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, including the balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, recent events, and specific financial line items [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates Unaudited Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :----------------------------------- | :-------------------------- | :-------------------------- | | **ASSETS** | | | | Cash and cash equivalents | $27,559 | $11,592 | | Total current assets | $66,874 | $42,415 | | Rental equipment, net | $210,876 | $217,742 | | Total assets | $304,313 | $286,577 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total current liabilities | $7,639 | $5,508 | | Deferred income tax liability | $41,579 | $31,243 | | Total liabilities | $51,455 | $38,884 | | Total stockholders' equity | $252,858 | $247,693 | | Total liabilities and stockholders' equity | $304,313 | $286,577 | - Total assets increased by **$17.7 million (6.2%)** from December 31, 2019, to September 30, 2020, primarily driven by a significant increase in cash and cash equivalents and federal income tax receivable[8](index=8&type=chunk) - Total liabilities increased by **$12.6 million (32.3%)** over the same period, mainly due to an increase in deferred income tax liability[8](index=8&type=chunk) [Unaudited Condensed Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) This section presents the company's financial performance over specific periods, detailing revenues, operating costs, and net income or loss Unaudited Condensed Consolidated Statements of Operations (in thousands) | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Rental income | $14,861 | $14,434 | $46,092 | $41,393 | | Sales | $536 | $5,877 | $3,994 | $15,816 | | Service and maintenance income | $368 | $541 | $974 | $1,529 | | **Total revenue** | **$15,765** | **$20,852** | **$51,060** | **$58,738** | | Total operating costs and expenses | $16,706 | $34,873 | $52,422 | $72,602 | | Operating loss | $(941) | $(14,021) | $(1,362) | $(13,864) | | Net (loss) income | $(562) | $(12,579) | $3,685 | $(12,154) | | Basic (Loss) earnings per share | $(0.04) | $(0.96) | $0.28 | $(0.93) | | Diluted (Loss) earnings per share | $(0.04) | $(0.96) | $0.27 | $(0.93) | - For the three months ended September 30, 2020, total revenue decreased by **24.4% YoY**, primarily due to a **90.9% decrease** in sales revenue, partially offset by a **3.0% increase** in rental income[10](index=10&type=chunk)[144](index=144&type=chunk) - For the nine months ended September 30, 2020, the company reported a **net income of $3.685 million**, a significant improvement from a **net loss of $12.154 million** in the prior year, largely due to the absence of goodwill impairment and inventory allowance charges present in 2019[10](index=10&type=chunk) [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section details changes in the company's equity accounts, including common stock, additional paid-in capital, retained earnings, and treasury shares Unaudited Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric | Jan 1, 2020 (in thousands) | Sep 30, 2020 (in thousands) | | :----------------------------------- | :------------------------- | :------------------------- | | Common Stock | $132 | $133 | | Additional Paid-In Capital | $110,573 | $112,052 | | Retained Earnings | $137,478 | $141,163 | | Treasury Shares | $(490) | $(490) | | **Total Stockholders' Equity** | **$247,693** | **$252,858** | - Total stockholders' equity increased by **$5.165 million** from January 1, 2020, to September 30, 2020, primarily driven by net income and increases in additional paid-in capital from stock-based compensation[15](index=15&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities over specific periods Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by operating activities | $27,932 | $21,285 | | Net cash used in investing activities | $(11,814) | $(54,247) | | Net cash used in financing activities | $(151) | $(184) | | Net change in cash and cash equivalents | $15,967 | $(33,146) | | Cash and cash equivalents at end of period | $27,559 | $19,482 | - Net cash provided by operating activities increased by **$6.647 million (31.2%)** for the nine months ended September 30, 2020, compared to the same period in 2019[18](index=18&type=chunk) - Net cash used in investing activities significantly decreased by **$42.433 million**, primarily due to reduced purchases of rental equipment, property, and other equipment[18](index=18&type=chunk) - The company experienced a **net increase in cash and cash equivalents of $15.967 million** in 2020, a reversal from a **net decrease of $33.146 million** in 2019[18](index=18&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the company's accounting policies, financial statement line items, and significant events, offering context to the condensed consolidated financial statements [Note 1. Description of Business](index=8&type=section&id=Note%201.