Group 1 - Energy commodities continue to be essential for countries globally despite macroeconomic uncertainty and geopolitical tensions [1] - The prices of energy commodities are volatile due to changing demand and tariff issues, yet they possess significant growth potential [1] Group 2 - The logistics sector has seen increased interest in stock investing and macroeconomic analysis, particularly in the ASEAN and NYSE/NASDAQ markets [1] - There has been a diversification in investment strategies, with a focus on various sectors including banking, telecommunications, logistics, and hotels [1] - The popularity of insurance companies in the Philippines has influenced investment decisions since 2014, leading to a broader portfolio beyond traditional savings [1]

Core Insights - The article discusses Palo Alto Networks' platformization strategy and Next-Generation Security Offerings (NGS) based on the company's Q3 report [1] Group 1: Company Overview - Palo Alto Networks is focusing on enhancing its platformization strategy to strengthen its market position [1] - The company is actively developing its Next-Generation Security Offerings (NGS) to address evolving cybersecurity threats [1] Group 2: Analyst Background - The author has extensive experience in equity markets and holds a CFA Charter and a PhD in Finance [1] - The author is also an Honorary Associate Professor in Finance and Corporate Governance at Brunel University London [1] - The author engages in quantitative research across various financial domains, including US equities and M&A [1]

Core Viewpoint - Natural Gas Services (NGS) has been upgraded to a Zacks Rank 2 (Buy), indicating a positive outlook based on rising earnings estimates, which significantly influence stock prices [1][3]. Earnings Estimates and Stock Price Impact - The Zacks rating system emphasizes the importance of changing earnings estimates in determining stock price movements, making it a valuable tool for investors [2][4]. - An increase in earnings estimates typically leads to higher fair value calculations by institutional investors, resulting in stock price movements [4]. Business Improvement Indicators - The upgrade reflects an improvement in Natural Gas Services' underlying business, suggesting that investors may respond positively by driving the stock price higher [5]. - The Zacks Consensus Estimate for Natural Gas Services has increased by 5.7% over the past three months, with expected earnings of $1.48 per share for the fiscal year ending December 2025, indicating no year-over-year change [8]. Zacks Rank System Overview - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with a strong historical performance, particularly for Zacks Rank 1 stocks, which have averaged a +25% annual return since 1988 [7]. - The upgrade to Zacks Rank 2 places Natural Gas Services in the top 20% of Zacks-covered stocks, suggesting potential for market-beating returns in the near term [10].

Core Viewpoint - Natural Gas Services (NGS) shares have increased by 6.8% recently, with analysts suggesting a potential upside of 41.7% based on a mean price target of $36.25 [1][11]. Price Targets - The average price target for NGS ranges from a low of $32.00 to a high of $45.00, with a standard deviation of $5.97, indicating variability among analysts [2]. - The lowest estimate suggests a 25.1% increase, while the highest points to a 75.9% upside [2]. Analyst Sentiment - There is strong agreement among analysts regarding NGS's ability to report better earnings, which supports the expectation of an upside [4][11]. - Over the past 30 days, the Zacks Consensus Estimate for the current year has risen by 5.7%, with no negative revisions [12]. Zacks Rank - NGS holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimates [13]. Conclusion on Price Movement - While consensus price targets may not be entirely reliable, the direction indicated by these targets appears to be a useful guide for potential price movement [14].

Q2 2025 Earnings Release Overview Strong Q2 2025 results with increased rental revenue, record Adjusted EBITDA, shareholder returns, and raised guidance [Second Quarter 2025 Highlights](index=1&type=section&id=Second%20Quarter%202025%20Highlights) Natural Gas Services Group reported a strong second quarter of 2025, highlighted by a 13.3% year-over-year increase in rental revenue and a 19.5% rise in Adjusted EBITDA to a record $19.7 million. The company also initiated its first quarterly cash dividend and a share repurchase program, reflecting confidence in its financial health and cash generation capabilities | Metric | Q2 2025 | YoY Change | Sequential Change | | :--- | :--- | :--- | :--- | | Rental Revenue | $39.6 million | +13.3% | +1.7% | | Net Income | $5.2 million | +20.9% | +6.9% | | Diluted EPS | $0.41 | +20.6% | +7.9% | | Adjusted EBITDA | $19.7 million | +19.5% | +1.9% | | Leverage Ratio | 2.31x | N/A | N/A | - The company initiated its first quarterly cash dividend of **$0.10 per share** and authorized a share repurchase program of up to **$6 million**, signaling a strong outlook on cash generation and a commitment to shareholder returns[5](index=5&type=chunk) [Management Commentary and Outlook](index=1&type=section&id=Management%20Commentary%20and%20Outlook) Management attributed the record-setting quarter to strong technology, customer service, and operational discipline, leading to an all-time high in utilized rental horsepower. Citing strong first-half performance and contracted deployments, the company raised its full-year 2025 Adjusted EBITDA guidance. The initiation of a dividend and share buyback program is balanced with continued capital deployment into new units, supported by a strong financial position with the lowest leverage among public peers - Utilized rental horsepower reached an all-time high of **499,000**, and Adjusted EBITDA was a record **$19.7 million** for the quarter[4](index=4&type=chunk) - The company is raising its full-year 2025 Adjusted EBITDA guidance to **$76 - $80 million**, driven by first-half performance and scheduled large-horsepower unit deployments[4](index=4&type=chunk) - A quarterly dividend was initiated at a modest level to balance shareholder returns with capital deployment into new units, with the company noting its leverage of **2.31x** is the lowest among public peers[4](index=4&type=chunk) Corporate Guidance and Subsequent Events Updated 2025 guidance, increased Adjusted EBITDA, capex plans, dividend, share repurchase, and COO transition [Updated 2025 Corporate Guidance](index=2&type=section&id=Updated%202025%20Corporate%20Guidance) The company has increased its full-year 2025 Adjusted EBITDA guidance to a range of $76 million to $80 million. Capital expenditure guidance for growth is set at $95-$115 million, primarily for new units under multi-year contracts, with maintenance capex expected to be $11-$14 million. The target return on invested capital remains at a minimum of 20% | Guidance Metric | 2025 Outlook | | :--- | :--- | | **NEW** FY 2025 Adjusted EBITDA | $76 million - $80 million | | FY 2025 Growth Capital Expenditures | $95 million - $115 million | | FY 2025 Maintenance Capital Expenditures | $11 million - $14 million | | Target Return on Invested Capital | At least 20% | - Growth capital is invested only when a multi-year contract is secured for a new unit. Deployments are heavily weighted to the second half of 2025 and early 