FOR IMMEDIATE RELEASE
          NEWS
August 9, 2018
NYSE: NGS
 
Exhibit 99
ngsglogoa26.jpg 
Natural Gas Services Group, Inc.
Reports Second Quarter 2018 Financial and Operating Results

MIDLAND, Texas August 9, 2018 - 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, 2018.

NGS reported steady rental revenue of $11.4 million for both quarters ended June 30, 2018 and 2017. Sequentially, rental revenue on a quarterly basis stayed relatively flat with a slight decrease of $44,000. For the six months ended June 30, 2018, rental revenues fell to $22.9 million compared to $23.3 million for the same period in 2017.

The Company reported net income of $247,000 for the second quarter compared to $375,000 in the same quarter in 2017 and $225,000 in the first quarter 2018. For the six months ended June 30, 2018, The Company reported net income of $472,000 compared to $627,000 for the same period ended 2017. Earnings per diluted share for the quarter ended June 30, 2018 was 2 cents.

Highlights of the quarter include:
 
Revenue: Total revenue for the three months ended June 30, 2018 was $18.2 million, an increase compared to $16.2 million for the three months ended June 30, 2017. This increase was due to a $2.0 million rise in sales due to fluctuations in the timing of our compressor sales activity. Total revenue, sequentially, increased between quarters by $3.5 million, to $18.2 million from $14.7 million, due to an increase in sales, particularly due to larger flare and compressor sales. For the six months ended June 30, 2018 and 2017, total revenue dropped to $32.9 million from $35.1 million due to fluctuations in timing of compressor sales activity.

Operating Income: Operating income for the three months ended June 30, 2018, decreased to $226,000 from $414,000 compared to the same period in the prior year. This drop is due to a mix shift in revenues from larger margin rentals to lower margin sales. Sequentially, operating income decreased to $226,000 from $350,000 due to rentals to sales mix shift. Operating income for the six months ended June 30, 2018, decreased to $576,000 from $757,000.
 
Adjusted Gross Margins: Total adjusted gross margin for the three months ended June 30, 2018 dropped slightly to $8.0 million from $8.1 million for the same period ended June 30, 2017, but as a percentage of revenue decreased to 44% compared to 50% for the same periods, respectively. This decrease is due to the mix in revenues shifting from higher margin rentals to lower margin sales. Sequentially, adjusted gross margin was $8.0 million for the three months ending June 30, 2018 compared to $7.8 million in the three months ended in March 31, 2018. Adjusted gross margin percentages decreased to 44% from 53% the previous quarter, driven by the same shift in revenues from rentals to sales. For the six months 2018 versus 2017, adjusted gross margin fell to $15.7 million from $16.8 million, due to a drop in rental margins but stayed relatively flat as a percentage of revenue at 48%. 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, 2018 decreased to $247,000 compared to net income of $375,000 for the same period in 2017. Sequentially, net income increased to $247,000 from $225,000. For the six months ended 2018 compared to 2017, net income decreased to $472,000 from $627,000.

Earnings Per Share: Comparing the second quarter of 2018 versus 2017, earnings per diluted share was down to 2 cents compared to 3 cents, respectively. Sequentially, diluted earnings per share was flat at 2 cents. Comparing six months ending 2018 versus 2017, earnings per diluted share was down to 4 cents from 5 cents.

Adjusted EBITDA: Adjusted EBITDA was relatively flat at $5.8 million and $5.7 million, but fell as a percentage of revenue to 32% from 35%, for the three months ended June 30, 2018 and June 30, 2017, respectively. Adjusted EBITDA increased approximately $89,000 in the sequential quarters but decreased relative to revenue to 32% from 38%. For the six month comparison 2018 to 2017, Adjusted EBTIDA remained flat at $11.4 million and rose as a percentage of revenue to 35% from 32%. Please see discussion of Non-GAAP Financial Measures - Adjusted EBITDA at the conclusion of this release.

