13.9 million for the same period ended September 30, 2014. Overall gross margin percentage improved to 57% for the three months ended September 30, 2015 compared to 54% for the same period ended September 30, 2014. Sequentially, gross margin was $14.0 million for the three months ending June 30, 2015 compared to $12.1 million in the three months ended in September 30, 2015 with gross margin percentages holding in the 57-58% range. For the comparative nine months ended, total gross margin increased to $40.2 million from $39.0 million, a 3% increase.

Operating Income: Operating income for the three months ended September 30, 2015 was $3.8 million, compared to the comparative prior year's level of $5.8 million. This decrease was due to a reduction in total revenue, primarily compressor sales revenue, but partially offset by a decrease in direct operating costs, which during the comparative periods were down 22%. Sequentially, operating income decreased to $3.8 million, for the three months ended September 30, 2015 from $5.4 million in the three month period ended June 30, 2015 primarily due to a decrease in total revenues between the periods. Total costs were down $1.6 million between the three months ended June 30, 2015 and the same period ended  September 30, 2015. Adjusted operating income in the nine months ended 2015 period was $15.0 million, down 2% compared to last year's comparative period.
Please see discussion of Non-GAAP Financial Measures - Special Items, below.

Net Income:  Net income for the three months ended September 30, 2015 decreased to $2.6 million compared to net income of $3.9 million for the same period in 2014. This decrease was primarily driven by lower compressor sales and their gross margin in the current quarter. Sequentially, net income decreased to $2.6 million from $3.5 million. In the comparative nine months ended, adjusted net income decreased 3% to $9.8 million. Please see discussion of Non-GAAP Financial Measures - Special Items, below.

Earnings Per Share:  Comparing the third quarter of 2015 versus 2014, earnings per diluted share was 20 cents down from 30 cents. Diluted earnings per share decreased to 20 cents from 28 cents between sequential quarters.

EBITDA:  EBITDA decreased $2.1 million to $9.4 million or 44% of revenue for the three months ended September 30, 2015 versus $11.5 million or 45% of revenue for the same three months ended September 30, 2014. EBITDA decreased approximately $1.7 million in the sequential quarters, and relative to revenue decreased to 44% from 46%. Comparing the nine months ended, EBITDA was up 3% to $32.2 million or 46% of revenue. Please see discussion of Non-GAAP Financial Measures - EBITDA, below.

Cash Flow: At September 30, 2015, cash and cash equivalents were $30.0 million with a total debt level of $417,000, all of which was classified as long term. Positive net cash flow from operating activities was $34.8 million during the nine months ended of 2015.

Special Items: During the first half of this year NGS initiated a review focused on optimization of the rental fleet and made adjustments for equipment that has been relatively underutilized; primarily related to older gas compression packages designed for dry natural gas shale operations. As a result of our review, NGS reported a non-cash, pre-tax charge of $4.5 million during the second quarter of 2015. This charge included a pre-tax charge on the retirement of rental equipment of $4.4 million. The remaining balance was related to a slight increase in bad debt and inventory allowances. The effects of these adjustments are excluded from comparisons above for second quarter 2015. Please see discussion of Non-GAAP Financial Measures - Special Items, below.


Non GAAP Financial Measures - Special Items: From time to time, management may publicly disclose certain "non-GAAP financial measures", such as adjusted net income below, in our earnings releases, financial presentations or earnings conference calls. These non-GAAP measures are not in accordance with, or a substitute for, measures prepared in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations that would be reflected in measures determined in accordance with GAAP.

Adjusted operating income and net income from operations reflects operating and net income before the loss on retirement of rental equipment and increases in bad debt and inventory allowances, taken in the second quarter. The reconciliation of reported operating income and net income from operations to adjusted operating income and net income from operations is as follows:

  Nine months ended September 30, 2015
  (in thousands)

 
  Condensed
Reported operating income $ 10,504  
Retirement of rental equipment and increase in allowances 4,526  
Adjusted operating income $ 15,030  

    Nine months ended September 30, 2015
  (in thousands, except per share data)
 unaudited
    Condensed   Per Share
Reported net income from operations   $ 6,870     $ 0.54  
Retirement of rental equipment and increase in allowances, net of tax   2,945     0.23  
Adjusted net income from operations   $ 9,815     $ 0.77  

Commenting on third quarter 2015 results, Stephen C. Taylor, President and CEO, said:

"Looking back over the past nine months of this year compared to the same period in 2014, NGS has performed  remarkably well. Revenue, gross margin and operating income in 2015 are all within  3%  of last year's results. Not surprisingly though, we are experiencing an inevitable sequential decline in revenue from the severe impact on our customer's activity due to low oil and gas prices. Although price and utilization pressures are a fact of life, I am confident that we will continue to compete effectively, maintain our margins and generate significant levels of free cash."

