Natural Gas Services Group, Inc. (NYSE:NGS) Q4 2021 Earnings Conference Call March 17, 2022 11:00 AM ET Company Participants Alicia Dada - IR Coordinator Steve Taylor - Chairman, President & CEO Conference Call Participants Rob Brown - Lake Street Capital Eric Cinnamond - Palm Valley Capital Justin Jacobs - Mill Road Capital Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the a ...

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File Number 1-31398 NATURAL GAS SERVICES GROUP, INC. (Exact name of registrant as specified in its charter) Colorado 75-2811855 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 OR (State or ...

Natural Gas Services Group, Inc. (NYSE:NGS) Q3 2021 Earnings Conference Call November 11, 2021 11:00 AM ET Company Participants Alicia Dada - Investor Relation Coordinator Steve Taylor - Chairman, President & Chief Executive Officer Conference Call Participants Rob Brown - Lake Street Capital Tate Sullivan - Maxim Group George Melas - MKH Management Operator Good morning ladies and gentlemen, and welcome to The Natural Gas Services Group Third Quarter 2021 Earnings Call. At this time, all participants are i ...

Revenue Performance - Total revenue increased by 2.0% to $17.7 million for the three months ended June 30, 2021, compared to $17.4 million for the same period in 2020, primarily driven by a 3.2% increase in rental revenue [80]. - Rental revenue reached $15.6 million for the three months ended June 30, 2021, up from $15.1 million in the same period of 2020, attributed to higher horsepower compression rentals [82]. - Sales revenue decreased by 21.7% to $1.6 million for the three months ended June 30, 2021, compared to $2.0 million for the same period in 2020, mainly due to lower compressor sales [84]. - Total revenue for the six months ended June 30, 2021, increased by 2.4% to $36.1 million compared to $35.3 million for the same period in 2020, primarily due to a 23.9% increase in sales revenue [91]. - Rental revenue for the six months ended June 30, 2021, decreased to $31.0 million from $31.2 million in the same period of 2020, impacted by well shut-ins and unit returns due to a drop in oil prices [92]. - Sales revenue increased to $4.3 million for the six months ended June 30, 2021, up from $3.5 million for the same period in 2020, primarily due to an increase in parts sales [94]. Cost and Expenses - Cost of rentals increased by 37.0% to $9.1 million during the three months ended June 30, 2021, compared to $6.6 million in the same period of 2020, driven by increased repair and maintenance work [85]. - Cost of rentals rose by 11.8% to $16.2 million during the six months ended June 30, 2021, compared to $14.5 million in the same period of 2020, driven by increased repair and maintenance work [95]. - Selling, general, and administrative expenses decreased by 2.1% to $2.6 million for the three months ended June 30, 2021, compared to $2.7 million in the same period of 2020 [87]. - Selling, general, and administrative expenses increased by 8.9% to $5.3 million for the six months ended June 30, 2021, influenced by an unrealized loss on deferred compensation [97]. - Adjusted EBITDA decreased by $2.4 million (17.7%) for the six months ended June 30, 2021, primarily due to a $1.7 million increase in rental costs and higher SG&A expenses [103]. - Cash flows from operating activities were $12.8 million for the six months ended June 30, 2021, down from $14.8 million for the same period in 2020, attributed to higher rental costs and SG&A expenses [106]. Assets and Investments - Current assets totaled $72.1 million as of June 30, 2021, compared to $72.7 million at December 31, 2020, with cash and cash equivalents decreasing to $26.2 million [104]. - The company invested $12.6 million in rental and property equipment during the six months ended June 30, 2021, including $12.0 million in new equipment for the rental fleet [105]. Fleet and Operations - As of June 30, 2021, the company had 1,245 natural gas compressors rented to 79 customers, with a total of 287,365 horsepower, compared to 1,273 compressors rented to 84 customers with 284,373 horsepower as of June 30, 2020 [69]. - The company's total unit horsepower remained flat at 446,803 horsepower as of June 30, 2021, compared to 446,805 horsepower as of June 30, 2020 [83]. - As of June 30, 2021, the company had 2,257 compressor packages in its fleet, a decrease from 2,335 units as of June 30, 2020, with total unit horsepower remaining relatively stable at 446,803 horsepower [93]. Financial Position and Strategy - The company recorded an income tax benefit of approximately $339,000 for the three months ended June 30, 2021, compared to an income tax expense of $(57,000) for the same period in 2020 [89]. - The company has a senior secured revolving credit agreement with an initial commitment of $20 million, with the potential to increase to $30 million based on collateral availability [108]. - For the remainder of 2021, the company plans to manage operating expenses and capital expenditures, ensuring that capital expenditures do not exceed internally generated cash flows [107].

