Natural Gas Services Group, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; comparative periods are the same periods in 2021. NGS provides natural-gas compression equipment and services, with rental of compressors its primary business. Financial statements are unaudited.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $19.9m | $17.7m | $40.3m | $36.1m |
| Operating income (loss) | $0.7m | ($2.3m) | $1.0m | ($2.7m) |
| Net income (loss) | ($0.1m) | ($1.9m) | $0.3m | ($2.3m) |
| Diluted EPS | ($0.01) | ($0.14) | $0.02 | ($0.17) |
| Adjusted EBITDA (non-GAAP) | $6.7m | $4.5m | $13.5m | $11.0m |
Q2 revenue increased 12.3%, primarily from rental growth; six-month revenue rose 11.4%. Rental revenue was $18.1m in Q2 (+16.2%) and $35.3m in the first half (+14.0%). Sales declined 18.0% in Q2 and 2.3% in the first half; service and maintenance revenue also declined. Rental activity benefited from more high-horsepower units and rate increases. Operating margin, calculated from reported figures, improved to approximately 3.3% in Q2 and 2.6% for the first half, from losses in the comparable periods.
Q2 rental costs rose 1.8%, slower than rental revenue, while first-half rental costs increased 13.8% amid inflation in labor and parts and additions of high-horsepower equipment. SG&A and depreciation declined year over year in the first half. Other expense was $0.3m in Q2 and $0.4m for the first half; the filing does not clearly explain the full composition in the supplied text.
Cash, liquidity and capital
- Cash was $9.8m at June 30, down from $22.9m at December 31, 2021. Working capital was $32.1m, versus $44.8m.
- First-half operating cash flow was $13.2m, compared with $12.8m in 2021. Investing cash outflow was $19.2m, mainly equipment purchases; financing cash outflow was $7.2m, including $6.7m of share repurchases.
- Total assets were $293.5m and stockholders’ equity $229.8m. No line-of-credit borrowings were outstanding. The five-year revolving credit facility matures May 11, 2026; the allowable borrowing base was $20.0m at quarter-end, and the company reported compliance with financial covenants.
- The balance sheet includes an $11.5m federal income tax receivable associated with CARES Act NOL carrybacks. The filing reports no change in this balance during the period.
Changes, outlook and risks
- At June 30, 2022, 1,281 compressors totaling 311,379 horsepower were rented to 79 customers, compared with 1,245 units and 287,365 horsepower a year earlier. Horsepower utilization improved to 73.0% from 64.3%; unit utilization rose to 62.7% from 55.2%. The overall fleet had 2,043 packages versus 2,257 a year earlier, following retirements.
- Management expects compressor sales to remain low for the rest of 2022 as customers favor rentals over purchases. It plans to match expenses and fleet fabrication to activity, market idle units, and focus most remaining capital spending on contracted premium-priced rental additions and service vehicles. Forecast capital expenditures are not expected to exceed internally generated cash, cash on hand and borrowing availability.
- Management said higher commodity prices supported activity, but producer capital-spending discipline may constrain demand, particularly for equipment sales. Inflation and supplier lead times of three to six months create cost and delivery risks; management said it had so far raised rental rates and sales prices to offset cost increases. The company also announced plans to convert up to 100 compressor packages to electric motors.
- Key stated risks include weaker oil or gas prices, industry cyclicality, competition, changing technology, inflation and supply constraints, and potential new safety, health or environmental regulations. No material litigation or material subsequent events were reported. The filing says disclosure controls were effective.
Important facts for investors to verify
- Whether rental-rate increases and greater high-horsepower utilization can continue to offset fleet operating-cost inflation.
- Planned 2022 capital spending, rental-fleet additions and cash requirements against operating cash flow and the reduced cash balance.
- Status and timing of collection of the $11.5m federal tax receivable.
- Terms, timing and expected costs or returns of the planned electric-motor conversions and any effect of equipment supply lead times.
- Share-repurchase activity: the company spent $6.7m on treasury shares in the first half, and its $10.0m authorization was fully used by June 2022.