Earnings Disclosure

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Q3 2016 Natural Gas Services Group, Inc. Earnings Conference Call

Thursday, November 3, 2016 11:00 a.m. ET  

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NGS (common stock)

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Natural Gas Services Group, Inc. Reports Third Quarter 2016 Earnings of 12 Cents per Diluted Share

 

MIDLAND, Texas November 3, 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 nine months ended September 30, 2016.

Revenue: Total revenue was $16.2 million, a decrease from $21.2 million for the three months ended September 30, 2016 compared to the same period ended September 30, 2015. This change was mainly attributable to a decrease in rental revenue due to reduced rental utilization, competitive pricing pressure and generally lower activity in the upstream oil and gas industry because of lower commodity prices. Total revenue decreased between consecutive quarters by $1.0 million to $16.2 million from $17.2 million, due to the same aforementioned reasons.  On a nine month year-to-date basis, revenues were down from 2015 by $15.2 million.

Gross Margins: Total gross margin for the three months ended September 30, 2016 decreased $2.7 million to $9.4 million from $12.1 million for the same period ended September 30, 2015. However, total gross margin as a percentage of revenue increased to 58% for the three months ended September 30, 2016 compared to 57% for the same period ended September 30, 2015. This increase was the result of generally higher margins on rental and service and maintenance revenue. Sequentially, gross margin was $9.4 million for the three months ending September 30, 2016 compared to $9.5 million in the three months ended in June 30, 2016. Gross margin percentages increased to 58% from 55% the previous quarter, driven primarily by higher gross margins in all of revenue streams, particularly rentals. For the comparative nine months ended September 30, total gross margin decreased to $30.7 million from $40.2 million.

Operating Income: Operating income for the three months ended September 30, 2016 was $1.8 million, compared to the prior year's third quarter of $3.8 million. This decrease was due to a reduction in rental revenue and sales gross margins. Sequentially, operating income remained flat at $1.8 million, for the three months ended September 30, 2016 and June 30, 2016. Operating income for the nine months ended 2016 was $7.5 million compared to $10.5 million for the same period in 2015.

Net Income:  Net income for the three months ended September 30, 2016 decreased to $1.5 million compared to net income of $2.6 million for the same period in 2015. Sequentially, net income increased to $1.5 million from $1.3 million primarily due to the application of research and development tax credits. For the comparative nine months ended, net income decreased to $5.3 million from $6.9 million.

Earnings Per Share:  Comparing the third quarter of 2016 versus 2015, earnings per diluted share was 12 cents down from the 20 cents. Diluted earnings per share increased to 12 cents from 10 cents between sequential quarters. On a nine month year-to-date basis, earnings per diluted share decreased to 41 cents from 54 cents.

Adjusted EBITDA:  Adjusted EBITDA decreased $2.1 million to $7.3 million or 45% of revenue for the three months ended September 30, 2016 versus $9.4 million or 44% of revenue for the same three months ended September 30, 2015. Adjusted EBITDA decreased approximately $39,000 in the sequential quarters and increased relative to revenue to 45% from 42%. For the nine months ended September 30, 2016, adjusted EBITDA decreased $8.3 million to $23.9 million or 43% of revenue compared to $32.2 or 46% for the same period ended September 30, 2015. Please see discussion of Non-GAAP Financial Measures - Adjusted EBITDA, below.

Cash Flow: At September 30, 2016, cash and cash equivalents were $61.2 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 $29.5 million during the nine months ended 2016.


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

"Although our markets continue to be very competitive, I think NGS had a notable quarter. The rate of decline in our rental utilization has slowed and, in spite of revenue declines, our gross margin and operating income dollars were essentially flat between quarters. Our rental gross margins were at a ten-year high of 66%, our compressor sales backlog grew, we posted higher earnings per share this quarter than last and we generated positive free cash flow at a rate of 55% of this quarter's revenue. There are some indications of a tightening market with the higher commodity price, but it has not fully settled into our business yet. If present trends continue we may be in the bottoming of the cycle, but since our production oriented activities tend to lag market upturns, I think we are still looking into 2017 before any definitive recovery will be seen."

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 nine months ended September 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 September 30,   Three months ended September 30,
  2016   2015   2016   2015
  (in thousands)
Rental $ 13,157     81 %   $ 18,491     87 %   $ 8,644     66 %   $ 11,164     60 %
Sales 2,536     16 %   2,468     12 %   345     14 %   728     29 %
Service & Maintenance 488     3 %   234     1 %   366     75 %   164     70 %
Total $ 16,181         $ 21,193         $ 9,355     58 %   $ 12,056     57 %

  Revenue   Gross Margin, Exclusive of  Depreciation and Amortization(1)
  Nine months ended September 30,   Nine months ended September 30,
  2016   2015   2016   2015
  (in thousands)
Rental $ 44,220     80 %   $ 58,806     84 %   $ 28,602     65 %   $ 36,744     62 %
Sales 9,746     18 %   10,672     15 %   1,387     14 %   2,966     28 %
Service & Maintenance 985     2 %   686     1 %   667     68 %   535     78 %
Total $ 54,951         $ 70,164         $ 30,656     56 %   $ 40,245     57 %

(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 September 30,   Nine months ended September 30,
  (in thousands)   (in thousands)
  2016   2015   2016   2015
Net income $ 1,509     $ 2,562     $ 5,309     $ 6,870  
Interest expense 2     7     6     13  
Provision for income taxes 322     1,249     2,170     3,688  
Loss on retirement of rental equipment -     (3 )   -     4,370  
Depreciation and amortization 5,431     5,594     16,371     17,240  
Adjusted EBITDA 7,264     9,409     23,856     32,181  
Selling, general and administrative expense 2,101     2,667     6,822     8,131  
Other income, net (10 )   (20 )   (22 )   (67 )
Gross margin $ 9,355     $ 12,056     $ 30,656     $ 40,245  

"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.