Financial Data and Key Metrics Changes - Total revenue for Q2 2021 was $17.7 million, a 2% increase year-over-year but a 4% decrease sequentially [12][13][14] - Adjusted EBITDA for Q2 2021 was $4.5 million, down from $7.1 million year-over-year and $6.3 million sequentially [19][20] - Net loss after tax for Q2 2021 was $1.9 million, compared to a net income of $165,000 in Q2 2020 [18] - Operating loss for Q2 2021 was $2.3 million, compared to a loss of $148,000 in Q2 2020 [17] Business Line Data and Key Metrics Changes - Rental revenues increased by 2% sequentially and 3% year-over-year, reaching $15.6 million [12][25] - Service and maintenance revenues grew over 60% in Q2 2021 [12] - Sales revenue decreased by 22% year-over-year and 41% sequentially, primarily due to the absence of compressor sales [13][21] Market Data and Key Metrics Changes - Over 50 compressor packages were deployed in the Permian Basin, with a significant portion being high horsepower units [8][29] - The company noted a backlog of approximately $2 million, with about $1.5 million related to energy transition projects [24][58] Company Strategy and Development Direction - The company is focusing on evolving towards a higher horsepower fleet, which is expected to drive future revenue and profits [6][7] - Plans to increase rental rates in response to inflationary pressures and rising costs [10][45] - The company aims to maintain balance sheet strength and pursue long-term value creation opportunities [38][39] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the macro environment for the second half of the year, despite ongoing concerns about COVID-19 variants [8] - The company anticipates a busy Q4, although specific projections remain uncertain [48][49] - Management highlighted the importance of adapting to inflationary pressures and managing operational costs effectively [10][45] Other Important Information - The company has a cash balance of $26.2 million and no outstanding borrowings, providing ample liquidity [36][37] - The fleet size at the end of Q2 2021 totaled 2,257 compressors, with a significant portion classified as large horsepower [34][35] Q&A Session Summary Question: Pricing environment and cost increases - Management indicated plans for rental price increases due to rising costs, particularly in oil and parts [44][45] Question: Demand for new unit placements - Q3 is expected to see lower unit placements compared to Q2, allowing for better cost management [46][47] Question: Energy transition projects - Approximately three-quarters of the backlog is related to energy transition projects, indicating a shift in market focus [58] Question: Parts replacement work and margins - Parts replacement work has been deferred due to COVID-19, leading to increased costs in the current quarter [60][61] Question: Headcount and operational capacity - Overall headcount is above pre-COVID levels, with a shift towards more field employment [63]

PART I – FINANCIAL INFORMATION [Item 1. Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Natural Gas Services Group, Inc. for the quarter ended March 31, 2021, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, business operations, and specific financial line items [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a slight increase in total assets and liabilities, with a minor decrease in total stockholders' equity from December 31, 2020, to March 31, 2021. Key changes include an increase in cash and cash equivalents and a decrease in accounts payable and deferred income | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Cash and cash equivalents | $30,683 | $28,925 | $1,758 | 6.08% | | Total current assets | $75,070 | $72,718 | $2,352 | 3.23% | | Total assets | $307,918 | $306,801 | $1,117 | 0.36% | | Accounts payable | $1,181 | $2,373 | $(1,192) | -50.23% | | Accrued liabilities | $10,483 | $6,770 | $3,713 | 54.84% | | Deferred income | $34 | $1,103 | $(1,069) | -96.92% | | Total current liabilities | $11,867 | $10,861 | $1,006 | 9.26% | | Total liabilities | $56,518 | $55,257 | $1,261 | 2.28% | | Total stockholders' equity | $251,400 | $251,544 | $(144) | -0.06% | [Unaudited Condensed Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a net loss of **$394 thousand** for the three months ended March 31, 2021, a significant decline from a net income of **$4.082 million** in the prior-year period. Total revenue increased slightly, driven by higher sales, but was offset by increased operating costs and a shift from an income tax benefit to an expense | Metric (in thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | Change (in thousands) | % Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :-------------------- | :------- | | Rental income | $15,341 | $16,100 | $(759) | -4.71% | | Sales | $2,711 | $1,450 | $1,261 | 86.97% | | Service and maintenance income | $345 | $340 | $5 | 1.47% | | Total revenue | $18,397 | $17,890 | $507 | 2.83% | | Total operating costs and expenses | $18,766 | $18,163 | $603 | 3.32% | | Operating loss | $(369) | $(273) | $(96) | 35.16% | | Income tax (expense) benefit | $(125) | $4,543 | $(4,668) | -102.75% | | Net (loss) income | $(394) | $4,082 | $(4,476) | -109.65% | | Basic EPS | $(0.03) | $0.31 | $(0.34) | -109.68% | | Diluted EPS | $(0.03) | $0.30 | $(0.33) | -110.00% | [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity saw a minor decrease from **$251.544 million** at January 1, 2021, to **$251.400 million** at March 31, 2021, primarily due to the net loss incurred during the quarter, partially offset by compensation expenses related to restricted common stock | Metric (in thousands) | January 1, 2021 | March 31, 2021 | Change (in thousands) | | :-------------------- | :-------------- | :------------- | :-------------------- | | Common Stock Amount | $133 | $134 | $1 | | Additional Paid-In Capital | $112,615 | $112,864 | $249 | | Retained Earnings | $139,286 | $138,892 | $(394) | | Total Stockholders' Equity | $251,544 | $251,400 | $(144) | - Net loss of **$394 thousand** for the quarter contributed to the decrease in retained earnings and total stockholders' equity[12](index=12&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities decreased to **$7.381 million** for the three months ended March 31, 2021, from **$8.275 million** in the prior-year period. This decline was primarily due to lower net income and changes in operating assets and liabilities, partially offset by reduced cash used in investing activities | Metric (in thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | Change (in thousands) | % Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :-------------------- | :------- | | Net (loss) income | $(394) | $4,082 | $(4,476) | -109.65% | | NET CASH PROVIDED BY OPERATING ACTIVITIES | $7,381 | $8,275 | $(894) | -10.80% | | NET CASH USED IN INVESTING ACTIVITIES | $(4,982) | $(6,665) | $1,683 | -25.25% | | NET CASH USED IN FINANCING ACTIVITIES | $(641) | $(151) | $(490) | 324.50% | | NET CHANGE IN CASH AND CASH EQUIVALENTS | $1,758 | $1,459 | $299 | 20.50% | | CASH AND CASH EQUIVALENTS AT END OF PERIOD | $30,683 | $13,051 | $17,632 | 135.09% | - The decrease in operating cash flow was primarily driven by lower cash receipts on accounts receivable and higher SG&A expenses, partially offset by slightly higher rental and sales margins[93](index=93&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide essential details on the company's business, significant accounting policies, and specific financial statement line items, including revenue recognition, inventory, federal income tax receivable, rental equipment, credit facilities, and stock-based compensation. They also cover recent accounting pronouncements and subsequent events - Revenue is recognized in accordance with ASC 606, based on the transfer of control of goods or services to customers[22](index=22&type=chunk) - Rental revenue is recognized over time, with equal monthly payments, and contracts typically range from six to 24 months, or up to 60 months for larger horsepower compressors[23](index=23&type=chunk) - The CARES Act allowed NOLs from 2018-2020 to be carried back five years, resulting in a **$15.0 million** federal income tax receivable and a **$10.1 million** increase in deferred income tax liability in 2020[39](index=39&type=chunk)[44](index=44&type=chunk) [1. Description of Business](index=8&type=section&id=1.%20Description%20of%20Business) Natural Gas Services Group, Inc. (NGS) is a leading provider of natural gas compression equipment and services to the energy industry, manufacturing, fabricating, renting, selling, and maintaining natural gas compressors and flare systems for oil and natural gas production and plant facilities - NGS manufactures, fabricates, rents, sells, and maintains natural gas compressors and flare systems for the energy industry[18](index=18&type=chunk) [2. Summary of Significant Accounting Policies](index=8&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the company's accounting principles, including consolidation, revenue recognition under ASC 606, and policies for income taxes. It details how revenue is generated from rentals, sales, and service, and discusses the impact of the CARES Act on federal income tax receivables [Revenue Recognition Policy](index=8&type=section&id=Revenue%20Recognition%20Policy) The company recognizes revenue under ASC 606, measuring it based on the consideration specified in customer contracts and recognizing it when control of promised goods or services is transferred to the customer - Revenue is recognized when a customer obtains control of promised goods or services, reflecting the consideration expected to be received[22](index=22&type=chunk) [Nature of Goods and Services](index=8&type=section&id=Nature%20of%20Goods%20and%20Services) NGS generates revenue from renting compressors and flare systems (operating leases), selling custom-fabricated compressors, flare systems, parts, and used rental equipment, and providing routine or call-out service and maintenance on customer-owned equipment - Rental revenue from compressors and flare systems is recognized over time with equal monthly