Natural Gas Services Group, Inc. — Q1 2021 Form 10-Q
Business and period: NGS provides natural-gas compression equipment and services, with rental compression as its primary business. This unaudited filing covers the three months ended March 31, 2021, compared with Q1 2020. Amounts below are in millions unless noted.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Total revenue | $18.4 | $17.9 | Up 2.8% |
| Rental revenue | $15.3 | $16.1 | Down 4.7% |
| Sales revenue | $2.7 | $1.5 | Up 87%, mainly higher compressor sales |
| Service and maintenance revenue | $0.3 | $0.3 | Substantially unchanged |
| Operating loss | $(0.4) | $(0.3) | Operating margin approximately (2.0)% versus (1.5)% |
| Net loss / income | $(0.4) | $4.1 | Q1 2020 included a $4.5 million income tax benefit related to CARES Act amended returns |
| Adjusted EBITDA | $6.5 | $6.3 | Up $0.2 million; non-GAAP measure |
| Operating cash flow | $7.4 | $8.3 | Lower, primarily from reduced cash receipts on receivables and higher SG&A |
| Capital expenditures | $5.0 | $6.7 | Primarily rental fleet and equipment investment |
Margins and costs: Rental costs fell 9.4% as cost-containment efforts more than offset lower rental revenue. Cost of sales rose 50.4% alongside higher sales. SG&A increased 22.5%, mainly reflecting a roughly $0.5 million unfavorable year-over-year change in deferred compensation expense. Depreciation and amortization was $6.3 million. Net loss per share was $0.03, versus earnings per share of $0.31 basic and $0.30 diluted.
Financial position and liquidity
- At March 31, 2021, cash was $30.7 million, working capital was $63.2 million, and total assets were $307.9 million.
- Current liabilities were $11.9 million; the balance sheet showed no line-of-credit borrowing at quarter-end. Total liabilities were $56.5 million.
- The $11.5 million federal income tax receivable arose from CARES Act NOL carrybacks; the company reported receiving $3.9 million of refunds during 2020.
- Operating cash flow less capital expenditures was approximately $2.4 million. Cash increased $1.8 million during the quarter, after financing outflows including repayment of the $0.4 million year-end line-of-credit balance.
Changes, outlook, and risks
- Rented compressors declined to 1,265 from 1,383 year over year; rented horsepower declined 3.4%. Unit utilization was 56.5% versus 59.7%, and horsepower utilization was 65.2% versus 68.1%. Management reported stronger demand for larger horsepower units than for smaller and medium units.
- Management expected compressor sales to remain low for the rest of 2021, citing reduced E&P capital budgets. It planned to maintain cost reductions and stated forecast capital expenditures for the remainder of 2021 were not expected to exceed internally generated cash flows and cash on hand. Spending would focus on contracted, premium-priced fleet additions and service vehicles.
- Management said cash and operating cash flow were expected to meet capital and liquidity needs for the foreseeable future. Results remain exposed to commodity prices, industry activity and customer spending, as well as competition and potential regulatory costs. The company reported field operations continued largely uninterrupted and no COVID-related supply-chain issues to date.
- On May 11, 2021, after quarter-end, NGS entered a five-year secured revolving credit agreement with Texas Capital Bank, initially committed at $20 million, with an accordion to $30 million subject to availability and a possible uncommitted increase, capped at $50 million. No amounts were outstanding on that facility on May 11. It is secured by company assets and includes customary restrictions and financial covenants applicable during specified trigger periods.
- Management reported no material legal proceedings and no material change in market risks from its 2020 Form 10-K. The filing states results for the quarter are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether rental utilization and rented horsepower stabilize or improve, particularly for smaller and medium compressors.
- Whether the sales increase persists, given management’s expectation of low compressor sales and the timing-driven nature of equipment orders.
- Progress in collecting the $11.5 million federal income tax receivable and any related timing or tax developments.
- Actual capital spending and cash generation relative to management’s 2021 plans.
- Available borrowing capacity under the new facility’s collateral-based borrowing base, and any effect of its liens, covenants or trigger provisions.