%20Description%20of%20Business) Natural Gas Services Group, Inc. (NGS) provides natural gas compression equipment and services, with operations significantly impacted by the COVID-19 pandemic and oil price volatility in 2020 - **NGS** is a leading provider of natural gas compression equipment and services, manufacturing, fabricating, renting, selling, and maintaining compressors and flare systems for the energy industry[20](index=20&type=chunk) - The **COVID-19 pandemic** and **OPEC+ actions** caused a significant decline in global crude oil demand and prices in early 2020, leading to increased unit returns and shut-in notices from customers, primarily impacting small and medium horsepower units[21](index=21&type=chunk)[22](index=22&type=chunk)[25](index=25&type=chunk) - **Rental revenue declined 1.8%** in Q3 2020 compared to Q2 2020, while **unit utilization** and **horsepower utilization remained stable (0.1% and 0.2% increases, respectively)** from June through September[25](index=25&type=chunk) - The company implemented **cost-cutting measures**, including headcount reductions, wage freezes, and supplier enlistment, and significantly reduced its **capital expenditures budget from $69.9 million in 2019 to a planned $19-$21 million in 2020**[29](index=29&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=9&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's key accounting policies, including consolidation principles, revenue recognition, lease accounting, inventory valuation, and depreciation, also detailing the revision of prior period financial statements - Revenue is recognized when a customer obtains control of promised goods or services, disaggregated into **rental, sales, and service/maintenance income**[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk)[45](index=45&type=chunk) Revenue Disaggregation (in thousands) | Revenue Type | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Compressors - sales | $0 | $4,703 | $2,211 | $12,199 | | Flares - sales | $67 | $243 | $308 | $783 | | Other (parts/rebuilds) - sales | $469 | $931 | $1,475 | $2,834 | | Service and maintenance | $368 | $541 | $974 | $1,529 | | Total revenue from contracts with customers | $904 | $6,418 | $4,968 | $17,345 | | ASC 842 rental revenue | $14,861 | $14,434 | $46,092 | $41,393 | | **Total revenue** | **$15,765** | **$20,852** | **$51,060** | **$58,738** | - The company adopted **ASC 842 (Leases)** on **January 1, 2019**, reporting right-of-use assets and lease obligations on the balance sheet[51](index=51&type=chunk)[52](index=52&type=chunk) - Prior period financial statements for 2018 and 2017, and interim periods in 2019 and 2018, were **revised** to correct immaterial operating costs and expenses that were inappropriately capitalized[71](index=71&type=chunk)[72](index=72&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk) [Note 3. Inventory](index=20&type=section&id=Note%203.%20Inventory) This note details the composition of the company's inventory, including current and long-term raw materials and work-in-process, and discusses the inventory allowance for obsolescence Inventory Composition (in thousands) | Inventory Type | Sep 30, 2020 | Dec 31, 2019 | | :----------------------- | :----------- | :----------- | | Raw materials - current | $16,275 | $19,388 | | Work-in-process | $850 | $1,692 | | Inventory - current | $17,125 | $21,080 | | Raw materials - long term | $1,230 | $1,068 | | **Inventory - total** | **$18,355** | **$22,148** | - The company recorded a **$3.35 million increase** to its **inventory allowance** during the **nine months ended September 30, 2019**, due to slow-moving or obsolete long-term inventory, but **no increase was recorded in 2020**[77](index=77&type=chunk) [Note 4. Federal Income Tax Receivable](index=21&type=section&id=Note%204.%20Federal%20Income%20Tax%20Receivable) This note explains the company's federal income tax receivable resulting from the CARES Act, which allowed for the carryback of net operating losses (NOLs) from 2018 and 2019 - The **CARES Act** allowed the company to carry back **NOLs from 2018 and 2019** for five preceding taxable years, generating a **federal income tax receivable**[78](index=78&type=chunk) - As of September 30, 2020, the federal income tax receivable was **$11.1 million**, reduced from **$15.0 million** at March 31, 2020, after receiving **$3.9 million in refunds** for 2018 NOLs[78](index=78&type=chunk) [Note 5. Rental Equipment](index=21&type=section&id=Note%205.%20Rental%20Equipment) This note provides details on the company's rental equipment, including its cost, accumulated depreciation, and the assessment for impairment, also highlighting the retirement of certain units in the prior year Rental Equipment (in thousands) | Metric | Sep 30, 2020 | Dec 31, 2019 | | :----------------------------------- | :----------- | :----------- | | Compressor units | $385,920 | $370,961 | | Work-in-progress | $4,116 | $9,129 | | Rental equipment | $390,036 | $380,090 | | Accumulated depreciation | $(179,160) | $(162,348) | | **Rental equipment, net** | **$210,876** | **$217,742** | - **No impairment** of rental equipment was determined as of September 30, 2020[79](index=79&type=chunk) - In the third quarter of 2019, **327 units were retired** from the rental fleet, resulting in a **$1.5 million loss**, but **no retirements occurred in the first nine months of 2020**[80](index=80&type=chunk) [Note 6. Leases](index=21&type=section&id=Note%206.