payments[23](index=23&type=chunk) - Sales revenue includes custom/fabricated compressors, flare systems, parts, and used rental equipment, with control transferring upon shipment or customer acceptance[24](index=24&type=chunk)[25](index=25&type=chunk)[27](index=27&type=chunk)[29](index=29&type=chunk) - Service and maintenance revenue is recognized after services are rendered[30](index=30&type=chunk) [Disaggregation of Revenue](index=10&type=section&id=Disaggregation%20of%20Revenue) Total revenue increased by **2.8%** year-over-year, primarily driven by an **87%** increase in sales revenue, which offset a **4.7%** decrease in rental income for the three months ended March 31, 2021 | Revenue Type (in thousands) | Q1 2021 | Q1 2020 | Change (in thousands) | % Change | | :-------------------------- | :------ | :------ | :-------------------- | :------- | | Compressors - sales | $1,891 | $852 | $1,039 | 121.95% | | Flares - sales | $46 | $80 | $(34) | -42.50% | | Other (parts/rebuilds) - sales | $774 | $518 | $256 | 49.42% | | Service and maintenance | $345 | $340 | $5 | 1.47% | | Total revenue from contracts with customers | $3,056 | $1,790 | $1,266 | 70.73% | | ASC 842 rental revenue | $15,341 | $16,100 | $(759) | -4.71% | | Total revenue | $18,397 | $17,890 | $507 | 2.83% | [Income Taxes](index=11&type=section&id=Income%20Taxes) The company recognizes deferred tax assets and liabilities for temporary differences and accounts for uncertain tax positions. The CARES Act significantly impacted the company's tax position in 2020, allowing NOL carrybacks and resulting in a federal income tax receivable - Deferred tax assets and liabilities are recognized for future tax consequences of temporary differences[36](index=36&type=chunk) - The CARES Act enabled the company to carry back 2018 and 2019 NOLs, leading to a **$15.0 million** federal income tax receivable and a **$10.1 million** increase in deferred income tax liability in 2020[39](index=39&type=chunk)[44](index=44&type=chunk) - As of March 31, 2021, the federal income tax receivable was **$11.5 million** after receiving **$3.9 million** in refunds related to 2018 NOLs[44](index=44&type=chunk) [Recently Issued Accounting Pronouncements](index=12&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) The company is currently evaluating the impact of ASU 2016-13, 'Financial Instruments-Credit Losses (ASC Topic 326)', which requires immediate recognition of estimated credit losses and is effective for smaller reporting companies after January 1, 2023 - ASU 2016-13, effective for smaller reporting companies after January 1, 2023, requires immediate recognition of estimated credit losses on financial assets[40](index=40&type=chunk) - The company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements and note disclosures[40](index=40&type=chunk) [3. Inventory](index=12&type=section&id=3.%20Inventory) Total inventory increased slightly to **$21.087 million** at March 31, 2021, from **$20.991 million** at December 31, 2020. The allowance for obsolescence significantly decreased due to write-offs | Inventory Type (in thousands) | March 31, 2021 | December 31, 2020 | Change (in thousands) | | :---------------------------- | :------------- | :---------------- | :-------------------- | | Raw materials - current | $18,619 | $18,026 | $593 | | Work-in-process | $1,363 | $1,900 | $(537) | | Inventory - current | $19,982 | $19,926 | $56 | | Raw materials - long term (net) | $1,105 | $1,065 | $40 | | Inventory - total | $21,087 | $20,991 | $96 | | Inventory Allowance (in thousands) | March 31, 2021 | December 31, 2020 | Change (in thousands) | | :--------------------------------- | :------------- | :---------------- | :-------------------- | | Beginning balance | $(221) | $(24) | $(197) | | Accruals | — | $(251) | $251 | | Write-offs | $184 | $54 | $130 | | Ending balance | $(37) | $(221) | $184 | [4. Federal Income Tax Receivable](index=12&type=section&id=4.%20Federal%20Income%20Tax%20Receivable) The company's federal income tax receivable remained at **$11.5 million** as of March 31, 2021, following the carryback of NOLs from 2018 and 2019 under the CARES Act and receipt of **$3.9 million** in refunds during 2020 - Federal income tax receivable was **$11.5 million** as of March 31, 2021, after receiving **$3.9 million** in refunds in 2020 related to 2018 NOLs carried back under the CARES Act[44](index=44&type=chunk) [5. Rental Equipment](index=13&type=section&id=5.%20Rental%20Equipment) Net rental equipment decreased slightly to **$206.436 million** at March 31, 2021, from **$207.585 million** at December 31, 2020, primarily due to accumulated depreciation exceeding new additions. No impairment was identified | Metric (in thousands) | March 31, 2021 | December 31, 2020 | Change (in thousands) | | :-------------------- | :------------- | :---------------- | :-------------------- | | Compressor units | $385,067 | $379,623 | $5,444 | | Work-in-process | $2,754 | $3,764 | $(1,010) | | Rental equipment | $387,821 | $383,387 | $4,434 | | Accumulated depreciation | $(181,385) | $(175,802) | $(5,583) | | Rental equipment, net | $206,436 | $207,585 | $(1,149) | - No impairment existed for rental equipment as of March 31, 2021[45](index=45&type=chunk) [6. Credit Facility](index=13&type=section&id=6.