1




Cash Flow: At June 30, 2018, cash and cash equivalents were $62.5 million with a bank debt level of $417,000, all of which is classified as non-current. Positive net cash flow from operating activities was $10.9 million during the six months ended 2018.

Commenting on second quarter 2018 results, Stephen C. Taylor, President and CEO, said:
“NGS exhibited a significant increase in total revenues of 24% in the sequential quarters, led by our overall sales volumes. Rental revenues were flat, but we see encouraging trends in this business line which should signal improved revenues going forward. We placed more active horsepower in the field, led by our shift into the higher horsepower rental compression market, and our backlog of contracted rental equipment is significant. Our rental margins suffered due to the expenses incurred to make-ready this equipment, but that’s a necessary current cost to capture those future revenues. We continue to see opportunity in the future, especially in the high horsepower market.”

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, 2018 and 2017.  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,
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
Rental
$
11,427

 
63
%
 
$
11,420

 
71
%
 
$
6,232

 
55
%
 
$
7,165

 
63
%
Sales
6,383

 
35
%
 
4,407

 
27
%
 
1,459

 
23
%
 
662

 
15
%
Service & Maintenance
394

 
2
%
 
391

 
2
%
 
293

 
74
%
 
287

 
73
%
Total
$
18,204

 
 
 
$
16,218

 
 
 
$
7,984

 
44
%
 
$
8,114

 
50
%

 
Revenue
 
Adjusted Gross Margin(1)
 
Six months ended June 30,
 
Six months ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
Rental
$
22,898

 
70
%
 
$
23,342

 
67
%
 
12,999

 
57
%
 
14,419

 
62
%
Sales
9,381

 
28
%
 
11,044

 
31
%
 
2,266

 
24
%
 
1,876

 
17
%
Service & Maintenance
643

 
2
%
 
734

 
2
%
 
477

 
74
%
 
536

 
73
%
Total
$
32,922

 
 
 
$
35,120

 
 
 
$
15,742

 
48
%
 
$
16,831

 
48
%

(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.







2








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)
2018
 
2017
 
2018
 
2017
Operating Income
$
226

 
$
414

 
$
576

 
$
757

Depreciation and amortization
5,449

 
5,310

 
10,836

 
10,638

Selling, general, and administration expenses
2,309

 
2,390

 
4,330

 
5,436

Adjusted Gross Margin
$
7,984

 
$
8,114

 
$
15,742

 
$
16,831


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)
 
2018
 
2017
 
2018
 
2017
Net income
$
247

 
$
375

 
$
472

 
$
627

Interest expense
3

 
2

 
6

 
4

Provision for income taxes
54

 
40

 
103

 
132

Depreciation and amortization
5,449

 
5,310

 
10,836

 
10,638

Adjusted EBITDA
5,753

 
5,727

 
11,417

 
11,401

 


3





Conference Call Details:
 
Teleconference: Thursday, August 9, 2018 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, 2018.
 
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
 



4



 NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
 
 
 
 
 
June 30,
 
December 31,
 
2018
 
2017
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
62,490

 
$
69,208

Trade accounts receivable, net of allowance for doubtful accounts of $443 and $569, respectively
9,375

 
8,534

Inventory
23,042

 
26,224

Prepaid income taxes
3,177

 
3,443

Prepaid expenses and other
762

 
817

Total current assets
98,846

 
108,226

Long-term inventory, net of allowance for obsolescence of $21 and $15, respectively
3,467

 
2,829

Rental equipment, net of accumulated depreciation of $155,989 and $145,851, respectively
169,702

 
167,099

Property and equipment, net of accumulated depreciation of $11,176 and $11,274, respectively
11,076

 
7,652

Goodwill
10,039

 
10,039

Intangibles, net of accumulated amortization of $1,695 and $1,632 respectively
1,464

