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Q2 2017 Natural Gas Services Group, Inc. Earnings Conference Call

Thursday, August 3, 2017 10:00 a.m. CT  

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NGS (common stock)

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Data as of 08/17/17 4:02 p.m. ET

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Natural Gas Services Group, Inc. Reports Second Quarter 2017 Finanical and Operating Results

MIDLAND, Texas August 3, 2017 - Natural Gas Services Group, Inc. ("NGS" or the "Company") (NYSE:NGS), a leading provider of gas compression equipment and services to the energy industry, today announced financial results for the three and six months ended June 30, 2017.

For the quarter ended June 30, 2017, NGS reported revenue of $16.2 million, compared to $17.2 million for the quarter ended June 30, 2016 and $18.9 million for the quarter ended March 31, 2017. Revenue on a quarterly basis, decreased $2.7 million, or 14.3% sequentially and declined by 5.8% when compared to the year ago quarter.

The Company reported net income for the quarter of $375,000 which compares to $1.3 million in the year ago quarter and $252,000 in the quarter ending March 31, 2017.  Earnings per diluted share for the quarter ended June 30, 2017 was 3 cents and 5 cents year-to-date.

Highlights of the quarter include:

Revenue: Total revenue for the three months ended June 30, 2017 was $16.2 million, a decrease from $17.2 million compared to the same period ended June 30, 2016. The decrease is mainly a result of the $3.2 million drop in rental revenue offset by $2.1 million increase in sales. The drop in rental revenue was due to continued pricing and utilization pressures. Total revenue decreased between consecutive quarters by $2.7 million to $16.2 million from $18.9 million, due primarily to a decrease in compressor sales between quarters. On a six month year-to-date basis, revenues were down from 2016 by $3.7 million.

Operating Income: Operating income for the three months ended June 30, 2017 was $414,000, compared to the prior year's second quarter of $1.9 million. This decrease was due to a reduction in rental revenue and a change in the mix shift from higher margin rentals to lower margin sales. Sequentially, operating income increased to $414,000 from $343,000 due to a decrease in stock compensation expense between quarters which was offset by the decrease in sales. Operating income for the six months ended 2017 was $757,000 compared to $5.6 million for the same period in 2016. The decrease between comparative periods is primarily due to the decrease in rental revenues.

Adjusted Gross Margins: Total adjusted gross margin for the three months ended June 30, 2017 decreased $1.4 million to $8.1 million from $9.5 million for the same period ended June 30, 2016. Total adjusted gross margin as a percentage of revenue decreased to 50% for the three months ended June 30, 2017 compared to 55% for the same period ended June 30, 2016. This decrease was the result of a mix shift from higher margin rentals to lower margin sales. Sequentially, adjusted gross margin was $8.1 million for the three months ending June 30, 2017 compared to $8.7 million in the three months ended in March 31, 2017. Adjusted gross margin percentages increased to 50% from 46% the previous quarter, driven primarily by a mix shift from lower margin sales to higher margin rentals. For the comparative six months ended June 30, total gross margin decreased to $16.8 million from $21.3 million. The decrease between comparative periods is primarily due to the decrease in rental revenues and its adjusted gross margin. Please see discussion of Non-GAAP Financial Measures - Adjusted Gross Margin at the conclusion of this release.

Net Income:  Net income for the three months ended June 30, 2017 decreased to $375,000 compared to net income of $1.3 million for the same period in 2016. Sequentially, net income increased to $375,000 from $252,000. For the comparative six months ended, net income decreased to $627,000 from $3.8 million.

Earnings Per Share:  Comparing the second quarter of 2017 versus 2016, earnings per diluted share was 3 cents, down from 10 cents. Sequentially, diluted earnings per share increased to 3 cents from 2 cents. On a six month year-to-date basis, earnings per diluted share decreased to 5 cents from 29 cents.

Adjusted EBITDA:  Adjusted EBITDA decreased $1.6 million to $5.7 million or 35% of revenue for the three months ended June 30, 2017 versus $7.3 million or 42% of revenue for the same three months ended June 30, 2016. Adjusted EBITDA increased approximately $53,000 in the sequential quarters and increased relative to revenue to 35% from 30%. For the six month ended June 30, 2017, Adjusted EBITDA decreased $5.2 million to $11.4 million or 32% of revenue compared to $16.6 million or 43% for the same period ended June 30, 2016. Please see discussion of Non-GAAP Financial Measures - Adjusted EBITDA at the conclusion of this release.