%20Credit%20Facility) The company's previous senior secured revolving credit agreement with JP Morgan Chase Bank, N.A. matured on March 31, 2021. A new credit facility was entered into subsequent to this date - The previous **$30 million** senior secured revolving credit agreement matured on March 31, 2021[46](index=46&type=chunk) - A new credit facility was established subsequent to March 31, 2021[46](index=46&type=chunk) [7. Stock-Based and Other Long-Term Incentive Compensation](index=13&type=section&id=7.%20Stock-Based%20and%20Other%20Long-Term%20Incentive%20Compensation) This section details the company's stock option and restricted stock/unit activity, as well as other long-term incentive awards. Stock options outstanding decreased due to expirations, while restricted shares/units increased due to new grants to executives and board members, leading to unrecognized compensation expense | Stock Options (shares) | December 31, 2020 | March 31, 2021 | Change | | :--------------------- | :---------------- | :------------- | :----- | | Outstanding | 161,334 | 145,334 | -16,000 | | Expired | — | (16,000) | -16,000 | | Exercisable | 161,334 | 145,334 | -16,000 | | Weighted Average Exercise Price | $24.48 | $25.21 | $0.73 | | Restricted Stock/Units (shares) | December 31, 2020 | March 31, 2021 | Change | | :------------------------------ | :---------------- | :------------- | :----- | | Outstanding | 258,101 | 315,359 | 57,258 | | Granted | — | 146,048 | 146,048 | | Vested | — | (85,457) | -85,457 | | Canceled/Forfeited | — | (3,333) | -3,333 | | Weighted Average Grant Date Fair Value | $12.87 | $9.04 | $(3.83) | - Total compensation expense for restricted stock awards was **$474 thousand** for Q1 2021, with **$2.6 million** of unrecognized expense remaining over 2.0 years[52](index=52&type=chunk) - Other long-term incentive awards to the CEO and independent Board members resulted in **$166 thousand** compensation expense for Q1 2021, with **$1.8 million** unrecognized expense over 2.4 years[54](index=54&type=chunk) [8. (Loss) Earnings per Share](index=15&type=section&id=8.%20(Loss)%20Earnings%20per%20Share) The company reported a basic and diluted loss per share of **$0.03** for the three months ended March 31, 2021, a significant decrease from earnings per share of **$0.31** (basic) and **$0.30** (diluted) in the prior-year period. Restricted stock and stock options were antidilutive and excluded from diluted EPS calculation for Q1 2021 | Metric (in thousands, except per share data) | Q1 2021 | Q1 2020 | | :------------------------------------------- | :------ | :------ | | Net (loss) income | $(394) | $4,082 | | Weighted average common shares outstanding (Basic) | 13,263 | 13,157 | | Diluted weighted average shares | 13,263 | 13,416 | | Basic (Loss) earnings per common share | $(0.03) | $0.31 | | Diluted (Loss) earnings per common share | $(0.03) | $0.30 | - **315,359** restricted stock/units and **145,334** stock options were excluded from diluted loss per share computation for Q1 2021 due to their antidilutive effect[55](index=55&type=chunk) [9. Commitments and Contingencies](index=15&type=section&id=9.%20Commitments%20and%20Contingencies) The company is occasionally involved in legal proceedings in the ordinary course of business but does not anticipate any material adverse effects on its financial position, results of operations, or cash flow from these actions - Management believes any ultimate liability from legal proceedings will not have a material adverse effect on financial position, results of operations, or cash flow[57](index=57&type=chunk) - The company is not currently a party to any material legal proceedings and is unaware of any threatened material litigation[57](index=57&type=chunk) [10. Subsequent Events](index=16&type=section&id=10.%20Subsequent%20Events) Subsequent to the quarter end, on May 11, 2021, the company entered into a new five-year senior secured revolving credit agreement with Texas Capital Bank, National Association, providing an initial commitment of **$20 million**, with an accordion feature up to **$30 million** and a right to request an increase up to **$50 million** - On May 11, 2021, NGS entered a new five-year senior secured revolving credit agreement with Texas Capital Bank[58](index=58&type=chunk) - The new credit agreement has an initial commitment of **$20 million**, an accordion feature to increase to **$30 million**, and a right to request an increase up to **$50 million**[58](index=58&type=chunk) - The obligations are secured by a first priority lien on all company assets, including inventory, accounts receivable, and a variable number of leased compressor equipment[58](index=58&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results for the three months ended March 31, 2021, compared to the prior year. It covers business overview, the