Selected data: The table below shows revenues, percentage of total revenues, gross margin, exclusive of depreciation, amortization, and gross margin percentage of each of our business lines for the three and nine months ended September 30, 2015 and 2014.  Gross margin is the difference between revenue and cost of sales, exclusive of depreciation and amortization.

  Revenue   Gross Margin, Exclusive of  Depreciation and Amortization(1)
  Three months ended September 30,   Three months ended September 30,
  2015   2014   2015   2014
  (in thousands)
Rental $ 18,491     87 %   $ 20,177     79 %   $ 11,164     60 %   $ 12,067     60 %
Sales 2,468     12 %   5,218     20 %   728     29 %   1,725     33 %
Service & Maintenance 234     1 %   204     1 %   164     70 %   103     50 %
Total $ 21,193         $ 25,599         $ 12,056     57 %   $ 13,895     54 %

  Revenue   Gross Margin, Exclusive of  Depreciation and Amortization(1)
  Nine months ended September 30,   Nine months ended September 30,
  2015   2014   2015   2014
   
Rental $ 58,806     84 %   $ 58,431     84 %   36,744     62 %   34,616     59 %
Sales 10,672     15 %   10,831     15 %   2,966     28 %   4,005     37 %
Service & Maintenance 686     1 %   611     1 %   535     78 %   342     56 %
Total $ 70,164         $ 69,873         $ 40,245     57 %   $ 38,963     56 %

(1) For a reconciliation of gross margin to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read "Non-GAAP Financial Measures - EBITDA" below.

Non GAAP Financial Measures - EBITDA: "EBITDA" reflects net income or loss before interest, taxes, depreciation and amortization. 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, EBITDA gives the investor information as to the cash generated from the operations of a business. However, 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. EBITDA as calculated by NGS may not be comparable to EBITDA as calculated and reported by other companies. The most comparable GAAP measure to EBITDA is net income. The reconciliation of net income to EBITDA and gross margin is as follows:

  Three months ended September 30,   Nine months ended September 30,
  (in thousands)   (in thousands)
  2015   2014   2015   2014
Net income $ 2,562     $ 3,883     $ 6,870     $ 10,124  
Interest expense 7     4     13     9  
Provision for income taxes 1,249     2,084     3,688     5,337  
Loss on retirement of rental equipment (3 )   -     4,370     -  
Depreciation and amortization 5,594     5,528     17,240     15,816  
EBITDA 9,409     11,499     32,181     31,286  
Other operating expenses 2,667     2,527     8,131     7,860  
Other income, net (20 )   (131 )   (67 )   (183 )
Gross margin $ 12,056     $ 13,895     $ 40,245     $ 38,963  

"Gross margin" is defined as total revenue less cost of sales (excluding depreciation and amortization expense).  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, gross margin should not be considered an alternative to, or more meaningful than, net income as determined in accordance with GAAP.  Gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate gross margin in the same manner.


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.

Conference Call Details:

Teleconference: Thursday, November 5, 2015 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 nine months ended September 30, 2015.

About Natural Gas Services Group, Inc. (NGS):
NGS is a leading provider of small to medium horsepower, wellhead 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.

For More Information, Contact: Alicia Dada, Investor Relations
  (432) 262-2700
Alicia.Dada@ngsgi.com
  www.ngsgi.com


 NATURAL GAS SERVICES GROUP, INC.
CONDENSED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
       
  September 30,   December 31,
  2015   2014
ASSETS      
Current Assets:      
Cash and cash equivalents $ 29,978     $ 6,181  
Trade accounts receivable, net of allowance for doubtful accounts of $845 and $507,  respectively 7,557     10,408  
Inventory, net 28,085     32,624  
Prepaid income taxes 3,776     6,242  
Prepaid expenses and other 553     472  
Total current assets 69,949     55,927  
Rental equipment, net of accumulated depreciation of $108,229 and $106,179, respectively 196,951     208,292  
Property and equipment, net of accumulated depreciation of $11,164 and $10,830, respectively 8,875     7,362  
Goodwill 10,039     10,039  
Intangibles, net of accumulated amortization of $1,351 and $1,257, respectively 1,808     1,902  
Other assets 60     41  
Total assets $ 287,682     $ 283,563  
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current Liabilities:      
Accounts payable $ 1,459     $ 4,990  
Accrued liabilities 2,950     6,624  
Current income tax liability 6,328     851  
Deferred income 989     1,635  
Total current liabilities 11,726     14,100  
Line of credit, non-current portion 417     417  
Deferred income tax liability 55,675     58,304  
Other long-term liabilities 135     155  
Total liabilities 67,953     72,976  
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; 12,597 and 12,466 shares issued and outstanding, respectively 126     124  
Additional paid-in capital 97,335     95,065  
Retained earnings 122,268     115,398  
Total stockholders' equity 219,729     210,587  
Total liabilities and stockholders' equity $ 287,682     $ 283,563  