2026[7](index=7&type=chunk) [Subsequent Events](index=2&type=section&id=Subsequent%20Events) Following the end of the second quarter, the Board of Directors declared a cash dividend of $0.10 per share, approved a $6 million share repurchase program, and announced that President and COO Brian Tucker will be transitioning out of his role by October 31, 2025, due to personal family reasons - On July 30, 2025, the Board declared a cash dividend of **$0.10 per share**[9](index=9&type=chunk) - On August 5, 2025, it was announced that President and COO Brian Tucker will transition out of his role due to an unexpected family loss[10](index=10&type=chunk) - On August 8, 2025, the Board approved a share repurchase program for up to **$6 million**, expiring on August 6, 2027[11](index=11&type=chunk) Q2 2025 Financial Performance Analysis Robust Q2 2025 financial performance driven by rental revenue, net income, Adjusted EBITDA, and strong operational metrics [Detailed Financial Results](index=2&type=section&id=Detailed%20Financial%20Results) The company's second quarter 2025 financial results showed strong year-over-year growth, primarily driven by a 13.3% increase in rental revenue. This led to higher gross margins, a rise in operating income to $9.9 million, and an increase in net income to $5.2 million. Adjusted EBITDA grew 19.5% to $19.7 million, while the company maintained a healthy leverage ratio of 2.31x [Revenue](index=2&type=section&id=Revenue) Total revenue for Q2 2025 increased by 7.5% year-over-year to $41.4 million. This growth was entirely driven by a 13.3% increase in rental revenue to $39.6 million, resulting from the addition of higher horsepower units and improved pricing. Utilized horsepower grew 9.7% to 498,651 | Revenue Type | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Rental Revenue | $39.6 million | $34.9 million | +13.3% | | **Total Revenue** | **$41.4 million** | **$38.5 million** | **+7.5%** | - Utilized horsepower increased by **9.7%** year-over-year, from **454,568 hp** to **498,651 hp**[13](index=13&type=chunk) [Gross Margins and Operating Income](index=2&type=section&id=Gross%20Margins%20and%20Operating%20Income) In Q2 2025, total gross margin rose to $15.4 million from $13.4 million in the prior year. Adjusted gross margin, which excludes depreciation, increased to $24.2 million from $21.0 million. Operating income also saw growth, reaching $9.9 million compared to $8.5 million in Q2 2024 | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Gross Margin | $15.4 million | $13.4 million | | Adjusted Gross Margin | $24.2 million | $21.0 million | | Operating Income | $9.9 million | $8.5 million | [Net Income and Adjusted EBITDA](index=3&type=section&id=Net%20Income%20and%20Adjusted%20EBITDA) Net income for Q2 2025 was $5.2 million, or $0.41 per diluted share, a significant increase from $4.3 million, or $0.34 per diluted share, in Q2 2024. Adjusted EBITDA grew 19.5% year-over-year to $19.7 million, primarily due to higher rental revenue and improved rental adjusted gross margin | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Income | $5.2 million | $4.3 million | | Diluted EPS | $0.41 | $0.34 | | Adjusted EBITDA | $19.7 million | $16.5 million | [Cash Flows and Debt](index=3&type=section&id=Cash%20Flows%20and%20Debt) For the second quarter of 2025, cash flow from operations was $11.0 million, while cash used in investing activities was $25.7 million, including $25.8 million in capital expenditures. The company ended the quarter with $182.0 million in outstanding debt and a leverage ratio of 2.31x - Cash flow from operating activities was **$11.0 million**, while cash used in investing activities was **$25.7 million**, primarily for capital expenditures of **$25.8 million**[17](index=17&type=chunk) - As of June 30, 2025, outstanding debt was **$182.0 million**, with a leverage ratio of **2.31x** and a fixed charge coverage ratio of **3.04x**[19](index=19&type=chunk) [Selected Financial and Operational Data](index=3&type=section&id=Selected%20Financial%20and%20Operational%20Data) Trailing five-quarter data reveals a consistent upward trend in rental revenue, which grew from $34.9 million in Q2 2024 to $39.6 million in Q2 2025. Utilized horsepower also steadily increased over the period, reaching 498,651 with a horsepower utilization rate of 83.6% in the most recent quarter | (in thousands) | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Rental Revenue** | $34,926 | $37,350 | $38,226 | $38,910 | $39,580 | | Compression Statistics | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Horsepower Utilized** | 454,568 | 475,534 | 491,756 | 492,679 | 498,651 | | **Horsepower Utilization** | 82.3% | 82.0% | 82.1% | 81.7% | 83.6% | Non-GAAP Financial Measures Definitions and reconciliations of key non-GAAP financial measures: Adjusted Gross Margin and Adjusted EBITDA [Adjusted Gross Margin](index=5&type=section&id=Adjusted%20Gross%20Margin) The company defines Adjusted Gross Margin as total revenue less cost of sales, excluding depreciation and amortization. This non-GAAP measure is used by management to focus on current operating performance. For Q2 2025, Adjusted Gross Margin was $24.2 million, reconciled from a GAAP gross margin of $15.4 million by adding back $8.9 million in depreciation - Adjusted Gross Margin is defined as total revenue less costs of revenues (excluding depreciation and amortization expense). Management uses it to represent the results of key components of operations, focusing on current operating performance[23](index=23&type=chunk) | (in thousands) | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 | | :--- | :--- | :--- | :--- | :--- | :--- | | Gross margin (GAAP) | $13,430 | $14,936 | $14,630 | $15,717 | $15,350 | | Depreciation add-back | $7,572 | $7,956 | $8,349 | $8,539 | $8,873 | | **Adjusted Gross Margin** | **$21,002** | **$22,892** | **$22,979** | **$24,256** | **$24,223** | [Adjusted EBITDA](index=5&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA, a non-GAAP measure, is defined as net income before interest, taxes, depreciation, amortization, and other specified items like stock-based compensation. Management uses it to evaluate operating performance. For Q2 2025, Adjusted EBITDA was $19.7 million, reconciled from a net income of $5.2 million - Adjusted EBITDA is defined as net income before interest, taxes, depreciation, amortization, impairments, and other non-recurring or non-cash charges. It is a key measure used by management and investors to evaluate operating performance[25](index=25&type=chunk) | (in thousands) | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net income (GAAP) | $4,250 | $5,014 | $2,865 | $4,854 | $5,188 | | **Adjusted EBITDA** | **$16,456** | **$18,186** | **$18,006** | **$19,290** | **$19,665** | Appendix: Consolidated Financial Statements Condensed consolidated financial statements: balance sheets, statements of operations, and cash flows [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, the company's total assets stood at $525.5 million, an increase from $492.5 million at the end of 2024, driven by investment in rental equipment. Total liabilities rose to $259.3 million from $237.5 million, primarily due to an increase in long-term debt to $182.0 million. Total stockholders' equity increased to $266.2 million | (in thousands) | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $48,882 | $48,176 | | Rental equipment, net | $446,952 | $415,021 | | **Total Assets** | **$525,526** | **$492,528** | | Total Current Liabilities | $24,788 | $17,358 | | Long-term debt | $182,000 | $170,000 | | **Total Liabilities** | **$259,312** | **$237,471** | | **Total Stockholders' Equity** | **$266,214** | **$255,057** | [Condensed Consolidated Statements of Operations](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended June 30, 2025, total revenue was $41.4 million, up from $38.5 million in the prior-year period. Operating income increased to $9.9 million from $8.5 million, and net income grew to $5.2 million ($0.41 per diluted share) from $4.3 million ($0.34 per diluted share) year-over-year | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Total Revenue | $41,382 | $38,491 | | Operating Income | $9,924 | $8,506 | | **Net Income** | **$5,188** | **$4,250** | | **Diluted EPS** | **$0.41** | **$0.34** | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2025, the company generated $32.3 million in cash from operating activities. Cash used in investing activities was $45.0 million, largely for the purchase of rental equipment. Cash provided by financing activities was $10.9 million, resulting from net borrowings on the credit facility. The period ended with a cash balance of $0.3 million | (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $32,263 | $31,119 | | Net Cash Used in Investing Activities | ($44,962) | ($27,881) | | Net Cash Provided by (Used in) Financing Activities | $10,882 | ($2,368) | | **Net Change in Cash** | **($1,817)** | **$870** |

Industry Overview - The Zacks Oil and Gas - Mechanical and Equipment industry includes companies that supply essential oilfield equipment such as production machinery, pumps, and drilling appliances to exploration and production firms [3] - The industry's performance is closely linked to the capital expenditures of upstream energy companies, which are influenced by oil prices and demand for drilling equipment [3] Current Market Conditions - Increasing oil stockpiles are expected to lead to lower crude prices, with the U.S. Energy Information Administration projecting West Texas Intermediate Spot Average prices of $63.58 per barrel in 2025 and $47.77 per barrel in 2026, down from $76.60 per barrel in 2024 [4] - This pricing environment is likely to discourage exploration and production activities, resulting in reduced demand for drilling and production equipment [4] Capital Expenditure Trends - Exploration and production companies are adopting a more conservative approach to capital spending, prioritizing shareholder returns over increased production expenditures, which is anticipated to further diminish demand for drilling and production equipment [5] Dividend Yield and Investment Sentiment - Stocks in the Zacks Oil and Gas - Mechanical and Equipment industry have consistently generated lower dividend yields compared to the broader oil energy sector over the past five years, potentially deterring income-focused investors [6] Industry Ranking and Performance - The Zacks Oil and Gas - Mechanical and Equipment industry holds a Zacks Industry Rank of 156, placing it in the bottom 36% of over 250 Zacks industries, indicating a bleak outlook [7][8] - Over the past year, the industry has underperformed both the broader Zacks Oil - Energy sector and the S&P 500, with a gain of only 2.8% compared to 4.1% and 21% for the sector and S&P 500, respectively [9] Valuation Metrics - The industry is currently trading at an EV/EBITDA ratio of 5.46X, which is lower than the S&P 500's 17.66X but higher than the sector's 4.79X [13] - Historical trading ranges for the industry have varied from a high of 43.84X to a low of 1.78X over the past five years, with a median of 10.37X [13] Company-Specific Insights - Natural Gas Services Group, Inc. (NGS) is positioned to benefit from increased demand for its compression equipment as the U.S. exports more liquefied natural gas (LNG) [15] - Solaris Energy Infrastructure, Inc. (SEI) is expected to maintain or grow its market share due to its advanced equipment that supports higher completion intensity, even in a weaker oil price environment [18] - Oil States International, Inc. (OIS) has secured $363 million in orders, marking its largest backlog in nearly a decade, indicating strong customer demand and future revenue growth potential [20]

Financial Data and Key Metrics Changes - Total revenue for Q2 2025 was $41.4 million, an increase of 8% from $38.5 million in the prior year quarter [18] - Adjusted EBITDA reached a record $19.7 million, up $3.2 million year over year [19] - Net income was $5.2 million, or $0.41 per diluted share, reflecting a year-over-year increase of $900,000 [19] Business Line Data and Key Metrics Changes - Rental revenue increased by 13% year over year to $39.6 million [18] - Rented horsepower ended the quarter at approximately 499,000, up from roughly 455,000 in the prior year quarter, marking a 10% increase [20] - Fleet utilization improved to 83.6%, an increase of 130 basis points year over year [20] Market Data and Key Metrics Changes - Approximately 80% of total rented horsepower is on term contracts, up from about 67% a year ago [20] - Demand for natural gas is expected to grow by more than 30% over the next five years, driven by LNG exports and power generation [10] Company Strategy and Development Direction - The company is focused on enhancing shareholder returns through a quarterly dividend and a share repurchase program [5][6] - There is a strong emphasis on organic growth while remaining open to M&A opportunities [6] - The company aims to optimize fleet assets and improve operational efficiency through technology upgrades [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in raising the 2025 adjusted EBITDA outlook to $76 million to $80 million, citing strong performance and customer commentary [27] - Despite ongoing market volatility, the company remains optimistic about future growth driven by stable production and increasing demand for compression [9][10] - Management noted that labor challenges, particularly in the Permian Basin, are a key concern [64] Other Important Information - The Midland fabrication facility is now classified as held for sale, indicating a focus on monetizing real estate assets [22] - The company is experiencing a transition in leadership with the President and COO stepping down due to personal reasons [15][16] Q&A Session Summary Question: Can you provide insight on the opportunity pipeline for 2026? - Management indicated that most new unit opportunities are focused on 2026, with significant activity in the Permian Basin [34] Question: What is the outlook for rental gross margins? - Management believes that rental gross margins are sustainable, having remained in the low 60s over the past year [38] Question: How is the company taking market share? - Management noted that the growth in their capital expenditures compared to larger competitors indicates market share gains [43] Question: What is the current mix of inquiries from new versus existing customers? - The majority of inquiries are from existing customers, but there are new customer opportunities arising from industry consolidation [60] Question: What are the greatest stress points for the company? - Management identified labor challenges and macroeconomic factors as key stress points, emphasizing the importance of focusing on controllable factors [64]