%20Leases) This note details the company's lease accounting under ASC 842, primarily for property leases, outlining the recognition of right-of-use (ROU) assets and lease liabilities, and the future maturities of these obligations - The company's leases are primarily for field offices, with remaining terms ranging from **1 to 9 years**[81](index=81&type=chunk) Operating Lease Assets and Liabilities (in thousands) | Metric | Sep 30, 2020 | | :-------------------------- | :----------- | | Right of use assets-operating leases | $509 | | Current operating leases | $203 | | Long-term operating leases | $306 | | **Total lease liabilities** | **$509** | | Weighted average remaining lease term | 3.1 years | | Implicit Rate | 3.1 % | Future Maturities of Lease Liabilities (in thousands) | Years Ending December 31, | Lease Liabilities | | :-------------------------- | :---------------- | | 2020 (remaining) | $54 | | 2021 | $198 | | 2022 | $65 | | 2023 | $38 | | 2024 | $38 | | Thereafter | $168 | | Total lease payments | $561 | | Less: Imputed interest | $52 | | **Total** | **$509** | [Note 7. Credit Facility](index=22&type=section&id=Note%207.%20Credit%20Facility) This note describes the company's senior secured revolving credit agreement, including its commitment amount, borrowing base, interest terms, maturity date, security, and financial covenants - The company has a senior secured revolving credit agreement with JP Morgan Chase Bank, N.A. with an aggregate commitment of **$30 million**, subject to collateral availability[87](index=87&type=chunk) - As of September 30, 2020, the company had **$29.5 million in borrowing base availability** and an **outstanding balance of $417,000** on the line of credit[89](index=89&type=chunk)[96](index=96&type=chunk) - The credit agreement matures on **December 31, 2020**, and includes financial covenants requiring a **leverage ratio less than or equal to 2.50 to 1.00**, which the company was **in compliance** with as of September 30, 2020[92](index=92&type=chunk)[94](index=94&type=chunk)[96](index=96&type=chunk) [Note 8. CARES Act Loan](index=23&type=section&id=Note%208.%20CARES%20Act%20Loan) This note details the company's participation in the Paycheck Protection Program (PPP) under the CARES Act and its subsequent voluntary repayment of the loan - On April 10, 2020, the company received an unsecured loan of **$4.6 million** through the **PPP**[97](index=97&type=chunk) - The company **voluntarily repaid the $4.6 million loan**, with accrued interest, on **May 4, 2020**, following SBA guidance regarding liquidity scrutiny[98](index=98&type=chunk) [Note 9. Deferred Compensation Plan](index=24&type=section&id=Note%209.%20Deferred%20Compensation%20Plan) This note describes the company's non-qualified deferred compensation plan for executives, directors, and eligible employees, including its funding mechanism and liabilities - The plan allows deferral of up to **90% of base salary, bonus, commissions, director fees, and restricted stock unit awards**, with assets held in a rabbi trust[99](index=99&type=chunk) - The deferred compensation liability was **$1.9 million** as of September 30, 2020, up from **$1.7 million** at December 31, 2019[100](index=100&type=chunk) - As of September 30, 2020, **47,299 unvested restricted stock units** were being deferred, with **144,401 shares valued at $2.2 million** released and issued to the plan[101](index=101&type=chunk) [Note 10. Stock-Based and Other Long-Term Incentive Compensation](index=24&type=section&id=Note%2010.%20Stock-Based%20and%20Other%20Long-Term%20Incentive%20Compensation) This note details the company's stock option activity, restricted share/unit awards, and other long-term incentive compensation granted to employees and directors, along with associated compensation expenses Stock Option Activity Summary | Metric | Number of Stock Options | Weighted Average Exercise Price | | :-------------------------- | :---------------------- | :------------------------------ | | Outstanding, Dec 31, 2019 | 208,334 | $23.67 | | Granted | 5,000 | $4.91 | | Cancelled / Forfeited | (7,000) | $31.12 | | Expired | (40,000) | $19.11 | | **Outstanding, Sep 30, 2020** | **166,334** | **$23.89** | | Exercisable, Sep 30, 2020 | 161,334 | $24.48 | - Total compensation expense for stock options was **$18,000** for the nine months ended September 30, 2020, down from **$92,000** in 2019[106](index=106&type=chunk) - Restricted stock awards totaling **94,133 units** were granted to the CEO and **10,000 units** to the VP of Technical Services in April 2020, vesting over three years; additionally, **4,432 shares** were awarded to each independent director[107](index=107&type=chunk) - A long-term incentive award of **$1.06 million** was issued to the CEO in April 2020, vesting over three years, and **$50,000 awards** were issued to each independent director[108](index=108&type=chunk) [Note 11. Impairment of Goodwill](index=27&type=section&id=Note%2011.%20Impairment%20of%20Goodwill) This note explains the goodwill impairment test conducted in the third quarter of 2019, which resulted in a significant impairment charge due to a decline in stock price and reduced capital expenditures in the oilfield services sector - During the third quarter of 2019, the company recorded a **full impairment charge of its goodwill of $10.0 million**[111](index=111&type=chunk) - The impairment was triggered by a **significant decline in stock price** and announced **reductions in 2020 capital expenditures budgets** by major customers, indicating lower demand for oilfield services[110](index=110&type=chunk) [Note 12. Earnings per Share](index=27&type=section&id=Note%2012.