Midland, Texas, Aug. 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 June 30, 2024. The Company also updated its prior guidance for the full year, increasing its outlook for both Adjusted EBITDA and growth capital expenditures. Second Quarter 2024 Highlights Rental revenue of $34.9 million, an increase of 45% when compared to the second quarter of 2023 and 4% sequentially. Net income of $4.3 million, or $0.34 per basic share, as compared to $0.5 million, or $0.04 per basic share in the comparable year-ago period. Adjusted EBITDA of $16.5 million, compared to $9.9 million in the second quarter of 2023 and essentially flat sequentially. Please see Non-GAAP Financial Measures - Adjusted EBITDA, below. Rented horsepower at quarter end of 454,568, a 22% increase over prior year. Horsepower utilization of 82.3%, up 370 basis points from last year. Management Commentary and Outlook    "We delivered significant top and bottom-line growth this quarter, along with a material increase in net cash provided by operating activities, as we further grow and optimize our business," said Justin Jacobs, Chief Executive Officer. "We continue to witness a strong market for oil production, particularly in the Permian Basin, and compression demand remains robust. As such, we are taking advantage of our 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." Jacobs continued, "We are also pleased to report the recent signing of new contracts with blue chip customers which will help us further diversify our customer mix and generate strong returns in the years ahead. Our material increase to guidance for growth capital expenditures partially reflects these contracts. as a significant portion of the spend on these new units will occur in 2025. Importantly, this expected increase in growth capital expenditures, enabled by our recent Credit Facility expansion, is entirely related to large horsepower compression investments, including a significant portion of electric driven compression units. Consistent with our recent growth in horsepower, all of these new contracts are long-term with return 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 Updated Outlook The Company today provided updated guidance for the 2024 Fiscal Year ending December 31, 2024. Based on its first half performance and outlook for the remainder of the year, the Company now expects Adjusted EBITDA to be in the range of $64 million to $68 million, an increase from its previously announced outlook of $61 million to $67 million. Note the Company entered Fiscal Year 2024 anticipating Adjusted EBITDA to be in the range of $58 million to $65 million. The Company has also increased its expected 2024 growth capital expenditures largely due to the aforementioned major contracts that were recently secured. The Company now anticipates 2024 growth capital expenditures to be in the range of $60 million to $80 million, an increase from its previously announced guidance of approximately $40 million to $50 million.   The wide range of the guidance is solely a function of the timing of investments as the Company is still determining the precise split of the spend between 2024 and 2025; to reiterate, all of the new units are already under long-term contracts with customers.   Maintenance capital expenditures 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%.   FY 2024 Outlook Adjusted EBITDA $64 million - $68 million Growth Capital Expenditures $60 million - $80 million Maintenance Capital Expenditures $8 million - $11 million Target Return on Invested Capital At 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), fabricating new rental units, and accretive mergers and acquisitions. We are executing against each of these and showing demonstrable progress. Given our strong balance sheet and expanded Credit Facility, we fully intend to take advantage of the opportunities to continue significant growth beyond 2024." 2024 Second Quarter Financial Results Revenue: Total revenue for the three months ended June 30, 2024, increased 42.8% to $38.5 million from $27.0 million for the three months ended June 30, 2023. This increase was due primarily to an increase in rental revenues. Rental revenue increased 44.9% to $34.9 million in the second quarter of 2024 from $24.1 million in the second quarter of 2023 due to the addition of higher horsepower packages and pricing improvements. As of June 30, 2024, we had 1,242 rented units (454,568 horsepower) compared to 1,249 rented units (372,596 horsepower) as of June 30, 2023, reflecting a 22.0% increase in total utilized horsepower. Sequentially, total revenue increased to $38.5 million in the second quarter of 2024 compared to $36.9 million in the first quarter of 2024 due to a 4% increase in rental revenues and a 93.3% 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 $13.4 million for the three months ended June 30, 2024, compared to $6.5 million for the same period in 2023 and $14.2 million for the three months ended March 31, 2024. Total adjusted gross margin, exclusive of depreciation expense, for the three months ended June 30, 2024, increased to $21.0 million compared to $12.8 million for the three months ended June 30, 2023, and $21.1 million for the first 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 June 30, 2024, was $8.5 million compared to operating income of $0.7 million for the three months ended June 30, 2023, and operating income of $9.3 million, during the first quarter of 2024. Net Income: Net income for the three months ended June 30, 2024, was $4.3 million, or $0.34 per basic share compared to a net income of $0.5 million or $0.04 per basic share for the three months ended June 30, 2023, and $5.1 million or $0.41 per basic share for the first quarter of 2024. The increase in net income during the second quarter of 2024 was mainly due to increased rental revenue and rental gross margin. Sequentially, the net income decline of $(0.8) million was primarily due to higher rental costs and increased SG&A costs during the second quarter of 2024. Adjusted EBITDA: Adjusted EBITDA increased 66.6% to $16.5 million for the three months ended June 30, 2024, from $9.9 million for the same