 
1,526

Other assets
1,118

 
939

Total assets
$
295,712

 
$
298,310

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
801

 
$
4,162

Accrued liabilities
2,140

 
3,106

Deferred income
487

 
185

Total current liabilities
3,428

 
7,453

Line of credit, non-current portion
417

 
417

Deferred income tax liability
32,333

 
32,163

Other long-term liabilities
1,139

 
958

Total liabilities
37,317

 
40,991

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; 12,968 and 12,880 shares issued and outstanding, respectively
130

 
129

Additional paid-in capital
105,928

 
105,325

Retained earnings
152,337

 
151,865

Total stockholders' equity
258,395

 
257,319

Total liabilities and stockholders' equity
$
295,712

 
$
298,310








5



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,
 
2018
 
2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
Rental income
$
11,427

 
$
11,420

 
$
22,898

 
$
23,342

Sales
6,383

 
4,407

 
9,381

 
11,044

Service and maintenance income
394

 
391

 
643

 
734

Total revenue
18,204

 
16,218

 
32,922

 
35,120

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of rentals, exclusive of depreciation and amortization stated separately below
5,195

 
4,255

 
9,899

 
8,923

Cost of sales, exclusive of depreciation and amortization stated separately below
4,924

 
3,745

 
7,115

 
9,168

Cost of service and maintenance
101

 
104

 
166

 
198

Selling, general, and administrative expense
2,309

 
2,390

 
4,330

 
5,436

Depreciation and amortization
5,449

 
5,310

 
10,836

 
10,638

Total operating costs and expenses
17,978

 
15,804

 
32,346

 
34,363

Operating income
226

 
414

 
576

 
757

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(3
)
 
(2
)
 
(6
)
 
(4
)
Other income, net
78

 
3

 
5

 
6

Total other income (expense), net
75

 
1

 
(1
)
 
2

Income before provision for income taxes
301

 
415

 
575

 
759

Provision for income taxes
54

 
40

 
103

 
132

Net income
$
247

 
$
375

 
$
472

 
$
627

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.02

 
$
0.03

 
$
0.04

 
$
0.05

Diluted
$
0.02

 
$
0.03

 
$
0.04

 
$
0.05

Weighted average shares outstanding:
 

 
 
 
 

 
 

Basic
12,963

 
12,831

 
12,941

 
12,818

Diluted
13,261

 
13,130

 
13,215

 
13,093








6



NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Six months ended
 
June 30,
 
2018
 
2017
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
472

 
$
627

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
10,836

 
10,638

Deferred income taxes
170

 
(2,609
)
Stock based compensation
1,076

 
2,416

Bad debt allowance
(102
)
 
60

Gain on sale of assets
(49
)
 
(49
)
Loss (gain) on company owned life insurance
55

 
(17
)
Changes in operating assets and liabilities:
 
 
 
Trade accounts receivables, net
(739
)
 
1,147

Inventory
2,673

 
1,383

Prepaid expenses and prepaid income taxes
321

 
(1,411
)
Accounts payable and accrued liabilities
(4,327
)
 
297

Deferred income
302

 
(1,849
)
Other
172

 
512

NET CASH PROVIDED BY OPERATING ACTIVITIES
10,860

 
11,145

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchase of property and equipment
(16,945
)
 
(1,587
)
Purchase of company owned life insurance
(191
)
 
(529
)
Proceeds from sale of property and equipment
49

 
49

NET CASH USED IN INVESTING ACTIVITIES
(17,087
)
 
(2,067
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Repayments from other long-term liabilities, net
(19
)
 
(7
)
Proceeds from exercise of stock options
157

 
517

Taxes paid related to net share settlement of equity awards
(629
)
 
(644
)
NET CASH USED IN FINANCING ACTIVITIES
(491
)
 
(134
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(6,718
)
 
8,944

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
69,208

 
64,094

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
62,490

 
$
73,038

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Interest paid
$
6

 
$
4

Income taxes paid
$
66

 
$
3,203

NON-CASH TRANSACTIONS
 
 
 

Transfer of rental equipment components to inventory
$
144

 
$
48


7

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