EX-99.1 2 q32018earningsreleasee.htm Document


FOR IMMEDIATE RELEASE
          NEWS
November 8, 2018
NYSE: NGS
Exhibit 99.1
image1.jpg
 
Natural Gas Services Group, Inc.
Reports Third Quarter 2018 Financial and Operating Results


MIDLAND, Texas November 8, 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 nine months ended September 30, 2018.

For the quarter ended September 30, 2018, NGS reported rental revenue of $12.0 million compared to $11.3 million for the quarter ended September 30, 2017. Sequentially, rental revenue on a quarterly basis rose 5% to $12.0 million from $11.4 million.

The Company reported net income of $236,000 for the third quarter compared to $522,000 in the same quarter in 2017 and $247,000 in the second quarter 2018. Earnings per diluted share for the quarter ended September 30, 2018 was 2 cents.

Highlights of the quarter include:

Revenue: Total revenue for the three months ended September 30, 2018 was $16.4 million, an increase from $15.9 million for the three months ended September 30, 2017. This increase was due to a greater number of units being rented, as well as, increased rental rates as a result of our move into higher horsepower rentals. Total revenue, sequentially, decreased between quarters by $1.8 million to $16.4 million from $18.2 million, due to fluctuation in unit and flare sales between quarters.

Operating Income: For the three months ended September 30, 2018, we had an operating loss of $44,000, compared to an operating income of $593,000 for the same period in the prior year. Sequentially, operating income decreased from $226,000. The decrease in both comparative periods were due to routine sales variability and higher depreciation expense.

Adjusted Gross Margins: Total adjusted gross margin for the three months ended September 30, 2018 dropped to $7.8 million from $8.3 million for the same period ended September 30, 2017, and as a percentage of revenue margins decreased to 48% compared to 52% for the same periods, respectively. This decrease is due to a drop in our rental margins due to make-ready and lubricant expenses and variable sales revenues. Sequentially, adjusted gross margin dropped slightly to $7.8 million for the three months ending September 30, 2018 compared to $8.0 million in the three months ended in June 30, 2018. Adjusted gross margin percentages increased to 48% from 44% the previous quarter, driven by slightly better margins on 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 September 30, 2018 decreased to $236,000 compared to net income of $522,000 for the same period in 2017. Sequentially, net income decreased from $247,000.

Earnings Per Share: Comparing the third quarter of 2018 versus 2017, earnings per diluted share decreased to 2 cents from 4 cents. Sequentially, diluted earnings per share remained flat at 2 cents.

Adjusted EBITDA: Adjusted EBITDA dropped to $5.7 million from $5.9 million, and fell from a percentage of revenue to 35% from 37%, for the three months ended September 30, 2018 and September 30, 2017, respectively. Adjusted EBITDA decreased approximately $77,000 in the sequential quarters and increased relative to revenue to 35% from 32%. Please see discussion of Non-GAAP Financial Measures - Adjusted EBITDA at the conclusion of this release.



Commenting on Third Quarter 2018 results, Stephen C. Taylor, President and CEO, said:
“The continued growth in rental revenue and rental backlog across horsepower classes provided for stable third quarter results and sets the stage for steady growth as we conclude 2018 and enter the new year. The sequential decline in revenue was the result of lower flare activity, relatively higher compressor sales in the second quarter and our decision to delay fabrication on compressors for sale in favor of large horsepower rentals. While that decision impacted third quarter revenues, it provides longer-term benefits for our rental business while also bolstering our sales backlog.”

“Our sales backlog remains strong, ending the third quarter at approximately $13 million. Our rental backlog in all horsepower classes continues to run at a high level, our operating cash flow remains solid and our cash balance provides sufficient liquidity for continued fleet expansion into the high horsepower segment.”

“While many oilfield companies have been cautious regarding short-term activity, we remain constructive on opportunities in the final quarter of 2018 and into 2019. We continue to see increased demand for our compression equipment including a recent, substantial order of high-horsepower rental equipment.”

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 nine months ended September 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 September 30, Three months ended September 30, 
2018201720182017
(in thousands)
Rental
$12,039 73 %$11,292 71 %$6,676 55 %$6,959 62 %
Sales
3,947 24 %4,256 27 %866 22 %1,019 24 %
Service & Maintenance
410 3 %365 2 %303 74 %275 75 %
Total
$16,396 $15,913 $7,845 48 %$8,253 52 %


Revenue 
Adjusted Gross Margin(1)
Nine months ended September 30, Nine months ended September 30, 
2018
2017
2018
2017
(in thousands) 
Rental $34,937 71 %$34,634 68 %$19,675 56 %$21,378 62 %
Sales 13,328 27 %15,300 30 %3,132 23 %2,895 19 %
Service & Maintenance 1,053 2 %1,099 2 %780 74 %811 74 %
Total $49,318 $51,033 $23,587 48 %$25,084 49 %


(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 September 30, Nine months ended September 30, 
(in thousands)
(in thousands)
2018201720182017
Operating (Loss) Income $(44)$593 $532 $1,350 
Depreciation and amortization 5,536 5,320 16,372 15,958 
Selling, general, and administration expenses 2,353 2,340 6,683 7,776 
Adjusted Gross Margin $7,845 $8,253 $23,587 $25,084 

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 September 30, 
Nine months ended September 30,
(in thousands)
(in thousands)
2018201720182017
Net income $236 $522 $708 $1,149 
Interest expense 4 7 10 11 
(Benefit) Provision for income taxes (100)57 3 189 
Depreciation and amortization 5,536 5,320 16,372 15,958 
Adjusted EBITDA $5,676 $5,906 $17,093 $17,307 





Conference Call Details:
 
Teleconference: Thursday, November 8, 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 nine months ended September 30, 2018.
 