Core Insights - Natural Gas Services (NGS) reported quarterly earnings of $0.41 per share, exceeding the Zacks Consensus Estimate of $0.32 per share, and up from $0.34 per share a year ago [1] - The earnings surprise for the quarter was +28.13%, following a previous surprise of +40.74% [2] - The company achieved revenues of $41.38 million for the quarter, surpassing the Zacks Consensus Estimate by 0.42% and increasing from $38.49 million year-over-year [3] Earnings Performance - NGS has surpassed consensus EPS estimates in all four of the last quarters [2] - The current consensus EPS estimate for the upcoming quarter is $0.33, with expected revenues of $43.1 million, and for the current fiscal year, the estimate is $1.40 on revenues of $171.47 million [8] Market Position - NGS shares have underperformed the market, losing about 7.5% since the beginning of the year, while the S&P 500 has gained 8.6% [4] - The Zacks Industry Rank for Oil and Gas - Mechanical and Equipment is in the bottom 39% of over 250 Zacks industries, indicating potential challenges for the sector [9] Future Outlook - The earnings outlook and estimate revisions will be crucial for NGS's stock performance in the near future [5] - The current Zacks Rank for NGS is 3 (Hold), suggesting that the shares are expected to perform in line with the market [7]

Core Viewpoint - Natural Gas Services Group, Inc. (NGS) reported strong financial results for Q2 2025, with record Adjusted EBITDA and increased guidance for the full year, driven by robust demand for compression services and strategic deployments of large horsepower units [1][3][4]. Financial Performance - Total revenue for Q2 2025 increased by 7.5% to $41.4 million compared to $38.5 million in Q2 2024, primarily due to a 13.3% rise in rental revenue [7][12]. - Adjusted EBITDA reached a record $19.7 million in Q2 2025, reflecting a 19.5% year-over-year increase [17]. - Net income for Q2 2025 was $5.2 million, or $0.41 per diluted share, compared to $4.3 million, or $0.34 per diluted share, in the same period last year [15][36]. Guidance and Outlook - The company raised its full-year 2025 Adjusted EBITDA guidance to $76 - $80 million, up from the previous range of $74 - $79 million, citing strong first-half performance and expected large horsepower unit deployments [4][8]. - Growth capital expenditures for 2025 are projected to be between $95 - $115 million, primarily for new units under contract [5][8]. Operational Highlights - Utilized rental horsepower reached an all-time high of 499,000, with a total of 498,651 rented horsepower as of June 30, 2025, marking a 9.7% increase from the previous year [3][12]. - The company initiated a quarterly cash dividend of $0.10 per share and authorized a share repurchase program of up to $6 million, indicating confidence in cash generation and capital allocation strategy [7][11]. Strategic Initiatives - NGS is focusing on deploying large-horsepower gas engine and electric motor units in key basins, with expectations of continued momentum through 2025 and into 2026 [3][4]. - The company maintains a competitive financial position with the lowest leverage among public peers at 2.31x, allowing for flexibility in pursuing organic growth and potential M&A opportunities [3][18].

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) This section presents the unaudited condensed consolidated financial statements and comprehensive notes for Natural Gas Services Group, Inc [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the Company's financial position, detailing assets, liabilities, and stockholders' equity | ASSETS (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $325 | $2,142 | | Trade accounts receivable, net | $13,742 | $15,626 | | Inventory, net | $18,334 | $18,051 | | Total current assets | $48,882 | $48,176 | | Rental equipment, net | $446,952 | $415,021 | | Total assets | $525,526 | $492,528 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total current liabilities | $24,788 | $17,358 | | Long-term debt | $182,000 | $170,000 | | Total liabilities | $259,312 | $237,471 | | Total stockholders' equity | $266,214 | $255,057 | | Total liabilities and stockholders' equity | $525,526 | $492,528 | [Unaudited Condensed Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) This statement reports the Company's revenues, expenses, and net income over specific periods | Metric (in thousands, except EPS) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $41,382 | $38,491 | $82,765 | $75,398 | | Total operating costs and expenses | $31,458 | $29,985 | $63,334 | $57,573 | | Operating income | $9,924 | $8,506 | $19,431 | $17,825 | | Net income | $5,188 | $4,250 | $10,042 | $9,348 | | Basic EPS | $0.42 | $0.34 | $0.81 | $0.75 | | Diluted EPS | $0.41 | $0.34 | $0.80 | $0.75 | - Net income increased by **22.1%** for the three months ended June 30, 2025, and by **7.4%** for the six months ended June 30, 2025, compared to the prior year periods[13](index=13&type=chunk) [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This statement details changes in the Company's equity accounts, including net income and stock-based compensation | Stockholders' Equity (in thousands) | January 1, 2025 | June 30, 2025 | | :---------------------------------- | :-------------- | :------------ | | Total Stockholders' Equity | $255,057 | $266,214 | | Change in Stockholders' Equity | | +$11,157 | - Total stockholders' equity increased by **$11.157 million** from January 1, 2025, to June 30, 2025, primarily due to net income and stock-based compensation[15](index=15&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $32,263 | $31,119 | | Net cash used in investing activities | $(44,962) | $(27,881) | | Net cash provided by (used in) financing activities | $10,882 | $(2,368) | | Net change in cash and cash equivalents | $(1,817) | $870 | | Cash and cash equivalents at end of period | $325 | $3,616 | - Operating cash flows increased by **$1.1 million**, while investing activities saw a significant increase in cash used, primarily for rental equipment purchases[18](index=18&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) - Financing activities shifted from net cash used to net cash provided, mainly due to increased credit facility borrowings[18](index=18&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) [1. Description of Business](index=7&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements%3A1.%20Description%20of%20Business) This note outlines Natural Gas Services Group, Inc.'s core business as a provider of compression equipment and services - Natural Gas Services Group, Inc. (NGS) is a leading provider of natural gas and electric compression equipment, technology, and services to the energy industry, headquartered in Midland, Texas, with operations across major U.S. oil and gas basins[19](index=19&type=chunk) [2. Summary of Significant Accounting Policies](index=7&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements%3A2.%20Summary%20of%20Significant%20Accounting%20Policies) This note details the key accounting principles and policies used in preparing the financial statements - The financial statements are prepared in accordance with GAAP, include the Company and its subsidiary, and all significant intercompany transactions are eliminated[20](index=20&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) - The Company operates in one business segment, as resource allocation and performance assessment are based on the entire entity[20](index=20&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) - ASU 2024-03, effective January 1, 2027, for annual periods, will expand disclosures for certain income statement expenses but is not expected to materially impact financial statements[25](index=25&type=chunk) [3. Trade Accounts Receivable](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements%3A3.