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Q2 2016 Natural Gas Services Group, Inc. Earnings Conference Call

Thursday, August 4, 2016 11:00 a.m. ET  

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NGS (common stock)

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Data as of 08/21/17 11:45 a.m. ET

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Natural Gas Services Group, Inc Reports Second Quarter 2016

 

 MIDLAND, Texas August 4, 2016 - Natural Gas Services Group, Inc. (NYSE:NGS), a leading provider of gas compression equipment and services to the natural gas industry, announces its financial results for the three and six months ended June 30, 2016.

Revenue: Total revenue was $17.2 million, a decrease from $24.2 million for the three months ended June 30, 2016 compared to the same period ended June 30, 2015. This change was mainly attributable to a decrease in rental revenue and compressor unit sales related to reduced activity in the upstream oil and gas industry due to low commodity prices. Total revenue decreased between consecutive quarters by $4.4 million to $17.2 million from $21.6 million, due to the same aforementioned reasons.  On a six month year-to-date basis, revenues were down from 2015 by $10.2 million.

Gross Margins: Total gross margin for the three months ended June 30, 2016 decreased $4.5 million to $9.5 million from $14.0 million for the same period ended June 30, 2015. Total gross margin as a percentage of revenue dropped to 55% for the three months ended June 30, 2016 compared to 58% for the same period ended June 30, 2015. This decrease was the result of generally lower margins on compressor sales. Sequentially, gross margin was $11.8 million for the three months ending March 31, 2016 compared to $9.5 million in the three months ended in June 30, 2016. Gross margin percentages continued to hold strong at 55%, driven primarily by higher gross margins in our rental business. For the comparative six months ended June 30, total gross margin decreased to $21.3 million from $28.2 million.

Operating Income: Operating income for the three months ended June 30, 2016 was $1.9 million, compared to the prior year's second quarter of $919,000. This increase was the result of special items taken during the second quarter of 2015, mainly consisting of a $4.3 million write-down of retired equipment. When comparing the three months of June 2016 to June 2015, without this retirement, operating income decreased due to a reduction in rental revenue and sales gross margins. Sequentially, operating income decreased to $1.9 million, for the three months ended June 30, 2016 from $3.8 million in the three month period ended March 31, 2016 primarily due to a decrease in total revenues and lower compressor sales gross margins between the periods. Operating income for the six months ended 2016 was $5.6 million compared to $6.7 million for the same period in 2015. Excluding the adjustment for the comparative six months ended June 30, operating income was $5.6 million in 2016 compared to an adjusted operating income of $11.2 million in 2015.

Net Income:  Net income for the three months ended June 30, 2016 increased to $1.3 million compared to net income of $614,000 for the same period in 2015. Sequentially, net income decreased to $1.3 million from $2.5 million. For the comparative six months ended, net income decreased to $3.8 million from $4.3 million. The aforementioned net income numbers include the adjustments as reported.

Earnings Per Share:  Comparing the second quarter of 2016 versus 2015, earnings per diluted share was 10 cents up from the 5 cents. Diluted earnings per share decreased to 10 cents from 20 cents between sequential quarters. On a six month year-to-date basis, earnings per diluted share decreased to 29 cents from a 34 cents.

Adjusted EBITDA:  Adjusted EBITDA decreased $3.9 million to $7.3 million or 42% of revenue for the three months ended June 30, 2016 versus $11.2 million or 46% of revenue for the same three months ended June 30, 2015. Adjusted EBITDA decreased approximately $2 million in the sequential quarters and decreased relative to revenue to 42% from 43%. For the six month ended June 30, 2016, Adjusted EBITDA decreased $6.2 million to $16.6 million or 43% of revenue compared to $22.8 or 47% for the same period ended June 30, 2015. Please see discussion of Non-GAAP Financial Measures - Adjusted EBITDA, below.

Cash Flow: At June 30, 2016, cash and cash equivalents were $52.2 million with a bank debt level of $417,000, all of which was classified as long term. Positive net cash flow from operating activities was $19.8 million during the six months ended of 2016.


Commenting on second quarter 2016 results, Stephen C. Taylor, President and CEO said:

"Rental activity in the second quarter continued to decline as a natural consequence of last quarter's utilization drop and the bottoming of the oil price experienced in the first quarter. However, we have seen this decline begin to mitigate itself in the second quarter and the month of July. Sales activity, which is always volatile on a quarter-to-quarter basis, also declined, but our backlog continues to hold steady. Our rental gross margins were again very high due to excellent cost control, and 53 percent of every revenue dollar was converted into free cash flow. The first part of the year has been difficult but, contingent upon the commodity price, we believe the worst is behind us."

