NATURAL GAS SERVICES GROUP INC

Previous wording

We rent, design, sell, install, service and maintain natural gas and electric compressors and related equipment for oil and gas production and processing facilities, generally using equipment from third-party fabricators and OEM suppliers along with limited in-house assembly. Substantially all of our compressor assembly is done by third-party contractors while a limited level of assembly work remains in-house at our Tulsa, Oklahoma facility. We also provide an exchange and rebuild program for compressors and maintain an inventory of new and used compressors to facilitate this business. Our primary focus is on the rental of natural gas and electric compressors. Our rental contracts generally provide for initial terms of six to 60 months, with our larger horsepower units having longer initial terms than our small and medium horsepower units. After the initial term of our rental contracts, most of our customers have continued to rent our compressors on a month-to-month basis. Rental amounts are billed monthly in advance and include maintenance of the rented compressor units.

Current wording

We rent, design, sell, install, service and maintain natural gas and electric compressors and related equipment for oil and gas production and processing facilities, generally using equipment from third-party fabricators and OEM suppliers along with limited in-house assembly. Substantially all of our compressor assembly is done by third-party contractors while a limited level of assembly work remains in-house at our Tulsa, Oklahoma facility. We also provide an exchange and rebuild program for compressors and maintain an inventory of new and used compressors to facilitate this business. Our primary focus is on the rental of natural gas and electric compressors. Our rental contracts generally provide for initial terms of 12 to 60 months, with our larger horsepower units having longer initial terms than our small and medium horsepower units. After the initial term of our rental contracts, most of our customers have continued to rent our compressors on a month-to-month basis. Rental amounts are billed monthly in advance and include maintenance of the rented compressor units.

Previous wording

Of the total horsepower utilized as of March 31, 2025, 382,192 of horsepower was being rented under contracts expiring between 2025 and 2030 and 110,487 of horsepower was being rented on a month-to-month basis.

Current wording

Of the total horsepower utilized as of June 30, 2025, 391,785 of horsepower was being rented under contracts expiring between 2025 and 2030 and 106,866 of horsepower was being rented on a month-to-month basis.

Previous wording

Crude Oil. The level of production for crude oil activity and capital expenditures has generally been dependent upon the prevailing view of future crude oil prices, which are influenced by numerous supply and demand factors, including availability and cost of capital, well productivity and development costs, global and domestic economic conditions, environmental regulations, policies of OPEC and Russia, and other factors. While crude oil prices have historically been volatile, we expect demand for our existing compressor fleet to remain positive assuming crude oil prices remain within reasonable bands with respect to current pricing levels.

Current wording

Crude Oil. The level of production for crude oil activity and capital expenditures has generally been dependent upon the prevailing view of future crude oil prices, which is influenced by numerous supply and demand factors, including availability and cost of capital, well productivity and development costs, global and domestic economic conditions, environmental regulations, policies of OPEC and Russia, and other factors. While crude oil prices have historically been volatile, we expect demand for our existing compressor fleet to remain positive assuming crude oil prices remain within reasonable bands with respect to current pricing levels.

Previous wording

There are other material limitations to using Adjusted EBITDA as a measure of performance, including the inability to analyze the impact of certain recurring items that materially affect our net income or loss, and the lack of comparability of results of operations of different companies. Please read the table below to see how Adjusted EBITDA reconciles to our net income, for the three months ended March 31, 2025, and 2024, the most directly comparable GAAP financial measure.

Current wording

There are other material limitations to using Adjusted EBITDA as a measure of performance, including the inability to analyze the impact of certain recurring items that materially affect our net income or loss, and the lack of comparability of results of operations of different companies.

Previous wording

Three months ended March 31, 2025, compared to the three months ended March 31, 2024.

Current wording

Three and six months ended June 30, 2025, compared to the three and six months ended June 30, 2024.

Previous wording

We generate revenue primarily from renting, maintaining and servicing compressors to our customers under contractual arrangements. These contracts, which all qualify as operating leases under GAAP, generally include a fee for servicing the compressor unit during the rental term. Our rental contract terms typically range from six to 60 months. Our revenue is recognized over time, with monthly payments over the term of the contract. After the terms of the contract have expired, a customer may renew its contract or continue renting on a monthly basis thereafter. The primary costs associated with providing our compressor fleet to our customers includes routine maintenance and repairs, fluids, primarily motor oils, and labor and related support costs for our field service facilities and service employees that are geographically dispersed throughout our operating regions.