%20Trade%20Accounts%20Receivable) This note provides a breakdown of trade accounts receivable and the provision for credit losses | Trade Accounts Receivable (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------- | :------------ | :---------------- | | Rentals | $12,525 | $14,218 | | Sales and aftermarket services | $1,735 | $2,657 | | Less: Provision for credit losses | $(518) | $(1,249) | | Total trade accounts receivable, net | $13,742 | $15,626 | - Occidental Permian, LTD. (Oxy) accounted for **47%** and **51%** of revenue for the six months ended June 30, 2025 and 2024, respectively, and **50%** and **52%** of accounts receivable as of June 30, 2025 and December 31, 2024, respectively, indicating significant customer concentration[27](index=27&type=chunk) | Provision for Credit Losses (in thousands) | Six months ended June 30, 2025 | Year ended December 31, 2024 | | :--------------------------------------- | :----------------------------- | :--------------------------- | | Beginning balance | $1,249 | $823 | | Provision for credit losses | $208 | $433 | | Write-offs | $(939) | $(7) | | Ending balance | $518 | $1,249 | - A substantial write-off of **$939 thousand** in credit loss provision occurred during the six months ended June 30, 2025, reflecting certain aged receivables no longer deemed collectible[28](index=28&type=chunk) [4. Inventory](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements%3A4.%20Inventory) This note details the composition of inventory and the allowance for obsolescence | Inventory (in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Raw materials, net | $17,576 | $17,706 | | Work-in-process | $758 | $345 | | Inventory - current | $18,334 | $18,051 | | Total inventory | $18,334 | $18,051 | | Allowance for Obsolescence (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------------------------- | :------------ | :---------------- | | Beginning balance | $5,867 | $4,004 | | Allowance for obsolescence | $61 | $1,863 | | Write-offs | $(3,409) | $0 | | Ending balance | $2,519 | $5,867 | - A significant write-off of **$3.409 million** in the allowance for obsolescence during the six months ended June 30, 2025, was due to the disposal of inventory items from the former Midland, Texas fabrication facility[30](index=30&type=chunk) [5. Assets Held for Sale](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements%3A5.%20Assets%20Held%20for%20Sale) This note describes assets reclassified for sale, including the Midland facility, and related impacts - The Company reclassified its Midland, Texas fabrication, repair, and overhaul facility (industrial building and land) with a net carrying value of **$2.2 million** to assets held for sale as of June 30, 2025, following the termination of operations and disposal of inventory[31](index=31&type=chunk)[32](index=32&type=chunk) - The closure of the Midland Facility resulted in the termination of eight employees and **$0.1 million** in severance and termination benefits paid in April 2025[33](index=33&type=chunk) [6. Rental Equipment](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements%3A6.%20Rental%20Equipment) This note provides details on the Company's rental equipment, including its net value and depreciation | Rental Equipment (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------ | :------------ | :---------------- | | Compressor units | $627,823 | $579,373 | | Work-in-progress | $41,207 | $51,662 | | Accumulated depreciation | $(222,078) | $(216,014) | | Rental equipment, net | $446,952 | $415,021 | - Depreciation expense for rental equipment was **$8.0 million** and **$6.9 million** for the three months ended June 30, 2025 and 2024, respectively, and **$15.7 million** and **$13.4 million** for the six months ended June 30, 2025 and 2024, respectively[34](index=34&type=chunk) [7. Property and Equipment](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements%3A7.%20Property%20and%20Equipment) This note outlines the Company's property and equipment, including land and buildings, net of depreciation | Property and Equipment (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Land | $1,562 | $1,680 | | Building | $16,135 | $19,140 | | Total, net of accumulated depreciation | $22,664 | $22,989 | - During Q2 2025, **$2.2 million** of property and equipment from the former Midland Facility was reclassified to assets held for sale[36](index=36&type=chunk) [8. Supplemental Balance Sheet Disclosures](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements%3A8.%20Supplemental%20Balance%20Sheet%20Disclosures) This note provides additional details on accrued liabilities and other balance sheet items | Accrued Liabilities (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Accrued purchases | $3,529 | $2,085 | | Compensation | $3,395 | $3,483 | | Other | $2,752 | $1,343 | | Total | $10,297 | $7,688 | [9. Long-Term Debt](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements%3A9.%20Long-Term%20Debt) This note details the Company's long-term debt, including credit facility terms and outstanding balances | Long-Term Debt (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------------- | :------------ | :---------------- | | Credit facility | $182,000 | $170,000 | - On April 18, 2025, the Company amended its Credit Facility, increasing the total commitment to **$400.0 million** (from $300.0 million) with an expanded accordion feature of **$100.0 million**, reducing interest rates by **50-75 basis points**, and providing more flexible leverage covenants from June 30, 2026[38](index=38&type=chunk)[39](index=39&type=chunk) - As of June 30, 2025, **$182.0 million** was outstanding under the Credit Facility with a weighted average interest rate of **7.23%**, and **$172.3 million** was available for borrowing[40](index=40&type=chunk)[121](index=121&type=chunk) - The Company was in compliance with all financial covenants[40](index=40&type=chunk)[121](index=121&type=chunk) [10. Income Taxes](index=12&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements%3A10.%20Income%20Taxes) This note discusses the Company's income tax position, including a federal income tax refund claim - The Company has an outstanding federal income tax refund claim of approximately **$11.4 million** related to 2019 NOL carrybacks under the CARES Act[45](index=45&type=chunk)[46](index=46&type=chunk) - The refund request was formally submitted to the Joint Committee on Taxation (JCT) for review in Q2 2025[45](index=45&type=chunk)[46](index=46&type=chunk) [11. Commitments and Contingencies](index=12&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements%3A11.%20Commitments%20and%20Contingencies) This note addresses potential future obligations and legal matters that could impact the Company - The Company is not currently a party to any material legal proceedings and believes that any potential claims will not have a material adverse effect on its financial condition, results of operations, or cash flows[47](index=47&type=chunk) [12. Revenues from Customers](index=12&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements%3A12.