NATURAL GAS SERVICES GROUP, INC.
CONDENSED INCOME STATEMENTS
(in thousands, except earnings per share)
(unaudited)
       
  Three months ended   Nine months ended
  September 30,   September 30,
  2015   2014   2015   2014
Revenue:              
Rental income $ 18,491     $ 20,177     $ 58,806     $ 58,431  
Sales, net 2,468     5,218     10,672     10,831  
Service and maintenance income 234     204     686     611  
Total revenue 21,193     25,599     70,164     69,873  
Operating costs and expenses:              
Cost of rentals, exclusive of depreciation and amortization stated separately below 7,327     8,110     22,062     23,815  
Cost of sales, exclusive of depreciation and amortization stated separately below 1,740     3,493     7,706     6,826  
Cost of service and maintenance, exclusive of depreciation and amortization stated separately below 70     101     151     269  
Loss on retirement of rental equipment (3 )   -     4,370     -  
Selling, general, and administrative expense 2,667     2,527     8,131     7,860  
Depreciation and amortization 5,594     5,528     17,240     15,816  
Total operating costs and expenses 17,395     19,759     59,660     54,586  
Operating income 3,798     5,840     10,504     15,287  
Other income (expense):              
Interest expense (7 )   (4 )   (13 )   (9 )
Other income 20     131     67     183  
Total other income, net 13     127     54     174  
Income before provision for income taxes 3,811     5,967     10,558     15,461  
Provision for income taxes 1,249     2,084     3,688     5,337  
Net income $ 2,562     $ 3,883     $ 6,870     $ 10,124  
Earnings per share:              
Basic $ 0.20     $ 0.31     $ 0.55     $ 0.81  
Diluted $ 0.20     $ 0.30     $ 0.54     $ 0.80  
Weighted average shares outstanding:              
Basic 12,586     12,461     12,557     12,424  
Diluted 12,801     12,740     12,783     12,728  


NATURAL GAS SERVICES GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
   
  Nine months ended
  September 30,
  2015   2014
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 6,870     $ 10,124  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 17,240     15,816  
Deferred income taxes (2,629 )   (226 )
Stock based compensation 2,616     2,438  
Bad debt allowance 402     -  
Inventory allowance 70     395  
Gain on sale of assets (81 )   (159 )
Loss on retirement of rental equipment 4,370     -  
Changes in current assets and liabilities:      
Trade accounts receivables, net 2,449     (2,762 )
Inventory 3,912     (4,895 )
Prepaid expenses 2,287     (3,024 )
Accounts payable and accrued liabilities (7,107 )   2,785  
Current income tax liability 5,086     5,290  
Deferred income (646 )   1,140  
Other (19 )   (11 )
Tax benefit from equity compensation -     (414 )
NET CASH PROVIDED BY OPERATING ACTIVITIES 34,820     26,497  
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchase of property and equipment (11,163 )   (46,388 )
Proceeds from sale of property and equipment 113     239  
NET CASH USED IN INVESTING ACTIVITIES (11,050 )   (46,149 )
CASH FLOWS FROM FINANCING ACTIVITIES:      
Repayments from other long-term liabilities, net (20 )   (33 )
Repayments of line of credit -     (160 )
Proceeds from exercise of stock options 733     61  
Taxes paid related to net share settlement of equity awards (686 )   -  
Tax benefit from equity compensation -     414  
NET CASH PROVIDED BY FINANCING ACTIVITIES 27     282  
NET CHANGE IN CASH AND CASH EQUIVALENTS 23,797     (19,370 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,181     24,443  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 29,978     $ 5,073  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:      
Interest paid $ 13     $ 9  
Income taxes paid $ 3,185     $ 4,968  
NON-CASH TRANSACTIONS      
Transfer of rental equipment components to inventory $ 1,065     $ -  
Transfer from inventory to property and equipment $ 1,622     $ 53  




This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Natural Gas Services Group, Inc. via Globenewswire

HUG#1964276

Source: Thomson Reuters ONE (November 5, 2015 - 6:00 AM EST)

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