Current wording

We generate revenue primarily from renting, maintaining and servicing compressors to our customers under contractual arrangements. These contracts, which all qualify as operating leases under GAAP, generally include a fee for servicing the compressor unit during the rental term. Our rental contract terms typically range from 12 to 60 months. Our revenue is recognized over time, with monthly payments over the term of the contract. After the terms of the contract have expired, a customer may renew its contract or continue renting on a monthly basis thereafter. The primary costs associated with providing our compressor fleet to our customers includes routine maintenance and repairs, fluids, primarily motor oils, and labor and related support costs for our field service facilities and service employees that are geographically dispersed throughout our operating regions.

Previous wording

Rental revenue increased for the three months ended March 31, 2025, as compared to the comparable period in 2024 due primarily to an increase in rented horsepower despite a decrease in the number of units rented and a decrease in total customers. The increase in revenue reflects a continuing trend of growing demand for our higher horsepower units (400 horsepower and greater) which provide for higher rental rates and realized adjusted gross margins. Our utilized horsepower was relatively flat which reflects the continued addition of high horsepower compressor units to our fleet consistent with our emphasis on larger units over the past few years, offset by the return of lower horsepower units. The decline in customers is primarily attributable to E&P industry consolidation as well as the acquisition of existing producing oil and gas properties among E&P companies; however, it has not resulted in any meaningful decrease in our level of business activity. The cost of rentals increased on an absolute basis due to the effects of supporting a larger quantity of utilized horsepower and inflationary pressures primarily in labor and parts costs. As a result of these factors, our adjusted gross margin increased on both an absolute basis as well as a percentage of revenues for the three months ended March 31, 2025, compared to the comparable period in 2024.

Current wording

Rental revenue increased for the three and six months ended June 30, 2025, as compared to the corresponding periods in 2024 due primarily to an increase in rented horsepower despite a decrease in the number of units rented and a decrease in total customers. The increase in revenue reflects a continuing trend of growing demand for our higher horsepower units (400 horsepower and greater) which provide for higher rental rates and realized adjusted gross margins. Our utilized horsepower increased marginally during the second quarter of 2025 as compared to the prior year period which reflects the continued addition of high horsepower compressor units to our fleet consistent with our emphasis on larger units over the past few years, as well as the retirement of certain older medium and small horsepower units from the fleet partially offset by the return of lower horsepower units to the fleet by certain customers at the end of their lease terms. Through June 30, 2025, we placed into service a total 181 newly set units, including 166 from our existing fleet and 15 new units. Of those sets, a total of 48 were high horsepower units and 15 of those were new units to the fleet. The decline in customers is primarily attributable to E&P industry consolidation as well as the acquisition of existing producing oil and gas properties among E&P companies; however, it has not resulted in any meaningful decrease in our level of business activity.

Previous wording

We generate revenue from the sale of custom/assembled compressors and parts, as well as exchange/rebuilding customer owned compressors and sale of used rental equipment. Costs of sales include purchases of engines, compressors, coolers and other component materials as well as direct and indirect labor attributable to the assembly of equipment to meet the unique specifications of our customers. In addition, our costs of sales include overhead and related support costs attributable to our storage facilities, assembly, repair and overhaul facilities in Tulsa, Oklahoma as well as Midland, Texas through its closure at the end of March 2025.

Current wording

We generate revenue from the sale of assembled compressors and parts, as well as exchange/rebuilding customer owned compressors and the sale of used rental equipment. Costs of sales include purchases of engines, compressors, coolers and other component materials as well as direct and indirect labor attributable to the assembly of equipment to meet the unique specifications of our customers. In addition, our costs of sales include overhead and related support costs attributable to our storage, assembly, repair and overhaul facilities in Tulsa, Oklahoma as well as Midland, Texas through its closure at the end of March 2025.

Previous wording

Sales revenue declined for the three months ended March 31, 2025, compared to comparable period in 2024. Sales are subject to fluctuations in the timing of industry activity related to our customers’ capital projects and, as such, can vary substantially between periods. Due to these circumstances as well as the costs of maintaining support facilities relative to revenues, we continue to shift our business away from sales of new compressor packages to renting our owned units to our customers. While the costs to support our sales revenues declined on an absolute basis, primarily reflecting a lower volume of business, the gross margin declined to a negative value due primarily to indirect labor and fixed overhead costs that are not otherwise subject to capitalization at our assembly, repair and overhaul facilities, primarily at the location in Midland, Texas which we closed at the end of March 2025.

Current wording

Sales revenue declined for the three and six months ended June 30, 2025, compared to the corresponding periods in 2024. Sales are subject to fluctuations in the timing of industry activity related to our customers’ capital projects and, as such, can vary substantially between periods. Due to these circumstances as well as the costs of maintaining support facilities relative to revenues, we continue to shift our business away from sales of new compressor packages to renting our owned units to our customers. While the costs to support our sales revenues declined on an absolute basis, primarily reflecting a lower volume of business, the gross margins declined to negative values due primarily to indirect labor and fixed overhead costs that are not otherwise subject to capitalization at our assembly, repair and overhaul facilities, as well as severance and other continuing costs primarily at the location in Midland, Texas which we closed at the end of March 2025. Sales represented an insignificant portion of our gross margin in the three and six months ended June 30, 2025, and 2024, respectively.

