August 9, 2018 - 5:00 AM EDT
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Natural Gas Services Group, Inc. Reports Second Quarter 2018 Financial and Operating Results

 

MIDLAND, Texas August 9, 2018 - Natural Gas Services Group, Inc. ("NGS" or the "Company") (NYSE: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, 2018.

NGS reported steady rental revenue of $11.4 million for both quarters ended June 30, 2018 and 2017. Sequentially, rental revenue on a quarterly basis stayed relatively flat with a slight decrease of $44,000.  For the six months ended June 30, 2018, rental revenues fell to $22.9 million compared to $23.3 million for the same period in 2017.

The Company reported net income of $247,000 for the second quarter compared to $375,000 in the same quarter in 2017 and $225,000 in the first quarter 2018. For the six months ended June 30, 2018,  The Company reported net income of $472,000 compared to $627,000 for the same period ended 2017. Earnings per diluted share for the quarter ended June 30, 2018 was 2 cents.

Highlights of the quarter include:

Revenue: Total revenue for the three months ended June 30, 2018 was $18.2 million, an increase compared to $16.2 million for the three months ended June 30, 2017. This increase was due to a $2.0 million rise in sales due to fluctuations in the timing of our compressor sales activity. Total revenue, sequentially, increased between quarters by $3.5 million, to $18.2 million from $14.7 million, due to an increase in sales, particularly due to larger flare and compressor sales.  For the six months ended June 30, 2018 and 2017, total revenue dropped to $32.9 million from $35.1 million due to fluctuations in timing of compressor sales activity.

Operating Income: Operating income for the three months ended June 30, 2018, decreased to $226,000 from $414,000 compared to the same period in the prior year. This drop is due to a mix shift in revenues from larger margin rentals to lower margin sales. Sequentially, operating income decreased to $226,000 from $350,000 due to rentals to sales mix shift. Operating income for the six months ended June 30, 2018, decreased to $576,000 from $757,000.

Adjusted Gross Margins: Total adjusted gross margin for the three months ended June 30, 2018 dropped slightly to $8.0 million from $8.1 million for the same period ended June 30, 2017, but as a percentage of revenue decreased to 44% compared to 50% for the same periods, respectively. This decrease is due to the mix in revenues shifting from higher margin rentals to lower margin sales. Sequentially, adjusted gross margin was $8.0 million for the three months ending June 30, 2018 compared to $7.8 million in the three months ended in March 31, 2018. Adjusted gross margin percentages decreased to 44% from 53% the previous quarter, driven by the same shift in revenues from rentals to sales. For the six months 2018 versus 2017, adjusted gross margin fell to $15.7 million from $16.8 million, due to a drop in rental margins but stayed relatively flat as a percentage of revenue at 48%. 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, 2018 decreased to $247,000 compared to net income of $375,000 for the same period in 2017. Sequentially, net income increased to $247,000 from $225,000. For the six months ended 2018 compared to 2017, net income decreased to $472,000 from $627,000.

Earnings Per Share:  Comparing the second quarter of 2018 versus 2017, earnings per diluted share was down to 2 cents compared to 3 cents, respectively. Sequentially, diluted earnings per share was flat at 2 cents.  Comparing six months ending 2018 versus 2017, earnings per diluted share was down to 4 cents from 5 cents.

Adjusted EBITDA:  Adjusted EBITDA was relatively flat at $5.8 million and $5.7 million, but fell as a percentage of revenue to 32% from 35%, for the three months ended June 30, 2018 and June 30, 2017, respectively. Adjusted EBITDA increased approximately $89,000 in the sequential quarters but decreased relative to revenue to 32% from 38%. For the six month comparison 2018 to 2017, Adjusted EBTIDA remained flat at $11.4 million and rose as a percentage of revenue to 35% from 32%. Please see discussion of Non-GAAP Financial Measures - Adjusted EBITDA at the conclusion of this release.

Cash Flow: At June 30, 2018, cash and cash equivalents were $62.5 million with a bank debt level of $417,000, all of which is classified as non-current. Positive net cash flow from operating activities was $10.9 million during the six months ended 2018


Commenting on second quarter 2018 results, Stephen C. Taylor, President and CEO, said:

"NGS exhibited a significant increase in total revenues of 24% in the sequential quarters, led by our overall sales volumes. Rental revenues were flat, but we see encouraging trends in this business line which should signal improved revenues going forward. We placed more active horsepower in the field, led by our shift into the higher horsepower rental compression market, and our backlog of contracted rental equipment is significant. Our rental margins suffered due to the expenses incurred to make-ready this equipment, but that's a necessary current cost to capture those future revenues. We continue to see opportunity in the future, especially in the high horsepower market."

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, 2018 and 2017.  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,
  2018   2017   2018   2017
  (in thousands)
Rental $ 11,427     63 %   $ 11,420     71 %   $ 6,232     55 %   $ 7,165     63 %
Sales 6,383     35 %   4,407     27 %   1,459     23 %   662     15 %
Service & Maintenance 394     2 %   391     2 %   293     74 %   287     73 %
Total $ 18,204         $ 16,218         $ 7,984     44 %   $ 8,114     50 %

  Revenue   Adjusted Gross Margin(1)
  Six months ended June 30,   Six months ended June 30,
  2018   2017   2018   2017
  (in thousands)
Rental $ 22,898     70 %   $ 23,342     67 %   12,999     57 %   14,419     62 %
Sales 9,381     28 %   11,044     31 %   2,266     24 %   1,876     17 %
Service & Maintenance 643     2 %   734     2 %   477     74 %   536     73 %
Total $ 32,922         $ 35,120         $ 15,742     48 %   $ 16,831     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)
2018   2017   2018   2017
Operating Income $ 226     $ 414     $ 576     $ 757  
Depreciation and amortization 5,449     5,310     10,836     10,638  
Selling, general, and administration expenses 2,309     2,390     4,330     5,436  
Adjusted Gross Margin $ 7,984     $ 8,114     $ 15,742     $ 16,831  

Non GAAP Financial Measures - 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)
  2018   2017   2018   2017
Net income $ 247     $ 375     $ 472     $ 627  
Interest expense 3     2     6     4  
Provision for income taxes 54     40     103     132  
Depreciation and amortization 5,449     5,310     10,836     10,638  
Adjusted EBITDA 5,753     5,727     11,417     11,401  


Conference Call Details:

Teleconference: Thursday, August 9, 2018 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, 2018.