%20Earnings%20per%20Share) This note provides the reconciliation of the numerators and denominators for basic and diluted earnings per share computations for the three and nine months ended September 30, 2020 and 2019 Earnings Per Share (EPS) Reconciliation | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net (loss) income (in thousands) | $(562) | $(12,579) | $3,685 | $(12,154) | | Weighted average common shares outstanding (basic, in thousands) | 13,248 | 13,137 | 13,214 | 13,112 | | Diluted weighted average shares (in thousands) | 13,248 | 13,137 | 13,471 | 13,112 | | Basic (Loss) earnings per share | $(0.04) | $(0.96) | $0.28 | $(0.93) | | Diluted (Loss) earnings per share | $(0.04) | $(0.96) | $0.27 | $(0.93) | - Restricted stock and stock options were **excluded from diluted loss per share computations** for the three months ended September 30, 2020, and for both periods in 2019, due to their **antidilutive effect**[113](index=113&type=chunk)[114](index=114&type=chunk) [Note 13. Related Party](index=28&type=section&id=Note%2013.%20Related%20Party) This note discloses the company's joint venture partnership, N-G, LLC, with Genis Holdings, LLC, for exploring new wellhead compression technologies - NGS holds a **50% ownership in N-G, LLC**, a joint venture with Genis Holdings, LLC, focused on new wellhead compression technologies[115](index=115&type=chunk) [Note 14. Commitments and Contingencies](index=28&type=section&id=Note%2014.%20Commitments%20and%20Contingencies) This note addresses the company's legal proceedings, stating that no material adverse effects are expected from current actions - The company is a party to various legal proceedings in the ordinary course of business but does not expect any ultimate liability to have a **no material adverse effect** on its financial position, results of operations, or cash flow[116](index=116&type=chunk) [Note 15. Subsequent Events](index=28&type=section&id=Note%2015.%20Subsequent%20Events) This note reports on events occurring after the reporting period, including a new board appointment and the authorization of a share repurchase program - **Leslie Shockley Beyer joined the Board of Directors on June 10, 2020**, and was awarded restricted stock and a cash award as compensation[117](index=117&type=chunk) - On October 23, 2020, the Board authorized a **share repurchase program for up to $10 million of common stock**, **expiring on September 30, 2021**[118](index=118&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, liquidity, and capital resources, discussing the impact of industry trends, recent events like COVID-19, and strategic responses [Overview](index=30&type=section&id=Overview) The company's core business involves renting, selling, and servicing natural gas compressors and related equipment, with a primary focus on rentals, influenced by cyclical industry trends and a shift towards larger horsepower units - The company's primary focus is on the rental of natural gas compressors, with contracts typically ranging from **six to 24 months**, and **up to 60 months** for larger horsepower units[123](index=123&type=chunk) - As of September 30, 2020, the company had **1,278 natural gas compressors (286,488 horsepower)** rented to 82 customers, compared to **1,401 compressors (270,222 horsepower)** rented to 93 customers at September 30, 2019[123](index=123&type=chunk) - The company has been shifting resources towards designing, fabricating, and renting gas compressor packages ranging from **400 to 1,380 horsepower** to meet increased market need for larger units[128](index=128&type=chunk) [Recent Events](index=31&type=section&id=Recent%20Events%20(MD%26A)) The COVID-19 pandemic and subsequent oil price volatility significantly impacted the company's operations, leading to customer shut-ins and reduced demand, prompting cost-cutting and reduced capital expenditures while maintaining stable utilization - Global crude oil demand declined significantly in Q2 2020 due to **COVID-19**, leading to unprecedented storage issues and **record low oil prices in April**[130](index=130&type=chunk)[131](index=131&type=chunk) - Customer unit returns and shut-in notices **increased in April and May 2020**, primarily affecting small and medium horsepower units; however, **restart notices were received in late May, June, July, and August** as oil prices partially recovered[135](index=135&type=chunk) - **Rental revenue declined 1.8%** in Q3 2020 compared to Q2 2020, while **unit utilization and horsepower utilization remained stable (0.1% and 0.2% increases, respectively)** from June through September[135](index=135&type=chunk) - The company implemented **cost-cutting measures**, including headcount reductions and wage freezes, and reduced its **2020 capital expenditures budget to $19-$21 million**, **down from $69.9 million in 2019**[138](index=138&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) The company's results of operations for