impact of recent events like COVID-19, detailed revenue and expense analysis, liquidity, capital resources, and future strategy [Overview](index=17&type=section&id=Overview) Natural Gas Services Group (NGS) primarily focuses on renting natural gas compressors, with contracts typically ranging from six to 60 months. The company also fabricates and sells custom compressors, flare systems, parts, and provides service and maintenance. The industry is cyclical, heavily influenced by oil and natural gas prices, with a recent shift towards larger horsepower units for artificial lift applications in unconventional oil shale plays - NGS's primary focus is on renting natural gas compressors, with contracts from six to 60 months[68](index=68&type=chunk) - As of March 31, 2021, NGS had **1,265** natural gas compressors (**287,914 horsepower**) rented to **80** customers, down from **1,383** compressors (**298,143 horsepower**) rented to **92** customers at March 31, 2020[68](index=68&type=chunk) - The company has been shifting resources towards designing, fabricating, and renting larger horsepower compressor packages (**400-1,380 HP**) to meet market demand in centralized drilling and production facilities[73](index=73&type=chunk) [Recent Events](index=18&type=section&id=Recent%20Events) The COVID-19 pandemic led to a significant decline in crude oil demand and prices, impacting the oil and natural gas industry. In response, NGS implemented cost-cutting measures, including headcount reductions, wage freezes, and reduced capital expenditures, which are expected to continue benefiting financial performance through 2021. Field operations have remained largely uninterrupted due to the industry's critical infrastructure designation - The COVID-19 pandemic caused a significant decline in global crude oil demand and prices[75](index=75&type=chunk) - NGS implemented cost-cutting measures in Q2 2020, including headcount reductions, wage freezes, and reduced capital expenditures, which are expected to benefit financial performance through 2021[77](index=77&type=chunk) - Field operations have continued largely uninterrupted as the industry is designated critical infrastructure, with no significant impact on service operations or supply chain issues due to COVID-19[78](index=78&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) For the three months ended March 31, 2021, total revenue increased by **2.8%** year-over-year, primarily driven by an **87%** increase in sales revenue, which offset a **4.7%** decrease in rental income. Operating loss widened due to increased operating costs, and the company shifted from an income tax benefit to an expense, resulting in a net loss | Metric (in thousands) | Q1 2021 | Q1 2020 | Change (in thousands) | % Change | | :-------------------- | :------ | :------ | :-------------------- | :------- | | Total revenue | $18,397 | $17,890 | $507 | 2.8% | | Rental revenue | $15,341 | $16,100 | $(759) | -4.7% | | Sales revenue | $2,711 | $1,450 | $1,261 | 87.0% | | Cost of rentals | $7,156 | $7,897 | $(741) | -9.4% | | Cost of sales | $2,616 | $1,739 | $877 | 50.4% | | SG&A expenses | $2,649 | $2,162 | $487 | 22.5% | | Depreciation and amortization | $6,297 | $6,240 | $57 | 0.9% | | Income tax (expense) benefit | $(125) | $4,543 | $(4,668) | -102.75% | | Net (loss) income | $(394) | $4,082 | $(4,476) | -109.65% | - Rental revenue decreased due to a decline in rented units caused by lower oil prices and reduced crude oil demand[81](index=81&type=chunk) - Sales revenue increased significantly due to higher compressor and parts sales, reflecting marginally improving industry activity and stabilized commodity prices[83](index=83&type=chunk) [Non-GAAP Financial Measures (Adjusted EBITDA)](index=20&type=section&id=Non-GAAP%20Financial%20Measures%20(Adjusted%20EBITDA)) Adjusted EBITDA, a non-GAAP measure, increased by **$219 thousand** to **$6.503 million** for the three months ended March 31, 2021, primarily due to increased sales margins. Management uses Adjusted EBITDA to evaluate operating performance, compare results, and for strategic planning, acknowledging its limitations as an analytical tool | Metric (in thousands) | Q1 2021 | Q1 2020 | Change (in thousands) | | :-------------------- | :------ | :------ | :-------------------- | | Net income (loss) | $(394) | $4,082 | $(4,476) | | Interest expense | $1 | $3 | $(2) | | Income tax expense (benefit) | $125 | $(4,543) | $4,668 | | Depreciation and amortization | $6,297 | $6,240 | $57 | | Non-cash stock compensation expense | $474 | $502 | $(28) | | Adjusted EBITDA | $6,503 | $6,284 | $219 | - Adjusted EBITDA increased primarily due to increased sales margins compared to the prior-year period[91](index=91&type=chunk) - Adjusted EBITDA is used by management and investors to measure operating performance, evaluate and compare results, and for strategic planning, despite its limitations[89](index=89&type=chunk)[90](index=90&type=chunk) [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) The company's working capital increased to **$63.2 million** at