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)
September 30,
2018		December 31, 2017
ASSETS
Current Assets:
Cash and cash equivalents $63,267 $69,208 
Trade accounts receivable, net of allowance for doubtful accounts of $405 and $569, respectively 8,116 8,534 
Inventory 19,065 26,224 
Prepaid income taxes 3,240 3,443 
Prepaid expenses and other 1,436 817 
Total current assets 95,124 108,226 
Long-term inventory, net of allowance for obsolescence of $21 and $15, respectively
3,815 2,829 
Rental equipment, net of accumulated depreciation of $161,094 and $145,851, respectively 173,891 167,099 
Property and equipment, net of accumulated depreciation of $11,429 and $11,274, respectively 13,253 7,652 
Goodwill 10,039 10,039 
Intangibles, net of accumulated amortization of $1,727 and $1,632, respectively 1,432 1,526 
Other assets
1,198 939 
Total assets
$298,752 $298,310 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities: 
Accounts payable $1,424 $4,162 
Accrued liabilities 3,447 3,106 
Deferred income 134 185 
Total current liabilities 5,005 7,453 
Line of credit, non-current portion 417 417 
Deferred income tax liability 32,296 32,163 
Other long-term liabilities 1,227 958 
Total liabilities 38,945 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; 13,001 and 12,880 shares issued and outstanding, respectively 130 129 
Additional paid-in capital
107,104 105,325 
Retained earnings 152,573 151,865 
Total stockholders' equity 259,807 257,319 
Total liabilities and stockholders' equity $298,752 $298,310 







NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except earnings per share)
(unaudited)
Three months ended
Nine months ended 
September 30,  September 30,  
2018201720182017
Revenue:
Rental income
$12,039 $11,292 $34,937 $34,634 
Sales
3,947 4,256 13,328 15,300 
Service and maintenance income
410 365 1,053 1,099 
Total revenue
16,396 15,913 49,318 51,033 
Operating costs and expenses:
Cost of rentals, exclusive of depreciation and amortization stated separately below
5,363 4,333 15,262 13,256 
Cost of sales, exclusive of depreciation and amortization stated separately below
3,081 3,237 10,196 12,405 
Cost of service and maintenance
107 90 273 288 
Selling, general, and administrative expense 2,353 2,340 6,683 7,776 
Depreciation and amortization 5,536 5,320 16,372 15,958 
Total operating costs and expenses
16,440 15,320 48,786 49,683 
Operating (loss) income (44)593 532 1,350 
Other income (expense): 
Interest expense (4)(7)(10)(11)
Other income, net 184 (7)189 (1)
Total other income (expense), net
180 (14)179 (12)
Income before provision for income taxes 136 579 711 1,338 
Income tax (benefit) expense (100)57 3 189 
Net income $236 $522 $708 $1,149 
Earnings per share:
Basic $0.02 $0.04 $0.05 $0.09 
Diluted $0.02 $0.04 $0.05 $0.09 
Weighted average shares outstanding: 
Basic 12,977 12,838 12,953 12,825 
Diluted 13,254 13,117 13,228 13,102 









NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended 
September 30,  
20182017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$708 $1,149 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 16,372 15,958 
Deferred income taxes 133 (3,233)
Stock-based compensation 1,729 3,231 
Bad debt (recovery) allowance (137)70 
Gain on sale of assets (49)(49)
Loss (gain) on company owned life insurance 15 (35)
Changes in operating assets and liabilities:
Trade accounts receivables, net 555 145 
Inventory 6,307 (1,305)
Prepaid expenses and prepaid income taxes (416)(1,012)
Accounts payable and accrued liabilities (2,397)1,927 
Deferred income (51)(2,040)
Other 267 578 
NET CASH PROVIDED BY OPERATING ACTIVITIES 23,036 15,384 
CASH FLOWS FROM INVESTING ACTIVITIES: 
Purchase of property and equipment (28,815)(5,892)
Purchase of company owned life insurance (237)(571)
Proceeds from sale of property and equipment 49 49 
NET CASH USED IN INVESTING ACTIVITIES (29,003)(6,414)
CASH FLOWS FROM FINANCING ACTIVITIES: 
Repayments from other long-term liabilities, net (25)(13)
Proceeds from exercise of stock options 680 517 
Taxes paid related to net share settlement of equity awards (629)(644)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
26 (140)
NET CHANGE IN CASH AND CASH EQUIVALENTS (5,941)8,830 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 69,208 64,094 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $63,267 $72,924 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: 
Interest paid $10 $11 
Income taxes paid $66 $4,288 
NON-CASH TRANSACTIONS 
Transfer of rental equipment components to inventory $144 $48