%20Revenues%20from%20Customers) This note disaggregates revenue by source, including rental, sales, and aftermarket services | Revenue Disaggregation (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Rental | $39,580 | $34,926 | $78,490 | $68,660 | | Sales | $750 | $2,270 | $2,677 | $4,773 | | Aftermarket services | $1,052 | $1,295 | $1,598 | $1,965 | | Total revenue | $41,382 | $38,491 | $82,765 | $75,398 | - Rental revenue increased by **13.3%** and **14.3%** for the three and six months ended June 30, 2025, respectively, compared to the prior year, while sales and aftermarket services revenue declined[48](index=48&type=chunk) [13. Stock-Based and Other Long-Term Incentive Compensation](index=13&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements%3A13.%20Stock-Based%20and%20Other%20Long-Term%20Incentive%20Compensation) This note details the Company's stock-based compensation plans and related expenses | Stock-Based Compensation Expense (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Equity-classified | $579 | $242 | $938 | $516 | | Liability-classified | $137 | $16 | $137 | $16 | | Total | $716 | $258 | $1,075 | $532 | - Stock-based compensation expense significantly increased in 2025, primarily due to a higher mix of performance-based share unit (PSU) awards for executive officers, which generally have a higher grant-date fair value[52](index=52&type=chunk)[95](index=95&type=chunk) - As of June 30, 2025, unrecognized compensation cost for unvested options was approximately **$0.6 million** (expected over 2.33 years), for RSUs was **$2.1 million** (expected over 2.12 years), and for PSUs was **$1.8 million** (expected over 2.13 years)[54](index=54&type=chunk)[56](index=56&type=chunk)[61](index=61&type=chunk) - Stockholders approved an amendment to the 2019 Equity Incentive Plan on June 5, 2025, increasing available shares by **500,000** to **1,650,000** and extending the term to June 20, 2034[55](index=55&type=chunk) [14. Earnings per Share](index=15&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements%3A14.%20Earnings%20per%20Share) This note presents the basic and diluted earnings per share calculations for the Company | Earnings per Common Share | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic | $0.42 | $0.34 | $0.81 | $0.75 | | Diluted | $0.41 | $0.34 | $0.80 | $0.75 | | Anti-Dilutive Awards Excluded (shares) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock options | 94,000 | 92,417 | 94,000 | 92,417 | | Restricted stock and RSUs | 20,963 | 5,750 | 7,595 | 18,635 | | PSUs | 47,029 | — | 47,029 | — | | Total | 161,992 | 98,167 | 148,624 | 111,052 | [15. Subsequent Events](index=16&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements%3A15.%20Subsequent%20Events) This note discloses significant events occurring after the reporting period but before financial statement issuance - On July 30, 2025, the Board declared a cash dividend of **$0.10 per share**, payable August 22, 2025[64](index=64&type=chunk) - On August 5, 2025, Brian Tucker, President and COO, announced his transition out of the role by October 31, 2025, due to an unexpected family loss[65](index=65&type=chunk) - On August 8, 2025, the Board approved a **$6 million** share repurchase program, expiring August 6, 2027[66](index=66&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's analysis of financial performance, liquidity, capital resources, and critical accounting estimates [Overview](index=18&type=section&id=Overview) This section provides a general description of the Company's business model and operational focus - The Company's primary focus is on the rental of natural gas and electric compressors, with contracts typically ranging from 12 to 60 months[74](index=74&type=chunk) - Substantially all compressor assembly is outsourced, with limited in-house work at the Tulsa facility[74](index=74&type=chunk) - **77%** of rental revenue is generated from the Permian Basin, and approximately **75%** supports oil production, primarily gas lift operations[75](index=75&type=chunk) - The Company operates in one reporting segment across five states[75](index=75&type=chunk) [Operating Highlights](index=18&type=section&id=Operating%20Highlights) This section presents key operational metrics and their year-over-year performance trends | Operating Metric | June 30, 2025 | June 30, 2024 | | :----------------- | :------------ | :------------ | | Rented horsepower (at period end) | 498,651 | 454,568 | | Horsepower utilization (at period end) | 83.6 % | 82.3 % | | Rental revenues | $39,580 | $34,926 | | Total revenues | $41,382 | $38,491 | | Rental revenues as a percent of total revenues | 95.6 % | 90.7 % | - Rented horsepower increased by **9.7%** year-over-year, and horsepower utilization improved to **83.6%**[76](index=76&type=chunk) - Rental revenues now constitute **95.6%** of total revenues, up from **90.7%** in the prior year[76](index=76&type=chunk) [Our Performance Trends and Outlook](index=19&type=section&id=Our%20Performance%20Trends%20and%20Outlook) This section discusses current performance trends and the Company's future market expectations - Demand for the existing compressor fleet is expected to remain positive, assuming crude oil prices stay within reasonable bands[78](index=78&type=chunk) - The market outlook for U.S. natural gas production remains steady, with opportunities for increased utilization of small and medium horsepower units in the Permian basin and Marcellus Shale[79](index=79&type=chunk) [Non-GAAP Financial Measures](index=19&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and reconciles non-GAAP financial measures used by management to assess performance - The Company uses Adjusted Gross Margin (total revenue less cost of revenues excluding depreciation and amortization) and Adjusted EBITDA (net income before interest, taxes, depreciation, amortization, inventory allowance, impairments, retirement of rental equipment, non-recurring restructuring charges, and non-cash equity-classified stock-based compensation) as non-GAAP financial measures to analyze performance[81](index=81&type=chunk)[85](index=85&type=chunk) | Metric (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Adjusted gross margin | $24,223 | $21,002 | $48,479 | $42,115 | | Adjusted EBITDA | $19,665 | $16,456 | $38,955 | $33,334 | - Adjusted Gross Margin increased by **15.3%** for the three months and **15.1%** for the six months ended June 30, 2025, year-over-year[84](index=84&type=chunk)[87](index=87&type=chunk) - Adjusted EBITDA increased by **19.5%** for the three months and **16.9%** for the six months ended June 30, 2025, year-over-year[84](index=84&type=chunk)[87](index=87&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the Company's revenues, costs, and expenses by segment [Rentals](index=22&type=section&id=Rentals) This section analyzes revenue and costs associated with the Company's compressor rental business | Rental Performance (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Rental revenue | $39,580 | $34,926 | $78,490 | $68,660 | | Cost of rentals (excluding D&A) | $15,528 | $14,228 | $30,368 | $27,342 | | Rental adjusted gross margin | $24,052 | $20,698 | $48,122 | $41,318 | | Rental adjusted gross margin percentage | 60.8 % | 59.3 % | 61.3 % | 60.2 % | | Rented horsepower (period end) | 498,651 | 454,568 | 498,651 | 454,568 | | Horsepower utilization (period end) | 83.6 % | 82.3 % | 83.6 % | 82.3 % | - Rental revenue increased by **13.3%** (QoQ) and **14.3%** (YoY) due to higher rented horsepower, particularly larger units, despite a decrease in the number of units and customers[89](index=89&type=chunk)[90](index=90&type=chunk) - The adjusted gross margin percentage improved due to efficient maintenance activities supported by SMART and telemetry software[89](index=89&type=chunk)[90](index=90&type=chunk) [Sales](index=23&type=section&id=Sales) This section examines the performance of the Company's compressor sales activities | Sales Performance (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sales revenue | $750 | $2,270 | $2,677 | $4,773 | | Cost of sales (excluding D&A) | $911 | $2,249 | $2,927 | $4,429 | | Sales adjusted gross margin | $(161) | $21 | $(250) | $344 | | Sales adjusted gross margin percentage | (21.5)% | 0.9 % | (9.3)% | 7.2 % | - Sales revenue declined significantly by **67.0%** (QoQ) and **43.9%** (YoY)[92](index=92&type=chunk) - Sales adjusted gross margin turned negative due to lower business volume and fixed overhead costs, including severance from the Midland facility closure, as the Company shifts focus from new compressor sales to rentals[92](index=92&type=chunk) [Aftermarket Service](index=23&type=section&id=Aftermarket%20Service) This section reviews the revenue and profitability of aftermarket services provided by the Company | Aftermarket Services Performance (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Aftermarket services revenue | $1,052 | $1,295 | $1,598 | $1,965 | | Cost of aftermarket services (excluding D&A) | $720 | $1,012 | $991 | $1,512 | | Aftermarket services adjusted gross margin | $332 | $283 | $607 | $453 | | Aftermarket services adjusted gross margin percentage | 31.6 % | 21.9 % | 38.0 % | 23.1 % | - Aftermarket services revenue declined by **18.8%** (QoQ) and **18.7%** (YoY) due to lower unit commissioning work and freight costs[93](index=93&type=chunk) - Adjusted gross margins and percentages improved significantly, reflecting better cost management[93](index=93&type=chunk) [Selling, General and Administrative Expenses](index=24&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses) This section details the trends and components of the Company's SG&A expenses | SG&A Expenses (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Primary SG&A expenses | $4,875 | $4,778 | $9,894 | $9,206 | | Stock-based compensation | $579 | $242 | $938 | $516 | | Total SG&A expenses | $5,454 | $5,020 | $10,832 | $9,722 | | SG&A as % of total revenues | 13.2 % | 13.0 % | 13.1 % | 12.9 % | - Total SG&A expenses increased by **8.6%** (QoQ) and **11.4%** (YoY), driven by higher information technology support costs, public company costs, occupancy, and office costs, partially offset by lower credit loss expenses and professional fees[95](index=95&type=chunk) - Equity-classified stock-based compensation saw a significant increase due to a higher mix of performance-based share unit awards[95](index=95&type=chunk) [Depreciation and Amortization](index=24&type=section&id=Depreciation%20and%20Amortization) This section analyzes the Company's depreciation and amortization expenses and their drivers | Depreciation and Amortization (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Allocable to cost of revenues | $8,873 | $7,572 | $17,412 | $14,508 | | Corporate depreciation | $96 | $98 | $193 | $218 | | Intangible asset amortization | $0 | $35 | $0 | $66 | | Total | $8,969 | $7,705 | $17,605 | $14,792 | | As a percent of total revenues | 21.7 % | 20.0 % | 21.3 % | 19.6 % | - Depreciation and amortization expense increased by **16.4%** (QoQ) and **19.0%** (YoY), primarily due to the depreciation of high horsepower units placed in service since the second half of 2024, aligning with the Company's strategy to focus on higher-margin applications[98](index=98&type=chunk) [Inventory Allowance](index=25&type=section&id=Inventory%20Allowance) This section discusses changes in the allowance for inventory obsolescence and related write-offs | Inventory Allowance (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Inventory allowance | $0 | $0 | $61 | $0 | - A nominal increase in inventory allowance was recorded in Q1 2025 due to inventory transfers from the closed Midland facility[99](index=99&type=chunk) - The inventory obsolescence balance decreased from **$5.9 million** at December 31, 2024, to **$2.5 million** at June 30, 2025, following write-offs[99](index=99&type=chunk) [Retirement of Rental Equipment](index=25&type=section&id=Retirement%20of%20Rental%20Equipment) This section reports on the gains or losses from the disposal of rental equipment | Retirement of Rental Equipment (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Retirement of rental equipment | $0 | $0 | $728 | $5 | - The Company retired certain small and medium horsepower compressor units during the six months ended June 30, 2025, resulting in a charge of **$728 thousand**, significantly higher than the minimal retirements in the comparable 2024 period[100](index=100&type=chunk) [Gain on the Sale of Assets](index=25&type=section&id=Gain%20on%20the%20Sale%20of%20Assets) This section details the net gains or losses recognized from the sale of various assets | Gain on Disposition of Assets, net (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gain on the disposition of assets, net | $124 | $229 | $178 | $229 | - Gains on asset disposition primarily resulted from the sale of trucks after their useful lives, with lower gains recognized in 2025 compared to 2024[101](index=101&type=chunk) [Interest Expense](index=25&type=section&id=Interest%20Expense) This section analyzes the Company's interest expenses, including borrowings and capitalized interest | Interest Expense (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest on borrowings, finance leases and related fees | $3,464 | $4,037 | $6,996 | $7,980 | | Amortization of debt issue costs | $294 | $165 | $506 | $315 | | Capitalized interest | $(515) | $(1,270) | $(1,089) | $(2,428) | | Total | $3,243 | $2,932 | $6,413 | $5,867 | | Weighted-average interest rates on borrowings | 7.46 % | 8.92 % | 7.68 % | 9.00 % | - Interest expense increased by **10.6%** (QoQ) and **9.3%** (YoY), primarily due to lower capitalized interest and increased amortization of debt issue costs from Credit Facility amendments[104](index=104&type=chunk) - This occurred despite lower weighted-average interest rates on borrowings[104](index=104&type=chunk) [Other Income (Expense), net](index=26&type=section&id=Other%20Income%20%28Expense%29%2C%20net) This section reports on non-operating income and expenses, including unrealized gains or losses | Other Income (Expense), net (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Other income (expense), net | $104 | $(30) | $103 | $163 | - Other income (expense), net improved for the three months ended June 30, 2025, due to non-operating credits and unrealized gains from corporate-owned life insurance (COLI) policies[105](index=105&type=chunk) - However, it declined for the six-month period compared to 2024 due to higher unrealized COLI gains in the prior year[105](index=105&type=chunk) [Provision for Income Taxes](index=26&type=section&id=Provision%20for%20Income%20Taxes) This section details the Company's income tax