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, November 3, 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 nine months ended September 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)
       
  September 30,   December 31,
  2016   2015
ASSETS      
Current Assets:      
Cash and cash equivalents $ 61,157     $ 35,532  
Trade accounts receivable, net of allowance for doubtful accounts of $616 and $833,  respectively 5,332     9,107  
Inventory, net 24,368     27,722  
Prepaid income taxes 979     81  
Prepaid expenses and other 519     762  
Total current assets 92,355     73,204  
Rental equipment, net of accumulated depreciation of $126,104 and $111,293, respectively 179,561     191,933  
Property and equipment, net of accumulated depreciation of $11,534 and $10,825, respectively 7,817     8,527  
Goodwill 10,039     10,039  
Intangibles, net of accumulated amortization of $1,476 and $1,382 respectively 1,683     1,777  
Other assets 169     73  
Total assets $ 291,624     $ 285,553  
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current Liabilities:      
Accounts payable $ 902     $ 1,226  
Accrued liabilities 2,845     3,071  
Deferred income 1,900     271  
Total current liabilities 5,647     4,568  
Line of credit, non-current portion 417     417  
Deferred income tax liability 54,685     56,458  
Other long-term liabilities 271     129  
Total liabilities 61,020     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; 12,724 and 12,603 shares issued and outstanding, respectively 127     126  
Additional paid-in capital 99,623     98,310  
Retained earnings 130,854     125,545  
Total stockholders' equity 230,604     223,981  
Total liabilities and stockholders' equity $ 291,624     $ 285,553  


NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except earnings per share)
(unaudited)
       
  Three months ended   Nine months ended
  September 30,   September 30,
  2016   2015   2016   2015
Revenue:              
Rental income $ 13,157     $ 18,491     $ 44,220     $ 58,806  
Sales, net 2,536     2,468     9,746     10,672  
Service and maintenance income 488     234     985     686  
Total revenue 16,181     21,193     54,951     70,164  
Operating costs and expenses:              
Cost of rentals, exclusive of depreciation and amortization stated separately below 4,513     7,327     15,618     22,062  
Cost of sales, exclusive of depreciation and amortization stated separately below 2,191     1,740     8,359     7,706  
Cost of service and maintenance 122     70     318     151  
Loss on retirement of rental equipment -     (3 )   -     4,370  
Selling, general, and administrative expense 2,101     2,667     6,822     8,131  
Depreciation and amortization 5,431     5,594     16,371     17,240  
Total operating costs and expenses 14,358     17,395     47,488     59,660  
Operating income 1,823     3,798     7,463     10,504  
Other income (expense):              
Interest expense (2 )   (7 )   (6 )   (13 )
Other income 10     20     22     67  
Total other income, net 8     13     16     54  
Income before provision for income taxes 1,831     3,811     7,479     10,558  
Provision for income taxes 322     1,249     2,170     3,688  
Net income $ 1,509     $ 2,562     $ 5,309     $ 6,870  
Earnings per share:              
Basic $ 0.12     $ 0.20     $ 0.42     $ 0.55  
Diluted $ 0.12     $ 0.20     $ 0.41     $ 0.54  
Weighted average shares outstanding:              
Basic 12,717     12,586     12,691     12,557  
Diluted 12,962     12,801     12,913     12,783  


NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
  Nine months ended
  September 30,
  2016   2015
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 5,309     $ 6,870  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 16,371     17,240  
Deferred income taxes (1,773 )   (2,629 )
Stock based compensation 1,739     2,616  
Bad debt allowance 61     402  
Inventory allowance 32     70  
Gain on sale of assets (49 )   (81 )
Gain on company owned life insurance (7 )   -  
Loss on retirement of rental equipment -     4,370  
Changes in current assets and liabilities:      
Trade accounts receivables, net 3,714     2,449  
Inventory 3,556     3,912  
Prepaid expenses (604 )   2,287  
Accounts payable and accrued liabilities (550 )   (7,107 )
Current income tax liability -     5,086  
Deferred income 1,629     (646 )
Other 133     (19 )
Tax benefit from equity compensation (51 )   -  
NET CASH PROVIDED BY OPERATING ACTIVITIES 29,510     34,820  
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchase of property and equipment (3,359 )   (11,163 )
Purchase of company owned life insurance (142 )   -  
Proceeds from sale of property and equipment 49     113  
NET CASH USED IN INVESTING ACTIVITIES (3,452 )   (11,050 )
CASH FLOWS FROM FINANCING ACTIVITIES:      
Repayments from other long-term liabilities, net (8 )   (20 )
Proceeds from exercise of stock options 433     733  
Taxes paid related to net share settlement of equity awards (909 )   (686 )
Tax benefit from equity compensation 51     -  
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES (433 )   27  
NET CHANGE IN CASH AND CASH EQUIVALENTS 25,625     23,797  
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 35,532     6,181  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 61,157     $ 29,978  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:      
Interest paid $ 6     $ 13  
Income taxes paid $ 4,795     $ 3,185  
NON-CASH TRANSACTIONS      
Transfer of rental equipment components to inventory $ 164     $ 1,065  
Transfer from inventory to property and equipment $ -     $ 1,622  

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

 

 

Midland, Texas, October 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 third quarter 2016 earnings release:

Earnings Release: Thursday, November 3, 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, November 3, 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 third 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