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.

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
[email protected]
  www.ngsgi.com


 NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
       
  June 30,   December 31,
  2018   2017
ASSETS      
Current Assets:      
Cash and cash equivalents $ 62,490     $ 69,208  
Trade accounts receivable, net of allowance for doubtful accounts of $443 and $569,  respectively 9,375     8,534  
Inventory 23,042     26,224  
Prepaid income taxes 3,177     3,443  
Prepaid expenses and other 762     817  
Total current assets 98,846     108,226  
Long-term inventory, net of allowance for obsolescence of $21 and $15, respectively 3,467     2,829  
Rental equipment, net of accumulated depreciation of $155,989 and $145,851, respectively 169,702     167,099  
Property and equipment, net of accumulated depreciation of $11,176 and $11,274, respectively 11,076     7,652  
Goodwill 10,039     10,039  
Intangibles, net of accumulated amortization of $1,695 and $1,632 respectively 1,464     1,526  
Other assets 1,118     939  
Total assets $ 295,712     $ 298,310  
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current Liabilities:      
Accounts payable $ 801     $ 4,162  
Accrued liabilities 2,140     3,106  
Deferred income 487     185  
Total current liabilities 3,428     7,453  
Line of credit, non-current portion 417     417  
Deferred income tax liability 32,333     32,163  
Other long-term liabilities 1,139     958  
Total liabilities 37,317     40,991  
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; 12,968 and 12,880 shares issued and outstanding, respectively 130     129  
Additional paid-in capital 105,928     105,325  
Retained earnings 152,337     151,865  
Total stockholders' equity 258,395     257,319  
Total liabilities and stockholders' equity $ 295,712     $ 298,310  


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,
  2018   2017   2018   2017
Revenue:              
Rental income $ 11,427     $ 11,420     $ 22,898     $ 23,342  
Sales 6,383     4,407     9,381     11,044  
Service and maintenance income 394     391     643     734  
Total revenue 18,204     16,218     32,922     35,120  
Operating costs and expenses:              
Cost of rentals, exclusive of depreciation and amortization stated separately below 5,195     4,255     9,899     8,923  
Cost of sales, exclusive of depreciation and amortization stated separately below 4,924     3,745     7,115     9,168  
Cost of service and maintenance 101     104     166     198  
Selling, general, and administrative expense 2,309     2,390     4,330     5,436  
Depreciation and amortization 5,449     5,310     10,836     10,638  
Total operating costs and expenses 17,978     15,804     32,346     34,363  
Operating income 226     414     576     757  
Other income (expense):              
Interest expense (3 )   (2 )   (6 )   (4 )
Other income, net 78     3     5     6  
Total other income (expense), net 75     1     (1 )   2  
Income before provision for income taxes 301     415     575     759  
Provision for income taxes 54     40     103     132  
Net income $ 247     $ 375     $ 472     $ 627  
Earnings per share:              
Basic $ 0.02     $ 0.03     $ 0.04     $ 0.05  
Diluted $ 0.02     $ 0.03     $ 0.04     $ 0.05  
Weighted average shares outstanding:              
Basic 12,963     12,831     12,941     12,818  
Diluted 13,261     13,130     13,215     13,093  


NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
  Six months ended
  June 30,
  2018   2017
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 472     $ 627  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 10,836     10,638  
Deferred income taxes 170     (2,609 )
Stock based compensation 1,076     2,416  
Bad debt allowance (102 )   60  
Gain on sale of assets (49 )   (49 )
Loss (gain) on company owned life insurance 55     (17 )
Changes in operating assets and liabilities:      
Trade accounts receivables, net (739 )   1,147  
Inventory 2,673     1,383  
Prepaid expenses and prepaid income taxes 321     (1,411 )
Accounts payable and accrued liabilities (4,327 )   297  
Deferred income 302     (1,849 )
Other 172     512  
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,860     11,145  
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchase of property and equipment (16,945 )   (1,587 )
Purchase of company owned life insurance (191 )   (529 )
Proceeds from sale of property and equipment 49     49  
NET CASH USED IN INVESTING ACTIVITIES (17,087 )   (2,067 )
CASH FLOWS FROM FINANCING ACTIVITIES:      
Repayments from other long-term liabilities, net (19 )   (7 )
Proceeds from exercise of stock options 157     517  
Taxes paid related to net share settlement of equity awards (629 )   (644 )
NET CASH USED IN FINANCING ACTIVITIES (491 )   (134 )
NET CHANGE IN CASH AND CASH EQUIVALENTS (6,718 )   8,944  
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 69,208     64,094  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 62,490     $ 73,038  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:      
Interest paid $ 6     $ 4  
Income taxes paid $ 66     $ 3,203  
NON-CASH TRANSACTIONS      
Transfer of rental equipment components to inventory $ 144     $ 48  




This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq 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


Source: Thomson Reuters ONE (August 9, 2018 - 5:00 AM EDT)

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