expense and effective tax rates | Income Tax Provision (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense | $1,597 | $1,294 | $3,079 | $2,773 | | Effective income tax rate | 23.5 % | 23.3 % | 23.5 % | 22.9 % | - Income tax expense increased by **23%** (QoQ) and **11%** (YoY), with effective tax rates of **23.5%** for both periods in 2025[106](index=106&type=chunk) - This differs from the U.S. federal statutory rate due to certain non-deductible expenses[106](index=106&type=chunk) [Financial Condition](index=27&type=section&id=Financial%20Condition) This section assesses the Company's overall financial health, including liquidity and capital structure [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the Company's ability to meet short-term and long-term financial obligations - Primary liquidity sources are operating activities and the Credit Facility, which has a **$400.0 million** commitment and an additional **$100.0 million** accordion feature[107](index=107&type=chunk) - As of June 30, 2025, **$172.3 million** was available under the Credit Facility[107](index=107&type=chunk) - The Company believes current cash, operating cash flows, and Credit Facility borrowings will be sufficient to meet capital, dividend, and liquidity requirements for at least the next twelve months[110](index=110&type=chunk) [Cash flows](index=28&type=section&id=Cash%20flows) This section details cash generated and used across operating, investing, and financing activities | Cash Flows (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $32,263 | $31,119 | | Net cash used in investing activities | $(44,962) | $(27,881) | | Net cash (used in) provided by financing activities | $10,882 | $(2,368) | | Net increase in cash and cash equivalents | $(1,817) | $870 | - Operating cash flows increased by **$1.1 million** due to growth in accounts payable, improved billing/collection processes, and higher margins from high horsepower unit rentals[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) - Investing activities used **$45.1 million**, primarily for rental equipment[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) - Financing activities provided **$10.9 million**, mainly from net borrowings under the Credit Facility[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) [Capitalization](index=28&type=section&id=Capitalization) This section outlines the Company's capital structure, including debt and equity components | Capitalization (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------------- | :------------ | :---------------- | | Credit facility borrowings | $182,000 | $170,000 | | Total stockholders' equity | $266,214 | $255,057 | | Total capitalization | $448,214 | $425,057 | | Debt as a percent of total capitalization | 40.6 % | 40.0 % | - Total capitalization increased to **$448.2 million** as of June 30, 2025, with debt representing **40.6%** of total capitalization[119](index=119&type=chunk) - The Credit Facility has a **$400.0 million** commitment and a maturity date of February 28, 2028[119](index=119&type=chunk)[120](index=120&type=chunk) [Critical Accounting Estimates](index=29&type=section&id=Critical%20Accounting%20Estimates) This section highlights critical accounting estimates that require significant judgment and could materially impact results - There have been no changes to the critical accounting estimates disclosed in the Company's Form 10-K for the year ended December 31, 2024[124](index=124&type=chunk) [Recently Issued Accounting Pronouncements](index=29&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section discusses new accounting standards and their potential impact on the Company's financials - Refer to Note 2, 'Summary of Significant Accounting Policies,' for a discussion of recently issued accounting pronouncements[125](index=125&type=chunk) [Off-Balance Sheet Arrangements](index=29&type=section&id=Off-Balance%20Sheet%20Arrangements) This section describes contractual obligations not on the balance sheet that could affect financial condition - The Company has entered into off-balance sheet purchase agreements for compressor unit components, consistent with capital expenditure plans, which are not expected to materially affect liquidity or capital resources[126](index=126&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section confirms no material changes to market risks previously disclosed in the Company's 2024 Form 10-K - There have been no changes in the market risks disclosed in the Company's Form 10-K for the year ended December 31, 2024[127](index=127&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management's evaluation of disclosure controls and internal control over financial reporting, concluding effectiveness - Management concluded that the Company's internal control over financial reporting was effective as of June 30, 2025, based on the COSO framework[130](index=130&type=chunk) - No changes in internal control over financial reporting occurred during the three months ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[131](index=131&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The Company is not involved in material legal proceedings or aware of threatened litigation impacting its financials - The Company is not currently a party to any material legal proceedings and is not aware of any threatened material litigation[133](index=133&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) Readers are referred to the Company's 2024 Form 10-K for a comprehensive discussion of risk factors - Readers are referred to Item 1A, Risk Factors, in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, for a discussion of risks[134](index=134&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds were reported during the period - There were no unregistered sales of equity securities or use of proceeds to report[135](index=135&type=chunk) [Item 3. Defaults Upon Senior Securities](index=31&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company has not defaulted on any senior securities during the reporting period - There were no defaults upon senior securities[136](index=136&type=chunk) [Item 4. Mine Safety Disclosures](index=31&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that there are no mine safety disclosures required for the Company - There are no mine safety disclosures[137](index=137&type=chunk) [Item 5. Other Information](index=31&type=section&id=Item%205.%20Other%20Information) A Rule 10b5-1 trading agreement for common stock sales was adopted by a Board member, effective August 2025 - On May 16, 2025, Stephen C. Taylor, a Board member, adopted a Rule 10b5-1 trading agreement for the sale of up to **100,000 shares** of common stock, effective August 15, 2025, and terminating September 30, 2026[138](index=138&type=chunk) [Item 6. Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including key amendments and certifications - Key exhibits include the Fourth Amendment to the Amended and Restated Credit Agreement (April 18, 2025) and the Natural Gas Services Group, Inc. 2019 Equity Incentive Plan, as amended[141](index=141&type=chunk) [Signatures](index=33&type=section&id=Signatures) Signatures of the CEO and CFO certify the report on behalf of Natural Gas Services Group, Inc - The report is signed by Justin C. Jacobs, Chief Executive Officer and Director, and Ian M. Eckert, Chief Financial Officer, on August 11, 2025[143](index=143&type=chunk)