Selected data: The table below shows revenues, percentage of total revenues, gross margin, exclusive of depreciation, amortization, and gross margin percentage of each of our business lines for the three and six months ended June 30, 2016 and 2015.  Gross margin is the difference between revenue and cost of sales, exclusive of depreciation and amortization.

  Revenue   Gross Margin, Exclusive of  Depreciation and Amortization(1)
  Three months ended June 30,   Three months ended June 30,
  2016   2015   2016   2015
  (in thousands)
Rental $ 14,655     85 %   $ 19,712     81 %   $ 9,244     63 %   $ 12,704     64 %
Sales 2,300     14 %   4,292     18 %   64     3 %   1,139     27 %
Service & Maintenance 239     1 %   226     1 %   154     64 %   183     81 %
Total $ 17,194         $ 24,230         $ 9,462     55 %   $ 14,026     58 %

  Revenue   Gross Margin, Exclusive of  Depreciation and Amortization(1)
  Six months ended June 30,   Six months ended June 30,
  2016   2015   2016   2015
  (in thousands)
Rental $ 31,063     80 %   $ 40,315     82 %   $ 19,958     64 %   $ 25,580     63 %
Sales 7,210     19 %   8,204     17 %   1,042     14 %   2,238     27 %
Service & Maintenance 497     1 %   452     1 %   301     61 %   371     82 %
Total $ 38,770         $ 48,971         $ 21,301     55 %   $ 28,189     58 %

(1) For a reconciliation of gross margin to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read "Non-GAAP Financial Measures - Adjusted EBITDA" below.

Non GAAP Financial Measures - Adjusted EBITDA: "Adjusted EBITDA" reflects net income or loss before interest, taxes, loss on retirement of rental equipment, depreciation and amortization. Adjusted EBITDA is a measure used by analysts and investors as an indicator of operating cash flow since it excludes the impact of movements in working capital items, non-cash charges and financing costs. Therefore, Adjusted EBITDA gives the investor information as to the cash generated from the operations of a business. However, Adjusted EBITDA is not a measure of financial performance under accounting principles GAAP, and should not be considered a substitute for other financial measures of performance. Adjusted EBITDA as calculated by NGS may not be comparable to Adjusted EBITDA as calculated and reported by other companies. The most comparable GAAP measure to Adjusted EBITDA is net income.

The reconciliation of net income to Adjusted EBITDA and gross margin is as follows:

  Three months ended June 30,   Six months ended June 30,
  (in thousands)   (in thousands)
  2016   2015   2016   2015
Net income $ 1,259     $ 614     $ 3,800     $ 4,308  
Interest expense 2     3     4     6  
Provision for income taxes 605     307     1,848     2,439  
Loss on retirement of rental equipment -     4,373     -     4,373  
Depreciation and amortization 5,437     5,858     10,940     11,646  
Adjusted EBITDA 7,303     11,155     16,592     22,772  
Selling, general and administrative expense 2,152     2,876     4,721     5,464  
Other (income) expense, net 7     (5 )   (12 )   (47 )
Gross margin $ 9,462     $ 14,026     $ 21,301     $ 28,189  

"Gross margin" is defined as total revenue less cost of sales (excluding depreciation and amortization expense).  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 and amortization expense), which are key operating components.  Depreciation expense is a necessary element of costs and the ability to generate revenue and selling, general and administrative expense is a necessary cost to support operations and required corporate activities.  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, gross margin should not be considered an alternative to, or more meaningful than, net income as determined in accordance with GAAP.  Gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate gross margin in the same manner.

Non GAAP Financial Measures - Special Items: From time to time, management may publicly disclose certain "non-GAAP financial measures", such as adjusted operating income below, in our earnings releases, financial presentations or earnings conference calls. These non-GAAP measures are not in accordance with, or a substitute for, measures prepared in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations that would be reflected in measures determined in accordance with GAAP. Adjusted operating income and net income reflects operating before the loss on retirement of rental equipment and increases in bad debt and inventory allowances, taken in the second quarter 2015.