the three and nine months ended September 30, 2020, show a significant decrease in total revenue, primarily driven by lower sales, but an improved operating loss and net income compared to the prior year, largely due to the absence of substantial impairment and allowance charges [Three months ended September 30, 2020, compared to the three months ended September 30, 2019](index=33&type=section&id=Three%20months%20ended%20September%2030%2C%202020%2C%20compared%20to%20the%20three%20months%20ended%20September%2030%2C%202019) For the three months ended September 30, 2020, total revenue decreased by 24.4% YoY, driven by a sharp decline in sales revenue, but the operating loss significantly narrowed due to the absence of goodwill impairment, inventory allowance, and rental equipment retirement losses recorded in the prior year Revenue Breakdown (3 Months Ended Sep 30) | Revenue Type | 2020 (in thousands) | % of Total | 2019 (in thousands) | % of Total | | :-------------------------- | :------------------ | :--------- | :------------------ | :--------- | | Rental | $14,861 | 94.3% | $14,434 | 69.2% | | Sales | $536 | 3.4% | $5,877 | 28.2% | | Service and Maintenance | $368 | 2.3% | $541 | 2.6% | | **Total** | **$15,765** | | **$20,852** | | - Total revenue decreased by **24.4% YoY** to **$15.8 million**, primarily due to a **90.9% decrease** in sales revenue, partially offset by a **3.0% increase** in rental revenue[144](index=144&type=chunk) - **Operating loss significantly reduced from $14.0 million in Q3 2019 to $0.941 million in Q3 2020**, mainly due to the **absence of $14.9 million in goodwill impairment, inventory allowance, and rental equipment retirement charges** from the prior year[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk) - **Depreciation and amortization expense increased by 6.7% to $6.3 million**, driven by the addition of larger horsepower units to the fleet[152](index=152&type=chunk) [Nine months ended September 30, 2020, compared to the nine months ended September 30, 2019](index=35&type=section&id=Nine%20months%20ended%20September%2030%2C%202020%2C%20compared%20to%20the%20nine%20months%20ended%20September%2030%2C%202019) For the nine months ended September 30, 2020, total revenue decreased by 13.1% YoY, primarily due to a substantial drop in sales revenue, but the company achieved a net income of $3.685 million, a significant turnaround from a net loss of $12.154 million in the prior year, largely attributable to the absence of major impairment and allowance charges Revenue Breakdown (9 Months Ended Sep 30) | Revenue Type | 2020 (in thousands) | % of Total | 2019 (in thousands) | % of Total | | :-------------------------- | :------------------ | :--------- | :------------------ | :--------- | | Rental | $46,092 | 90.3% | $41,393 | 70.5% | | Sales | $3,994 | 7.8% | $15,816 | 26.9% | | Service and Maintenance | $974 | 1.9% | $1,529 | 2.6% | | **Total** | **$51,060** | | **$58,738** | | - Total revenue decreased by **13.1% YoY** to **$51.1 million**, primarily due to a **74.7% decrease** in sales revenue, partially offset by an **11.4% increase** in rental revenue[161](index=161&type=chunk) - **Operating loss decreased significantly from $13.9 million in 2019 to $1.4 million in 2020**, mainly due to the **absence of $14.9 million in goodwill impairment, inventory allowance, and rental equipment retirement charges** from the prior year[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk) - The company recorded an **income tax benefit of $4.7 million in 2020**, compared to **$1.1 million in 2019**, largely due to the **CARES Act** allowing NOL carrybacks[175](index=175&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity significantly improved, with increased cash and working capital, driven by strong operating cash flows and reduced capital expenditures, with management planning continued cost control and limited capital spending for the remainder of 2020 Working Capital Position (in thousands) | Metric | Sep 30, 2020 | Dec 31, 2019 | | :-------------------------- | :----------- | :----------- | | Total current assets | $66,874 | $42,415 | | Total current liabilities | $7,639 | $5,508 | | **Total working capital** | **$59,235** | **$36,907** | - Cash and cash equivalents increased to **$27.6 million** at September 30, 2020, from **$11.6 million** at December 31, 2019[178](index=178&type=chunk) - Net cash provided by operating activities was **$27.9 million** for the nine months ended September 30, 2020, compared to **$21.3 million** in the prior year[178](index=178&type=chunk) - Capital expenditures for the first nine months of 2020 were **$12.0 million**, significantly lower than previous periods, with a forecasted **$7-$9 million for Q4 2020**[138](index=138&type=chunk)[177](index=177&type=chunk) - The company expects cash flows from operations and current cash position to be **sufficient for capital and liquidity requirements** for the foreseeable future, with a strategy to **keep expenses low and capital expenditures within internally generated cash flows**[179](index=179&type=chunk)[180](index=180&type=chunk) [Critical Accounting Policies and Practices](index=38&type=section&id=Critical%20Accounting%20Policies%20and%20Practices) There have been no changes in