Midland, Texas, Nov. 14, 2024 (GLOBE NEWSWIRE) -- Natural Gas Services Group, Inc. ("NGS” or the "Company”) (NYSE:NGS), a leading provider of natural gas compression equipment, technology, and services to the energy industry, today announced financial results for the three months ended September 30, 2024. The Company also updated its prior guidance for the full year, increasing its outlook for Adjusted EBITDA, along with providing a preliminary view of expected level of FY 2025 growth capital expenditures.

Third Quarter 2024 Highlights

  • Rental revenue of $37.4 million, an increase of 35% when compared to the third quarter of 2023 and 7% sequentially.
  • Net income of $5.0 million, or $0.40 per basic share, as compared to $2.2 million, or $0.18 per basic share in the comparable year-ago period and $4.2 million, or $0.34 per basic share for the quarter ended June 30, 2024.
  • Adjusted EBITDA of $18.2 million, compared to $11.8 million in the third quarter of 2023 and $16.5 million in the second quarter of 2024. Please see Non-GAAP Financial Measures - Adjusted EBITDA, below.
  • Cash flow generated from operating activities of $25.9 million for the third quarter of 2024 and $57.0 million for the nine months ended September 30, 2024
  • Leverage ratio at September 30, 2024 of 2.25.
  • Rented horsepower at quarter end of 475,534, a 19% increase over prior year and 5% sequentially.
  • Horsepower utilization of 82.0%, up 330 basis points from September 30, 2023.
Management Commentary and Outlook

  

"We delivered another quarter of significant top and bottom-line growth, as well as a material increase in net cash provided by operating activities, as we further grow and optimize our business,” said Justin Jacobs, Chief Executive Officer. "Compression demand, particularly in the Permian Basin, remains robust. We continue to capitalize on our favorable industry position, innovative compression units, and strong customer relationships to increase investments in our large horsepower fleet as we look to drive growth in rental fleet horsepower, rental revenue, and cash flow.”

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Jacobs continued, "We continue to evaluate new growth capital expenditure opportunities, which will help us further diversify our customer mix and generate strong returns in the years ahead. The pricing environment remains favorable and we feel that we have opportunities to continue our recent growth in horsepower at returns on invested capital projected above our target rate of 20%. We remain bullish on natural gas compression and the opportunities ahead, and we believe this higher level of investment will lead to meaningful and sustainable value creation for all NGS stakeholders.”

Corporate Guidance - 2024 and 2025 Outlook

The Company today provided updated guidance for the 2024 Fiscal Year ending December 31, 2024. Based on its performance through three quarters and outlook for the remainder of the year, the Company now expects Adjusted EBITDA to be in the range of $67 million to $69 million, an increase from its previously announced outlook of $64 million to $68 million. Note the Company entered Fiscal Year 2024 anticipating Adjusted EBITDA to be in the range of $58 million to $65 million.

Further, the Company now anticipates 2024 growth capital expenditures to be in the range of $65 million to $75 million, an update from its previously announced guidance of approximately $60 million to $80 million. The range of the FY 2024 guidance has tightened from the previous guidance as a result of a better view on the timing of the growth capital expenditures over the next five quarters. The range of expected growth capital expenditures for FY 2025 is $90 million to $110 million. To reiterate, all of the new units in construction are already under long-term contracts with customers. Maintenance capital expenditures for 2024 remain unchanged and are anticipated to be in the range of $8 million to $11 million. Similarly, the Company's target return on invested capital remains unchanged at 20%.

 Outlook
FY 2024 Adjusted EBITDA$67 million - $69 million
FY 2024 Growth Capital Expenditures$65 million - $75 million
FY 2024 Maintenance Capital Expenditures$8 million - $11 million
FY 2025 Growth Capital Expenditures$90 million - $110 million
Target Return on Invested CapitalAt least 20%
Jacobs concluded, "We have multiple pathways to build on our industry-leading growth and drive shareholder value: fleet optimization, asset utilization (both unutilized units and non-cash assets), new rental units (both electric motor and natural gas engine), and accretive mergers and acquisitions. Given our strong balance sheet, low relative leverage, and meaningful borrowing capacity, we are well positioned to continue to take advantage of the opportunities to continue significant growth beyond 2024.”

2024 Third Quarter Financial Results

Revenue: Total revenue for the three months ended September 30, 2024, increased 29.7% to $40.7 million from $31.4 million for the three months ended September 30, 2023. This increase was due primarily to an increase in rental revenues. Rental revenue increased 34.8% to $37.4 million in the third quarter of 2024 from $27.7 million in the third quarter of 2023 due to the addition of higher horsepower packages and pricing improvements. As of September 30, 2024, we had 1,229 rented units (475,534 horsepower) compared to 1,233 rented units (400,727 horsepower) as of September 30, 2023, reflecting a 18.7% increase in total utilized horsepower. Sequentially, total revenue increased to $40.7 million in the third quarter of 2024 compared to $38.5 million in the second quarter of 2024 due to a 6.9% increase in rental revenues and a 15.3% increase in aftermarket service revenue primarily related to services for setting and installing new units.

Gross Margins: Total gross margins, including depreciation expense increased to $14.9 million for the three months ended September 30, 2024, compared to $7.9 million for the same period in 2023 and $13.4 million for the three months ended June 30, 2024. Total adjusted gross margin, exclusive of depreciation expense, for the three months ended September 30, 2024, increased to $22.9 million compared to $14.6 million for the three months ended September 30, 2023, and $21.0 million for the second quarter of 2024. These increases in year over year performance primarily are attributable to increased rental revenues and a continuation of our relatively high rental adjusted gross margin.