Cash Flow: At June 30, 2017, cash and cash equivalents were $73.0 million with a bank debt level of $417,000, all of which was classified as current. Positive net cash flow from operating activities was $10.2 million during the six months ended of 2017.

Commenting on second quarter 2017 results, Stephen C. Taylor, President and CEO, said:

"This quarter featured a few moving parts in our earnings. Fortunately, a large part of the movement is positive. Our sales business continues to prosper and this quarter we received some very large orders that have pushed our backlog to the highest levels in at least a decade. In fact, the sum total of the orders represents a record level of revenue awarded in our sales business in one quarter. In our rental business we are seeing slight improvements that seem to point to a better second half. Although this business remains under pressure, we continue to execute well and deliver industry leading margins. Our balance sheet continues to be unassailable and our ability to generate cash enviable. Among our publicly traded peers, NGS stands alone as the company providing consistent positive net income. While past performance does not provide a guaranty of future results, to date, our net income has remained positive in each quarter of the downturn."

Selected data: The tables below show revenues and percentage of total revenues, along with our adjusted gross margin, exclusive of depreciation and amortization, and related percentages of each of our product lines for the three and six months ended June 30, 2017 and 2016.  Adjusted gross margin is the difference between revenue and cost of sales, exclusive of depreciation and amortization.

  Revenue   Adjusted Gross Margin(1)
  Three months ended June 30,   Three months ended June 30,
  2017   2016   2017   2016
  (in thousands)
Rental $ 11,420     71 %   $ 14,655     85 %   $ 7,165     63 %   $ 9,244     63 %
Sales 4,407     27 %   2,300     14 %   662     15 %   64     3 %
Service & Maintenance 391     2 %   239     1 %   287     73 %   154     64 %
Total $ 16,218         $ 17,194         $ 8,114     50 %   $ 9,462     55 %

  Revenue   Adjusted Gross Margin(1)
  Six months ended June 30,   Six months ended June 30,
  2017   2016   2017   2016
  (in thousands)
Rental $ 23,342     67 %   $ 31,063     80 %   14,419     62 %   19,958     64 %
Sales 11,044     31 %   7,210     19 %   1,876     17 %   1,042     14 %
Service & Maintenance 734     2 %   497     1 %   536     73 %   301     61 %
Total $ 35,120         $ 38,770         $ 16,831     48 %   $ 21,301     55 %

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

Non-GAAP Financial Measure - Adjusted Gross Margin: "Adjusted Gross Margin" is defined as total revenue less cost of sales (excluding depreciation and amortization expense). Adjusted 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, adjusted gross margin should not be considered an alternative to, or more meaningful than, operating income as determined in accordance with GAAP. Adjusted Gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate adjusted gross margin in the same manner.

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

  Three months ended June 30,   Six months ended June 30,
  (in thousands)   (in thousands)
2017   2016   2017   2016
Operating Income $ 414     $ 1,873     $ 757     $ 5,640  
Depreciation and amortization 5,310     5,437     10,638     10,940  
Selling, general, and administration expenses 2,390     2,152     5,436     4,721  
Adjusted Gross Margin $ 8,114     $ 9,462     $ 16,831     $ 21,301  

Non GAAP Financial Measures - Adjusted EBITDA: "Adjusted EBITDA" reflects net income or loss before interest, taxes, 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)
  2017   2016   2017   2016
Net income $ 375     $ 1,259     $ 627     $ 3,800  
Interest expense 2     2     4     4  
Provision for income taxes 40     605     132     1,848  
Depreciation and amortization 5,310     5,437     10,638     10,940  
Adjusted EBITDA 5,727     7,303     11,401     16,592  


Conference Call Details:

Teleconference: Thursday, August 3, 2017 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, 2017.

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.

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.

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,
  2017   2016
ASSETS      
Current Assets:      
Cash and cash equivalents $ 73,038     $ 64,094  
Trade accounts receivable, net of allowance for doubtful accounts of $646 and $597,  respectively 6,171     7,378  
Inventory, net 25,431     25,833  
Prepaid income taxes 1,944     1,482  
Prepaid expenses and other 1,921     972  
Total current assets 108,505     99,759  
Rental equipment, net of accumulated depreciation of $135,924 and $126,096, respectively 164,553     174,060  
Property and equipment, net of accumulated depreciation of $11,184 and $11,267, respectively 7,290     7,753  
Goodwill 10,039     10,039  
Intangibles, net of accumulated amortization of $1,570 and $1,508 respectively 1,589     1,651  
Other assets 798     262  
Total assets $ 292,774     $ 293,524  
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current Liabilities:      
Line of credit $ 417     $ 417  
Accounts payable 1,309     971  
Accrued liabilities 2,846     2,887  
Deferred income 376     2,225  
Total current liabilities 4,948     6,500  
Deferred income tax liability 51,136     53,745  
Other long-term liabilities 820     325  
Total liabilities 56,904     60,570  
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; 12,838 and 12,764 shares issued and outstanding, respectively 128     128  
Additional paid-in capital 103,101     100,812  
Retained earnings 132,641     132,014  
Total stockholders' equity 235,870     232,954  
Total liabilities and stockholders' equity $ 292,774     $ 293,524  