the critical accounting policies and practices disclosed in the company's Form 10-K for the year ended December 31, 2019 - **No changes** in critical accounting policies and practices from the Form 10-K for the year ended December 31, 2019[184](index=184&type=chunk) [Recently Issued Accounting Pronouncements](index=38&type=section&id=Recently%20Issued%20Accounting%20Pronouncements%20(MD%26A)) This section refers to Note 2 for information on recently issued accounting pronouncements - Information on recently issued accounting pronouncements is provided in **Note 2, Summary of Significant Accounting Policies**[185](index=185&type=chunk) [Off-Balance Sheet Arrangements](index=38&type=section&id=Off-Balance%20Sheet%20Arrangements) The company engages in off-balance sheet arrangements, primarily operating lease and purchase agreements, which are not expected to materially affect its liquidity or capital resources - Off-balance sheet arrangements include **operating lease agreements and purchase agreements**[186](index=186&type=chunk) - These arrangements are **not believed to materially affect the company's liquidity or availability of capital resources**[186](index=186&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=40&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 previous Form 10-K filing - **No changes** in market risks from the Company's Form 10-K for the year ended December 31, 2019[188](index=188&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's disclosure controls and procedures were deemed ineffective due to identified material weaknesses in internal control over financial reporting, specifically related to income tax accounting and the capitalization of compressor maintenance jobs, with remediation efforts ongoing [Evaluation of Disclosure Controls and Procedures](index=40&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2019, due to material weaknesses in internal control over financial reporting - Disclosure controls and procedures were **not effective** as of December 31, 2019, due to **material weaknesses** in internal control over financial reporting[189](index=189&type=chunk) [Material Weaknesses in Internal Control over Financial Reporting](index=40&type=section&id=Material%20Weaknesses%20in%20Internal%20Control%20over%20Financial%20Reporting) Two material weaknesses were identified: one related to income tax accounting (from Q4 2018) and another concerning the inappropriate capitalization of compressor 'make-ready' and maintenance jobs (from Q4 2019), with remediation efforts underway for both - A **material weakness** in internal controls over financial reporting was identified in Q4 2018, related to the accounting and reporting of **income tax (expense) benefit** and consolidated balance sheet/operations statement accounts[190](index=190&type=chunk) - Another **material weakness** was identified in Q4 2019, concerning the **inappropriate capitalization of compressor 'make-ready' jobs and other maintenance jobs**[193](index=193&type=chunk) - Management has implemented changes and expects both material weaknesses to be **remediated by the end of 2020**[192](index=192&type=chunk)[194](index=194&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=41&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 or operations - The company is **not currently a party to any material legal proceedings** and is **not aware of any threatened material litigation**[195](index=195&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the company's Annual Report on Form 10-K for a comprehensive discussion of risk factors, along with an additional risk factor in the Form 10-Q for the period ended March 31, 2020 - Readers should refer to **Item 1A, Risk Factors in the Annual Report on Form 10-K** for the fiscal year ended December 31, 2019, and the **Form 10-Q for the quarterly period ended March 31, 2020**, for a discussion of risks[196](index=196&type=chunk) [Item 6. Exhibits](index=42&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, compensation plans, credit agreements, and certifications - The exhibits include **Articles of Incorporation, Bylaws, Restricted Stock/Unit Plan, Stock Option Plan, Credit Agreements, Employment Agreement, Deferred Compensation Plan, Annual Incentive Bonus Plan, and various certifications**[198](index=198&type=chunk)[199](index=199&type=chunk) [Signatures](index=44&type=section&id=Signatures) This section contains the duly authorized signatures of the registrant's Principal Executive Officer and Principal Accounting Officer, certifying the report - The report is signed by **Stephen C. Taylor, President and Chief Executive Officer**, and **James R. Lawrence, Vice President and Chief Financial Officer**, on **November 16, 2020**[203](index=203&type=chunk)

Natural Gas Services Group, Inc. (NYSE:NGS) Q2 2020 Earnings Conference Call August 18, 2020 11:00 AM ET Company Participants Alicia Dada - IR Coordinator Stephen Taylor - Chairman, President and CEO Conference Call Participants Robert Brown - Lake Street Capital Operator Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group Second Quarter 2020 Earnings Call. At this time, all participants will be in a listen-only mode [Operator Instructions]. Your call leaders for today's call a ...