Operating Income: Operating income for the three months ended September 30, 2024, was $9.5 million compared to operating income of $4.9 million for the three months ended September 30, 2023, and operating income of $8.5 million, during the second quarter of 2024.

Net Income: Net income for the three months ended September 30, 2024, was $5.0 million, or $0.40 per basic share compared to net income of $2.2 million or $0.18 per basic share for the three months ended September 30, 2023, and $4.2 million or $0.34 per basic share for the second quarter of 2024. The increase in net income during the third quarter of 2024 was mainly due to increased rental revenue and rental gross margin. Sequentially, the net income increase of $0.8 million was primarily due to higher rental gross margin partially offset by increased SG&A costs during the third quarter of 2024.

Adjusted EBITDA: Adjusted EBITDA increased 53.7% to $18.2 million for the three months ended September 30, 2024, from $11.8 million for the same period in 2023. This increase was primarily attributable to higher rental revenue and rental adjusted gross margin. Sequentially, adjusted EBITDA increased 10.5% to $18.2 million for the three months ended September 30, 2024, compared to adjusted EBITDA of $16.5 million for the three months ended June 30, 2024.

Cash Flows: At September 30, 2024, cash and cash equivalents were approximately $0.4 million, while working capital was $25.5 million. For the nine months of 2024, cash flows provided by operating activities were $57.0 million, while cash flows used in investing activities was $56.7 million. Cash flow used in investing activities included $57.4 million in capital expenditures.

Debt: Outstanding debt on our revolving credit facility as of September 30, 2024, was $163 million. Our leverage ratio at September 30, 2024, was 2.25 and our fixed charge coverage ratio was 2.71. The Company is in compliance with all terms, conditions and covenants of the credit agreement.

Selected data: The tables below show revenue by product line, gross margin and adjusted gross margin for the trailing five quarters. Adjusted gross margin is the difference between revenue and cost of sales, exclusive of depreciation.

 Revenues
 Three months ended
 September 30, 2023December 31, 2023March 31, 2024June 30, 2024September 30, 2024
 ($ in 000) ($ in 000) ($ in 000) ($ in 000) ($ in 000) 
Rentals$        27,705         $        31,626         $        33,734         $        34,926         $        37,350         
Sales         1,413                  2,921                  2,503                  2,270                  1,843         
Aftermarket services         2,251                  1,674                  670                  1,295                  1,493         
Total$        31,369         $        36,221         $        36,907         $        38,491         $        40,686         

 Gross Margin
 Three months ended
 September 30, 2023December 31, 2023March 31, 2024June 30, 2024September 30, 2024
 ($ in 000) ($ in 000) ($ in 000) ($ in 000) ($ in 000) 
Rentals$        7,683                   12,366                  13,761                  13,211          $        15,043          
Sales         (156)          553                  253                  (50)          (258) 
Aftermarket services         373                   421                  163                  269                   151          
Total$        7,900          $        13,340         $        14,177         $        13,430          $        14,936          
           

 Adjusted Gross Margin (1)
 Three months ended
 September 30, 2023December 31, 2023March 31, 2024June 30, 2024September 30, 2024
 ($ in 000) ($ in 000) ($ in 000) ($ in 000) ($ in 000) 
Rentals         14,243                   19,199                  20,620                  20,698                  22,908          
Sales         (92)          620                  323                  21                  (185) 
Aftermarket services         405                   440                  170                  283                  169          
Total$        14,556          $        20,259         $        21,113         $        21,002         $        22,892          
           

  Adjusted Gross Margin %
  Three months ended
  September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024 September 30, 2024
  % margin % margin % margin % margin % margin
Rentals         51.4        %         60.7        %         61.1        %         59.3        %         61.3        %
Sales         (6.5)        %         21.2        %         12.9        %         0.9        %         (10.0)        %
Aftermarket services         18.0        %         26.3        %         25.4        %         21.9        %         11.3        %
Total         46.4        %         55.9        %         57.2        %         54.6        %         56.3        %

 Compression Units (at end of period):
 Three months ended
 September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024 September 30, 2024
Horsepower Utilized400,727  420,432  444,220  454,568  475,534 
Total Horsepower509,198  520,365  542,256  552,599  579,699 
Horsepower Utilization        78.7        %         80.8        %         81.9        %         82.3        %         82.0        %
          
Units Utilized1,233  1,247  1,245  1,242  1,229 
Total Units1,947  1,876  1,894  1,899  1,909 
Unit Utilization        63.3        %         66.5        %         65.7        %         65.4        %         64.4        %
(1) For a reconciliation of adjusted gross margin to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read "Non-GAAP Financial Measures - Adjusted Gross Margin” below.

Non-GAAP Financial Measure - Adjusted Gross Margin: "Adjusted Gross Margin” is defined as total revenue less cost of sales (excluding depreciation expense). Adjusted gross margin is included as a supplemental disclosure because it is a primary measure used by management as it represents the results of revenue and cost of sales (excluding depreciation expense), which are key operating components. Adjusted gross margin differs from gross margin in that gross margin includes depreciation expense. We believe adjusted gross margin is important because it focuses on the current operating performance of our operations and excludes the impact of the prior histori