Natural Gas Services (NGS) - 2025 Q2 - Quarterly Report

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