[Part I - FINANCIAL INFORMATION](index=3&type=section&id=Part%20I%20-%20FINANCIAL%20INFORMATION) This section covers the company's unaudited financial statements, management's discussion and analysis, market risk, and internal controls [Item 1. Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) The unaudited condensed consolidated financial statements detail the company's financial position, operations, cash flows, and prior period revisions [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Total assets and stockholders' equity increased due to a federal income tax receivable and higher cash, while total liabilities also rose Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total current assets** | $58,610 | $42,415 | | *Federal income tax receivable* | *$14,992* | *$—* | | **Total assets** | **$301,159** | **$286,577** | | **Total current liabilities** | $4,451 | $5,508 | | *Deferred income tax liability* | *$41,744* | *$31,243* | | **Total liabilities** | **$48,302** | **$38,884** | | **Total stockholders' equity** | **$252,857** | **$247,693** | [Unaudited Condensed Consolidated Statements of Operations](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) The company reported an operating loss in Q2 2020 and for the six-month period, with net income boosted by a significant CARES Act tax benefit Statement of Operations Summary (in thousands, except EPS) | Metric | Q2 2020 | Q2 2019 | 6 Months 2020 | 6 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $17,405 | $19,895 | $35,295 | $37,886 | | *Rental income* | *$15,131* | *$13,572* | *$31,231* | *$26,959* | | *Sales* | *$2,008* | *$5,814* | *$3,458* | *$9,939* | | Operating (loss) income | ($148) | $302 | ($421) | $157 | | Income tax (expense) benefit | ($57) | ($152) | $4,486 | ($210) | | **Net income** | **$165** | **$327** | **$4,247** | **$425** | | **Diluted EPS** | **$0.01** | **$0.02** | **$0.32** | **$0.03** | [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity increased in the first half of 2020, driven by net income and stock-based compensation - Total stockholders' equity grew by **$5.2 million** in the first six months of 2020, reaching **$252.9 million** at June 30, 2020[17](index=17&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly increased, with reduced investing activities leading to an overall rise in cash and cash equivalents Cash Flow Summary (in thousands) | Cash Flow Activity | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $14,802 | $6,769 | | Net Cash Used in Investing Activities | ($10,792) | ($29,798) | | Net Cash (Used in) Provided by Financing Activities | ($151) | $312 | | **Net Change in Cash** | **$3,859** | **($22,717)** | | **Cash at End of Period** | **$15,451** | **$29,911** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes detail the impact of COVID-19, CARES Act tax benefits, PPP loan repayment, and prior period financial statement revisions - The COVID-19 pandemic and related economic decline caused a drop in demand, leading to unit returns and shut-ins. In response, the company implemented cost-cutting measures and reduced its 2020 capital expenditures budget to **$19-$21 million**, down from **$69.9 million** in 2019[24](index=24&type=chunk)[28](index=28&type=chunk)[31](index=31&type=chunk) - Under the CARES Act, the company plans to carry back net operating losses from 2018 and 2019, resulting in a recorded federal income tax receivable of **$15.0 million** and a current income tax benefit of **$4.9 million** for the first six months of 2020[66](index=66&type=chunk)[82](index=82&type=chunk) - The company obtained a **$4.6 million** PPP loan in April 2020 but voluntarily repaid it in full in May 2020 following updated SBA guidance[101](index=101&type=chunk)[102](index=102&type=chunk) - Prior period financial statements for 2019 and 2018 were revised to correct for immaterial operating costs and expenses that were inappropriately capitalized[76](index=76&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the impact of COVID-19 and oil price collapse on revenue, operations, and liquidity, highlighting cost-cutting and tax benefits [Results of Operations](index=37&type=section&id=Results%20of%20Operations) Total revenue declined in the first half of 2020 due to lower sales, resulting in an operating loss, offset by a significant tax benefit Revenue by Product Line - Six Months Ended June 30 (in thousands) | Product Line | 2020 | % of Total | 2019 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Rental | $31,231 | 88.5% | $26,959 | 71.2% | | Sales | $3,458 | 9.8% | $9,939 | 26.2% | | Service and Maintenance | $606 | 1.7% | $988 | 2.6% | | **Total** | **$35,295** | | **$37,886** | | - Rental fleet horsepower utilization increased to **63.6%** at June 30, 2020, from **59.9%** a year prior, reflecting strong demand for higher horsepower units and the retirement of older, smaller units[160](index=160&type=chunk)[161](index=161&type=chunk) - The company recorded a **$4.5 million** income tax benefit for the six months ended June 30, 2020, primarily due to