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,
  2017   2016   2017   2016
Revenue:              
Rental income $ 11,420     $ 14,655     $ 23,342     $ 31,063  
Sales 4,407     2,300     11,044     7,210  
Service and maintenance income 391     239     734     497  
Total revenue 16,218     17,194     35,120     38,770  
Operating costs and expenses:              
Cost of rentals, exclusive of depreciation and amortization stated separately below 4,255     5,411     8,923     11,105  
Cost of sales, exclusive of depreciation and amortization stated separately below 3,745     2,236     9,168     6,168  
Cost of service and maintenance 104     85     198     196  
Selling, general, and administrative expense 2,390     2,152     5,436     4,721  
Depreciation and amortization 5,310     5,437     10,638     10,940  
Total operating costs and expenses 15,804     15,321     34,363     33,130  
Operating income 414     1,873     757     5,640  
Other income (expense):              
Interest expense (2 )   (2 )   (4 )   (4 )
Other income (expense), net 3     (7 )   6     12  
Total other income (expense), net 1     (9 )   2     8  
Income before provision for income taxes 415     1,864     759     5,648  
Provision for income taxes 40     605     132     1,848  
Net income $ 375     $ 1,259     $ 627     $ 3,800  
Earnings per share:              
Basic $ 0.03     $ 0.10     $ 0.05     $ 0.30  
Diluted $ 0.03     $ 0.10     $ 0.05     $ 0.29  
Weighted average shares outstanding:              
Basic 12,831     12,709     12,818     12,678  
Diluted 13,130     12,936     13,093     12,887  


NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
  Six months ended
  June 30,
  2017   2016
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 627     $ 3,800  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 10,638     10,940  
Deferred income taxes (2,609 )   (770 )
Stock based compensation 2,416     1,186  
Bad debt allowance 60     61  
Inventory allowance -     32  
Gain on sale of assets (49 )   (25 )
Gain on company owned life insurance (17 )   (4 )
Changes in operating assets and liabilities:      
Trade accounts receivables, net 1,147     4,034  
Inventory 450     3,179  
Prepaid expenses and prepaid income taxes (1,411 )   (1,532 )
Accounts payable and accrued liabilities 297     (1,430 )
Deferred income (1,849 )   286  
Other 512     84  
Tax benefit from equity compensation -     (39 )
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,212     19,802  
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchase of property and equipment (654 )   (2,618 )
Purchase of company owned life insurance (529 )   (105 )
Proceeds from sale of property and equipment 49     25  
NET CASH USED IN INVESTING ACTIVITIES (1,134 )   (2,698 )
CASH FLOWS FROM FINANCING ACTIVITIES:      
Repayments from other long-term liabilities, net (7 )   (6 )
Proceeds from exercise of stock options 517     406  
Taxes paid related to net share settlement of equity awards (644 )   (909 )
Tax benefit from equity compensation -     39  
NET CASH USED IN FINANCING ACTIVITIES (134 )   (470 )
NET CHANGE IN CASH AND CASH EQUIVALENTS 8,944     16,634  
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 64,094     35,532  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 73,038     $ 52,166  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:      
Interest paid $ 4     $ 4  
Income taxes paid $ 3,203     $ 4,435  
NON-CASH TRANSACTIONS      
Transfer of rental equipment components to inventory $ 48     $ 164  

Natural Gas Services Group Announces Its Second Quarter 2017 Earnings Call

 

Midland, Texas, July 20, 2017 - Natural Gas Services Group, Inc. (NYSE:NGS), a leading provider of gas compression equipment and services to the natural gas industry, announces  the following conference call information for their second quarter 2017 earnings release:

Earnings Release: Thursday, August 3, 2017 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 3, 2017 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 Taylor, Chairman, President and CEO of Natural Gas Services Group, Inc. will be leading the call and discussing second quarter 2017 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