The reconciliation of operating income to adjusted operating income is as follows:

  Six months ended June 30
  Condensed (in thousands)
  2016   2015
   
Operating income $ 5,640     $ 6,706  
Retirement of rental equipment and increase in allowances -     4,526  
Adjusted operating income $ 5,640     $ 11,232  


Cautionary Note Regarding Forward-Looking Statements:

Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements involve known and unknown risks and uncertainties, which may cause NGS's actual results in future periods to differ materially from forecasted results.  Those risks include, among other things, the loss of market share through competition or otherwise; the introduction of competing technologies by other companies; a prolonged, substantial reduction in oil and gas prices which could cause a decline in the demand for NGS's products and services; and new governmental safety, health and environmental regulations which could require NGS to make significant capital expenditures. The forward-looking statements included in this press release are only made as of the date of this press release, and NGS undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. A discussion of these factors is included in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Conference Call Details:

Teleconference: Thursday, August 4, 2016 at 10:00 a.m. Central (11:00 a.m. Eastern).  Live via phone by dialing 877-358-7306, pass code "Natural Gas Services".   All attendees and participants to the conference call should arrange to call in at least 5 minutes prior to the start time.

Live Webcast: The webcast will be available in listen only mode via our website www.ngsgi.com, investor relations section.

Webcast Reply: For those unable to attend or participate, a replay of the conference call will be available within 24 hours on the NGS website at www.ngsgi.com.

Stephen C. Taylor, President and CEO of Natural Gas Services Group, Inc. will be leading the call and discussing the financial results for the three and six months ended June 30, 2016.

About Natural Gas Services Group, Inc. (NGS):
NGS is a leading provider of small to medium horsepower, wellhead compression equipment to the natural gas industry with a primary focus on the non-conventional gas and oil industry, i.e., coalbed methane, gas and oil shales and tight gas. The Company manufactures, fabricates, rents, sells and maintains natural gas compressors and flare systems for gas and oil production and plant facilities. NGS is headquartered in Midland, Texas with fabrication facilities located in Tulsa, Oklahoma and Midland, Texas and service facilities located in major gas and oil producing basins in the U.S. Additional information can be found at www.ngsgi.com.

For More Information, Contact: Alicia Dada, Investor Relations
  (432) 262-2700
Alicia.Dada@ngsgi.com
  www.ngsgi.com


 NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
       
  June 30,   December 31,
  2016   2015
ASSETS      
Current Assets:      
Cash and cash equivalents $ 52,166     $ 35,532  
Trade accounts receivable, net of allowance for doubtful accounts of $693 and $833,  respectively 5,012     9,107  
Inventory, net 24,675     27,722  
Prepaid income taxes 1,795     81  
Prepaid expenses and other 619     762  
Total current assets 84,267     73,204  
Rental equipment, net of accumulated depreciation of $121,402 and $111,293, respectively 184,032     191,933  
Property and equipment, net of accumulated depreciation of $11,335 and $10,825, respectively 8,005     8,527  
Goodwill 10,039     10,039  
Intangibles, net of accumulated amortization of $1,445 and $1,382, respectively 1,714     1,777  
Other assets 207     73  
Total assets $ 288,264     $ 285,553  
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current Liabilities:      
Accounts payable $ 690     $ 1,226  
Accrued liabilities 2,177     3,071  
Deferred income 557     271  
Total current liabilities 3,424     4,568  
Line of credit, non-current portion 417     417  
Deferred income tax liability 55,688     56,458  
Other long-term liabilities 232     129  
Total liabilities 59,761     61,572  
Commitments and contingencies      
Stockholders' Equity:      
Preferred stock, 5,000 shares authorized, no shares issued or outstanding -     -  
Common stock, 30,000 shares authorized, par value $0.01; 12,717 and 12,603 shares issued and outstanding, respectively 127     126  
Additional paid-in capital 99,031     98,310  
Retained earnings 129,345     125,545  
Total stockholders' equity 228,503     223,981  
Total liabilities and stockholders' equity $ 288,264     $ 285,553  


NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except earnings per share)
(unaudited)
       
       
  Three months ended   Six months ended
  June 30,   June 30,
  2016   2015   2016   2015
Revenue:              
Rental income $ 14,655     $ 19,712     $ 31,063     $ 40,315  
Sales, net 2,300     4,292     7,210     8,204  
Service and maintenance income 239     226     497     452  
Total revenue 17,194     24,230     38,770     48,971  
Operating costs and expenses:              
Cost of rentals, exclusive of depreciation and amortization stated separately below 5,411     7,008     11,105     14,735  
Cost of sales, exclusive of depreciation and amortization stated separately below 2,236     3,153     6,168     5,966  
Cost of service and maintenance 85     43     196     81  
Loss on retirement of rental equipment -     4,373     -     4,373  
Selling, general, and administrative expense 2,152     2,876     4,721     5,464  
Depreciation and amortization 5,437     5,858     10,940     11,646  
Total operating costs and expenses 15,321     23,311     33,130     42,265  
Operating income 1,873     919     5,640     6,706  
Other income (expense):              
Interest expense (2 )   (3 )   (4 )   (6 )
Other income (expense) (7 )   5     12     47  
Total other income (expense), net (9 )   2     8     41  
Income before provision for income taxes 1,864     921     5,648     6,747  
Provision for income taxes 605     307     1,848     2,439  
Net income $ 1,259     $ 614     $ 3,800     $ 4,308  
Earnings per share:              
Basic $ 0.10     $ 0.05     $ 0.30     $ 0.34  
Diluted $ 0.10     $ 0.05     $ 0.29     $ 0.34  
Weighted average shares outstanding:              
Basic 12,709     12,579     12,678     12,542  
Diluted 12,936     12,830     12,887     12,774  


NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
  Six months ended
  June 30,
  2016   2015
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 3,800     $ 4,308  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 10,940     11,646  
Deferred income taxes (770 )   (1,877 )
Stock based compensation 1,186     1,694  
Bad debt allowance 61     371  
Inventory allowance 32     70  
Gain on sale of assets (25 )   (50 )
Gain on company owned life insurance (4 )   -  
Loss on retirement of rental equipment -     4,373  
Changes in current assets and liabilities:      
Trade accounts receivables, net 4,034     594  
Inventory 3,179     4,959  
Prepaid expenses (1,532 )   5,264  
Accounts payable and accrued liabilities (1,430 )   (7,398 )
Current income tax liability -     2,436  
Deferred income 286     (1,450 )
Other 84     33  
Tax benefit from equity compensation (39 )   -  
NET CASH PROVIDED BY OPERATING ACTIVITIES 19,802     24,973  
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchase of property and equipment (2,618 )   (9,563 )
Purchase of company owned life insurance (105 )   -  
Proceeds from sale of property and equipment 25     82  
NET CASH USED IN INVESTING ACTIVITIES (2,698 )   (9,481 )
CASH FLOWS FROM FINANCING ACTIVITIES:      
Repayments from other long-term liabilities, net (6 )   (14 )
Proceeds from exercise of stock options 406     550  
Taxes paid related to net share settlement of equity awards (909 )   (677 )
Tax benefit from equity compensation 39     -  
NET CASH USED IN FINANCING ACTIVITIES (470 )   (141 )
NET CHANGE IN CASH AND CASH EQUIVALENTS 16,634     15,351  
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 35,532     6,181  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 52,166     $ 21,532  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:      
Interest paid $ 4     $ 6  
Income taxes paid $ 4,435     $ 1,090  
NON-CASH TRANSACTIONS      
Transfer of rental equipment components to inventory $ 164     $ 969  
Transfer from inventory to property and equipment $ -     $ 1,319  

HUG#2033058

Natural Gas Services Group, Inc. Announces Its Second Quarter 2016 Earnings Call

Midland, Texas, July 20, 2016 - Natural Gas Services Group, Inc. (NYSE:NGS), a leading provider of gas compression equipment and services to the natural gas and oil industry, announces  the following conference call information for their second quarter 2016 earnings release:

Earnings Release: Thursday, August 4, 2016 before market opens
Public distribution will be through Nasdaq OMX and the Natural Gas Services Group, Inc. website at www.ngsgi.com.

Conference Call: Thursday, August 4, 2016 at 10:00 a.m. Central, 11:00 a.m. Eastern 
 Live via phone by dialing 877-358-7306, pass code "Natural Gas Services." All attendees and participants to the conference call should arrange to call in at least 5 minutes prior to the start time.

Conference Call Replay
For those unable to attend the live teleconference, a Webcast replay of the call will be available within 2 hours at the NGS website at www.ngsgi.com under the Investor Relations section.

Stephen C. Taylor, Chairman, President and CEO of Natural Gas Services Group, Inc. will be leading the call and discussing second quarter 2016 financial results.

About Natural Gas Services Group, Inc.
NGS is a leading provider of small to medium horsepower, wellhead compression equipment to the natural gas industry with a primary focus on the non-conventional gas and oil industry, i.e., coalbed methane, gas and oil shales and tight gas. The Company manufactures, fabricates, rents, sells and maintains natural gas compressors and flare systems for gas and oil production and plant facilities. NGS is headquartered in Midland, Texas with fabrication facilities located in Tulsa, Oklahoma and Midland,Texas and service facilities located in major gas and oil producing basins in the U.S. Additional information can be found at www.ngsgi.com.

Natural Gas Services Group, Inc.
Alicia Dada, Investor Relations Coordinator
432-262-2700 or alicia.dada@ngsgi.com


HUG#2029727