Natural Gas Services Group, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. NGS provides natural-gas compression equipment and services, with rentals its primary business. Financial figures below are in millions of dollars unless otherwise noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $18.2 | $15.8 | $54.4 | $51.1 |
| Operating income (loss) | $(1.6) | $(0.9) | $(4.2) | $(1.4) |
| Net income (loss) | $(1.3) | $(0.6) | $(3.6) | $3.7 |
| Adjusted EBITDA | $5.4 | $6.2 | $16.4 | $19.5 |
| Operating margin | (8.6)% | (6.0)% | (7.8)% | (2.7)% |
| Net margin | (6.9)% | (3.6)% | (6.6)% | 7.2% |
Q3 revenue comprised $16.2 million rental, $1.5 million sales and $0.6 million service and maintenance. Nine-month revenue included $47.1 million rental, $5.8 million sales and $1.5 million service and maintenance. Adjusted EBITDA is a non-GAAP measure defined by the company.
Cash flow, liquidity and debt
- Operating cash flow was $20.0 million for the first nine months, down from $27.9 million in 2020. Capital spending was $19.1 million, producing net investing cash use of $19.0 million.
- Cash declined to $24.4 million at September 30, 2021, from $28.9 million at year-end 2020. Working capital was $54.1 million, versus $61.9 million.
- There were no borrowings under the new revolving credit facility at quarter-end. The facility has a $20 million initial commitment, subject to borrowing-base availability, and matures May 11, 2026. The company reported compliance with financial covenants.
- Total liabilities were $59.8 million and stockholders’ equity was $244.5 million at September 30. The balance sheet included a $11.5 million federal income tax receivable related to CARES Act loss carrybacks.
Changes and operating trends
- Q3 revenue rose 15.7% year over year; nine-month revenue rose 6.5%. Rental revenue grew 9.0% in Q3 and 2.3% for the nine months. Sales increased, mainly from parts, while compressor sales remained weak.
- Operating losses widened and Adjusted EBITDA fell 12.9% in Q3 and 16.2% for the nine months. Management attributed much of the decline to higher rental repair and maintenance costs and costs of newly placed units. Nine-month SG&A also increased.
- Nine-month 2020 net income benefited from a $4.7 million income tax benefit, substantially affected by CARES Act amended returns; the 2021 nine-month tax benefit was $0.4 million.
- At quarter-end, 1,221 compressors totaling 288,706 horsepower were rented to 78 customers, compared with 1,278 units totaling 286,488 horsepower and 82 customers a year earlier. Horsepower utilization was 63.8%, unchanged year over year; unit utilization was 53.7%, versus 54.6%.
- The company repurchased 432,731 shares for $4.4 million during the first nine months, at an average price of $10.24. A new authorization permits up to $10 million of additional repurchases through September 30, 2022.
Outlook, risks and contingencies
Management expected compressor sales to remain low for the rest of 2021 as customers favored renting over purchasing. Its stated plan was to control expenses, build rental equipment in response to market needs, market idle compressors, and limit borrowing. Forecast capital expenditures for the remainder of 2021 were not expected to exceed internally generated cash flow and cash on hand; management said available cash and operating cash flow should meet foreseeable capital and liquidity needs. These are forward-looking statements, not guaranteed results.
Management noted that the business is cyclical and exposed to oil and gas prices, customer activity and capital spending. Other identified risks include competition, prolonged commodity-price declines, component cost increases, and new safety, health or environmental regulations. COVID-19 had not materially disrupted field operations or supply chains as of the filing. The company reported no material legal proceedings or threatened material litigation, and no subsequent events.
Key facts for investors to verify
- Whether higher rental revenue and horsepower demand can offset elevated fleet repair costs and weak compressor sales.
- Whether operating cash flow can sustain planned rental-fleet investment, repurchases and liquidity without drawing on the credit facility.
- The status and timing of the $11.5 million federal tax receivable and any remaining CARES Act refund process.
- Current utilization, rental rates, repair and maintenance spending, and customer demand trends after September 30, 2021.
- Credit-facility borrowing-base availability and covenant requirements, including any applicable trigger periods.