period in 2023. This increase was primarily attributable to higher rental revenue and rental adjusted gross margin. Sequentially, adjusted EBITDA decreased 2.5% to $16.5 million for the three months ended June 30, 2024, compared to adjusted EBITDA of $16.9 million for the three months ended March 31, 2024. Cash Flows: At June 30, 2024, cash and cash equivalents were approximately $3.6 million, while working capital was $40.3 million. For the six months of 2024, cash flows from operating activities were $31.1 million, while cash flows used in investing activities was $27.9 million. Cash flow used in investing activities included $28.3 million in capital expenditures. Debt: Outstanding debt on our revolving credit facility as of June 30, 2024, was $163 million. Our leverage ratio at June 30, 2024, was 2.51 and our fixed charge coverage ratio was 2.68. The Company is in compliance with all terms, conditions and covenants of the credit agreement. Selected data: The tables below show revenue by product line, gross margin and adjusted gross margin for the three trailing five quarters.   Adjusted gross margin is the difference between revenue and cost of sales, exclusive of depreciation.   Revenues   Three months ended   June 30, 2023 September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024   ($ in 000)   ($ in 000)   ($ in 000)   ($ in 000)   ($ in 000)   Rentals $         24,105           $         27,705           $         31,626           $         33,734           $         34,926           Sales           1,595                     1,413                     2,921                     2,503                     2,270           Aftermarket services           1,257                     2,251                     1,674                     670                     1,295           Total $         26,957           $         31,369           $         36,221           $         36,907           $         38,491             Gross Margin   Three months ended   June 30, 2023 September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024   ($ in 000)   ($ in 000)   ($ in 000)   ($ in 000)   ($ in 000)   Rentals $         6,579                       7,683                       12,366                     13,761           $         13,211             Sales           (345 )             (156 )             553                     253                     (50 )   Aftermarket services           266                       373                       421                     163                     269             Total $         6,500             $         7,900             $         13,340           $         14,177           $         13,430                                     Adjusted Gross Margin (1)   Three months ended   June 30, 2023 September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024   ($ in 000)   ($ in 000)   ($ in 000)   ($ in 000)   ($ in 000)   Rentals           12,762                       14,243                       19,199                     20,620                     20,698           Sales           (281 )             (92 )             620                     323                     21           Aftermarket services           288                       405                       440                     170                     283           Total $         12,769             $         14,556             $         20,259           $         21,113           $         21,002                                 Adjusted Gross Margin (1) Three months ended     June 30, 2023   September 30, 2023   December 31, 2023   March 31, 2024   June 30, 2024     % margin   % margin   % margin   % margin   % margin Rentals           52.9         %           51.4         %           60.7         %           61.1         %           59.3         % Sales           (17.6)        %                (6.5)        %           21.2         %           12.9         %           0.9         % Aftermarket services           22.9         %           18.0         %           26.3         %           25.4         %           21.9         % Total           47.4         %           46.4         %           55.9         %           57.2         %           54.6         %   Compression Units (at end of period):   Three months ended   June 30, 2023   September 30, 2023   December 31, 2023   March 31, 2024   June 30, 2024 Horsepower Utilized 372,596     400,727             420,432             444,220     454,568   Total Horsepower 473,884     509,198             520,365             542,256     552,599   Horsepower Utilization         78.6         %           78.7         %           80.8         %           81.9         %           82.3         %                     Units Utilized 1,249     1,233             1,247             1,245     1,242   Total Units 1,911     1,947             1,876             1,894     1,899   Unit Utilization         65.4         %           63.3         %           66.5         %           65.7         %           65.4         % (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 historical costs of the assets acquired or constructed that are utilized in those operations. Depreciation expense reflects the systematic allocation of historical property and equipment values over the estimated useful lives. Adjusted gross margin has certain material limitations associated with its use as compared to gross margin. Depreciation expense is a necessary element of our costs and our ability to generate revenue. Management uses this non-GAAP measure as a supplemental measure to other GAAP results to provide a more complete understanding of the Company's performance. As an indicator of operating performance, adjusted gross margin should not be considered an alternative to, or more meaningful than, gross margin as determined in accordance with GAAP. Adjusted Gross margin may not be comparable to a similarly titled measure of another Company because other entities may not calculate adjusted gross margin in the same manner. The following table shows gross margin, the most directly comparable GAAP financial measure, and reconciles it to adjusted gross margin:               Three months ended   June 30, 2023