March 31, 2021, from **$61.9 million** at December 31, 2020. Cash and cash equivalents also increased, supported by operating cash flows. Investments in rental and other equipment totaled **$5.0 million**, financed by operating cash flow and cash on hand | Metric (in thousands) | March 31, 2021 | December 31, 2020 | Change (in thousands) | | :-------------------- | :------------- | :---------------- | :-------------------- | | Total current assets | $75,070 | $72,718 | $2,352 | | Total current liabilities | $11,867 | $10,861 | $1,006 | | Total working capital | $63,203 | $61,857 | $1,346 | | Cash and cash equivalents | $30,683 | $28,925 | $1,758 | - Net cash provided by operating activities was **$7.4 million** for Q1 2021, partially offset by **$5.0 million** in capital expenditures for rental and other equipment[93](index=93&type=chunk) - The decline in operating cash flows was primarily due to lower cash receipts on accounts receivable and higher SG&A expenses, partially offset by slightly higher rental and sales margins[93](index=93&type=chunk) [Strategy](index=22&type=section&id=Strategy) For the remainder of 2021, the company plans to continue cost-cutting measures implemented in 2020. Forecasted capital expenditures will not exceed internally generated cash flows and cash on hand, focusing on contracted, premium-priced additions to the compressor rental fleet and required service vehicles. Management believes current liquidity will be sufficient for the foreseeable future - The company plans to continue cost-cutting measures throughout 2021[94](index=94&type=chunk) - Forecasted capital expenditures for 2021 will not exceed internally generated cash flows and cash on hand, focusing on premium-priced rental fleet additions and service vehicles[94](index=94&type=chunk) - Management believes cash flows from operations and current cash position will be sufficient to satisfy capital and liquidity requirements for the foreseeable future[94](index=94&type=chunk) [Bank Borrowings](index=22&type=section&id=Bank%20Borrowings) The company entered into a new senior secured revolving credit agreement with Texas Capital Bank, National Association, with an initial commitment of **$20 million**, expandable up to **$50 million**, maturing on May 11, 2026. As of May 11, 2021, there were no outstanding amounts under this new agreement - A new senior secured revolving credit agreement with Texas Capital Bank has an initial commitment of **$20 million**, with an accordion feature up to **$30 million** and a right to request an increase up to **$50 million**[95](index=95&type=chunk) - The maturity date of the Credit Agreement is May 11, 2026[95](index=95&type=chunk) - As of May 11, 2021, no amounts were outstanding under the new Credit Agreement[63](index=63&type=chunk) [Critical Accounting Policies and Practices](index=22&type=section&id=Critical%20Accounting%20Policies%20and%20Practices) There have been no changes in the critical accounting policies disclosed in the company's Form 10-K for the year ended December 31, 2020 - No changes in critical accounting policies from the December 31, 2020 Form 10-K[96](index=96&type=chunk) [Off-Balance Sheet Arrangements](index=22&type=section&id=Off-Balance%20Sheet%20Arrangements) The company engages in off-balance sheet arrangements, primarily operating lease agreements and purchase agreements, but does not believe these will materially affect its liquidity or capital resources - Off-balance sheet arrangements include operating lease agreements and purchase agreements[98](index=98&type=chunk) - These arrangements are not expected to materially affect liquidity or availability of capital resources[98](index=98&type=chunk) [Special Note Regarding Forward-Looking Statements](index=22&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from forecasts. The company does not undertake to publicly update these statements - The report contains forward-looking statements subject to known and unknown risks and uncertainties[99](index=99&type=chunk) - Risks include loss of market share, competing technologies, prolonged reduction in oil and natural gas prices, and new governmental regulations[99](index=99&type=chunk) - The company does not undertake any obligation to publicly update or revise forward-looking statements[66](index=66&type=chunk)[99](index=99&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=23&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) There have been no changes in the market risks disclosed in the company's Form 10-K for the year ended December 31, 2020 - No changes in market risks from the December 31, 2020 Form 10-K[101](index=101&type=chunk) [Item 4. Controls and Procedures](index=23&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of December 31, 2020, and concluded they were effective in providing reasonable assurance of achieving control objectives - Disclosure controls and procedures were evaluated as effective as of December 31, 2020[102](index=102&type=chunk) - Management applies judgment in evaluating and implementing controls, recognizing that they provide only reasonable assurance[102](index=102&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=23&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business but does not anticipate any material adverse effects on its financial position, results of operations, or cash flows. There are no current material legal proceedings or threatened litigation - Management believes any ultimate liability from legal proceedings will not have a material adverse effect on financial position, results of operations, or cash flows[103](index=103&type=chunk) - The company is not currently a party to any material legal proceedings and is unaware of any threatened litigation[103](index=103&type=chunk) [Item 1A. Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) For a comprehensive discussion of risks associated with the company and the industry, readers are directed to Item 1A, Risk Factors, in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - Refer to Item 1A, Risk Factors, in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020, for a discussion of company and industry risks[104](index=104&type=chunk) [Item 5. Other Information](index=23&type=section&id=Item%205.%20Other%20Information) This section provides detailed information about the new senior secured revolving credit agreement entered into on May 11, 2021, with Texas Capital Bank. It outlines the initial commitment, accordion features, borrowing base calculation, interest and fees, maturity date, security, and financial covenants - On May 11, 2021, NGS entered a new senior secured revolving credit agreement with Texas Capital Bank, National Association[105](index=105&type=chunk) - The agreement has an initial commitment of **$20 million**, an accordion feature up to **$30 million**, and a right to request an increase up to **$50 million**[105](index=105&type=chunk) - The borrowing base is calculated based on eligible accounts receivable, inventory, and eligible compressor units, with specific percentages and caps[106](index=106&type=chunk) - The maturity date of the Credit Agreement is May 11, 2026, and it is secured by a first priority lien on all company assets[108](index=108&type=chunk)[109](index=109&type=chunk) - Financial covenants require maintaining a leverage ratio less than or equal to **3.00 to 1.00** and a fixed charge coverage ratio greater than or equal to **1.00 to 1.00** during specified trigger periods[110](index=110&type=chunk) [Item 6. Exhibits](index=26&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with or incorporated by reference into the Form 10-Q, including organizational documents, equity incentive plans, employment agreements, and the new Credit Agreement and related security documents - Exhibits include Articles of Incorporation, Bylaws, Equity Incentive Plans, Employment Agreement with Stephen C. Taylor, and the new Credit Agreement dated May 11, 2021, with Texas Capital Bank[114](index=114&type=chunk) [Signatures](index=27&type=section&id=Signatures) The report is duly signed on behalf of Natural Gas Services Group, Inc. by Stephen C. Taylor, President and Chief Executive Officer, and Micah C. Foster, Vice President and Chief Financial Officer, as of May 14, 2021 - The report was signed by Stephen C. Taylor (President and CEO) and Micah C. Foster (VP and CFO) on May 14, 2021[118](index=118&type=chunk)

Natural Gas Services Group, Inc. (NYSE:NGS) Q1 2021 Earnings Conference Call May 13, 2021 11:00 AM ET Company Participants Alicia Dada - Investor Relations Stephen Taylor - Chairman, President and Chief Executive Officer Conference Call Participants Rob Brown - Lake Street Capital Tate Sullivan - Maxim Group Operator Good morning, ladies and gentlemen and welcome to the Natural Gas Services Group First Quarter 2021 Earnings Call. [Operator Instructions] Your call leaders for today???s call are Alicia Dada, ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________________________to__________________________ Commission file number: 1-31398 NATURAL GAS SERVICES GROUP, INC. (Exact Name of Registrant as Specified in its Charter) Co ...

Natural Gas Services Group, Inc. (NYSE:NGS) Q4 2020 Earnings Conference Call March 30, 2021 11:00 AM ET Company Participants Alicia Dada - IR Coordinator Stephen Taylor - Chairman, President & CEO Conference Call Participants Rob Brown - Lake Street Capital Tate Sullivan - Maxim Group Seth Barkett - Individual Investor Greg Weaver - Invicta Capital Operator Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group Fourth Quarter 2020 Earnings Call. At this time, all participants are ...

Natural Gas Services Group, Inc. (NYSE:NGS) Q3 2020 Earnings Conference Call November 17, 2020 11:00 AM ET Company Participants Alicia Dada - IR Coordinator Stephen Taylor - Chairman, President & Chief Executive Officer Conference Call Participants Rob Brown - Lake Street Capital Tate Sullivan - Maxim Group Operator Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group's Third Quarter 2020 Earnings Call. At this time all participants are in listen-only mode. [Operator Instruction ...