the CARES Act allowing the carryback of net operating losses[169](index=169&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with increased working capital and reduced capital expenditures, believing current resources are sufficient Working Capital (in thousands) | Component | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total current assets | $58,610 | $42,415 | | Total current liabilities | $4,451 | $5,508 | | **Total working capital** | **$54,159** | **$36,907** | - Capital expenditures for the first six months of 2020 were **$11.0 million**. The company plans to spend only an additional **$8-$10 million** for the remainder of 2020[139](index=139&type=chunk)[171](index=171&type=chunk) - As of June 30, 2020, the company had **$29.5 million** available for borrowing under its **$30 million** senior secured revolving credit facility[175](index=175&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) No material changes occurred in the market risks previously disclosed in the company's Annual Report on 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, 2019[183](index=183&type=chunk) [Item 4. Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective due to material weaknesses in income tax accounting and improper capitalization of maintenance costs - Management concluded that disclosure controls and procedures were not effective as of the end of the reporting period[184](index=184&type=chunk) - A material weakness related to income tax accounting, first identified in 2018, has not yet been fully remediated[185](index=185&type=chunk)[187](index=187&type=chunk) - A second material weakness was identified in Q4 2019 concerning the improper capitalization of 'make-ready' and other maintenance jobs, which resulted in the revision of prior period financial statements[188](index=188&type=chunk) [Part II - OTHER INFORMATION](index=45&type=section&id=Part%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings or aware of any threatened litigation - The company is not currently a party to any material legal proceedings[189](index=189&type=chunk) [Item 1A. Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) This section directs readers to risk factors detailed in the company's prior Form 10-K and Form 10-Q filings - Readers are directed to the risk factors detailed in the 2019 Form 10-K and the Q1 2020 Form 10-Q[190](index=190&type=chunk) [Item 6. Exhibits](index=46&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including corporate governance, financial agreements, and regulatory certifications - The report includes exhibits such as the Articles of Incorporation, credit agreements, stock plans, and Sarbanes-Oxley certifications[191](index=191&type=chunk)[193](index=193&type=chunk) [Signatures](index=48&type=section&id=Signatures) This section contains the required signatures for the filing

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 March 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) Colorado 75-2811855 (State or oth ...

Natural Gas Services Group, Inc. (NYSE:NGS) Q1 2020 Results Earnings Conference Call May 7, 2020 11:00 AM ET Company Participants Alicia Dada - IR Stephen Taylor - CEO Conference Call Participants Robert Brown - Lake Street Capital Craig Hoagland - Anderson Hoagland Tate Sullivan - Maxim Group George Melas - MKH Operator Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group First Quarter 2020 Earnings Call. [Operator Instructions]. Your call leaders for today's call are Alicia Da ...

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, 2019 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 (State or other jurisdiction of incorporation or organization) (I.R.S. Emplo ...

Natural Gas Services Group, Inc. (NYSE:NGS) Q3 2019 Earnings Conference Call November 7, 2019 11:00 AM ET Company Participants Alicia Dada - IR Coordinator Steve Taylor - Chairman, President & CEO Conference Call Participants Rob Brown - Lake Street Capital Operator Good morning ladies and gentlemen, and welcome to the Natural Gas Services Group Third Quarter Earnings Call. [Operator Instructions] Your call leaders for today's call are Alicia Dada, IR Coordinator; and Steve Taylor, Chairman, President and C ...

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, 2019 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) (State or other jurisdiction of (I.R.S. Emp ...

Natural Gas Services Group, Inc. (NYSE:NGS) Q2 2019 Results Earnings Conference Call August 6, 2019 11:00 AM ET Company Participants Alicia Dada - IR Coordinator Steve Taylor - Chairman, President and CEO Conference Call Participants Rob Brown - Lake Street Capital Richard Dearnley - Longport Partners Mike Urban - Seaport Global Operator Good morning ladies and gentlemen, and welcome to the Natural Gas Services Group Second Quarter Earnings Call. [Operator Instructions] Your call leaders for today's call ar ...

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) 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 June 30, 2019 (State or other jurisdiction of (I.R.S. Employer ...