Previous wording

Third party aftermarket services revenues and costs declined for the three months ended March 31, 2025, compared to comparable period during 2024. The decline is primarily attributable to a lower volume of service call-out work performed during the 2025 period compared to 2024. Aftermarket services only represented 1.3 percent and 1.8 percent of our revenue in the three months ended March 31, 2025, and 2024, respectively, providing minimal impact on our overall adjusted gross margin.

Current wording

Third party aftermarket services revenues and costs declined for the three months ended June 30, 2025, compared to the corresponding periods during 2024; however, the absolute gross margins and percentages both improved over the prior periods in 2024. The decline in revenue and costs is primarily attributable to a marginally lower volume of unit commissioning work performed during the 2025 periods compared to 2024 as well as the effect of lower freight costs. Aftermarket services represented an insignificant portion of our gross margin in the three and six months ended June 30, 2025, and 2024, respectively.

Previous wording

Our selling, general and administrative (“SG&A”) expenses include compensation and benefits, including stock-based compensation, commissions and other support costs of departments serving administrative and corporate governance functions, such as executive management, finance and accounting, sales and marketing, human resources, information technology, health, safety and environmental and investor relations. In addition, SG&A includes non-personnel costs, such as occupancy costs, IT support costs, professional fees and other supporting corporate expenses including public company compliance costs. When applicable, SG&A expenses also includes severance benefits and related costs associated with exit activities and restructuring actions.

Current wording

Our selling, general and administrative (“SG&A”) expenses include compensation and benefits, including stock-based compensation, commissions and other support costs of departments serving administrative and corporate governance functions, such as executive management, finance and accounting, sales and marketing, human resources, information technology, health, safety and environmental and investor relations. In addition, SG&A includes non-personnel costs, such as occupancy costs, IT support costs, professional fees and other supporting corporate expenses including public company compliance costs.

Previous wording

SG&A expenses increased during the three months ended March 31, 2025, as compared to the comparable period in 2024. In general, the increase in our total SG&A expenses reflects a higher level of cost to appropriately scale our administrative function. The absolute dollar increase was primarily impacted by (i) higher salaries, benefits and commissions of $0.4 million reflecting support staff growth, (ii) higher stock-based compensation expense of $0.1 million primarily attributable grants made in the latter part of 2024, (iii) higher information technology support costs of $0.2 million in support of our growth initiatives.

Current wording

SG&A expenses increased during the three andsix months ended June 30, 2025, as compared to thecorresponding periods in 2024. In general, the increase in our total SG&A expenses reflects a higher level of cost to appropriately scale our administrative function. The marginal increase in primary SG&A expenses during the three months ended June 30, 2025 as compared to 2024 reflects (i) higher information technology support costs of $0.2 million, (ii) higher public company costs of $0.1 million and (iii) higher occupancy and office costs of $0.1 million which were substantially offset by (i) lower credit loss expenses of $0.1 million, (ii) lower compensation costs of $0.1 million and (iii) lower professional fees of $0.1 million. The increase in primary SG&A expenses during the six months ended June 30, 2025 compared to 2024 was impacted by (i) higher information technology support costs of $0.4 million in support of our growth initiatives, (ii) higher salaries and benefits of $0.2 million reflecting support staff growth (iii) higher public company costs of $0.1 million and (iv) marginally higher occupancy and office costs of $0.1 million. These increases were partially offset by $0.1 million of lower professional fees and credit loss expense on a combined basis. Our equity classified stock-based compensation increased during both periods in 2025 over 2024 due primarily to a higher mix of performance-based share unit awards, or PSUs, for our executive officers in the 2025 period. PSUs generally have a higher grant-date fair value than traditional restricted stock and restricted stock units.

Previous wording

Depreciation and amortization expense increased for the three months ended March 31, 2025, as compared to the comparable period in 2024, due primarily to depreciation expense associated with the high horsepower units placed in service during 2024. The three months ended March 31, 2025 reflects the continuing expansion of the high horsepower fleet while the comparable period in 2024 reflects fewer high horsepower units in our fleet as the expansion was in its earlier stages. These higher horsepower unit additions, which began in earnest during 2023, are reflective of our strategic plans to concentrate our business development on these higher margin applications.

Current wording

Depreciation and amortization expense increased for the three andsix months ended June 30, 2025, as compared to thecorresponding periods in 2024, due primarily to depreciation expense associated with the high horsepower units placed in service during the second half of 2024 continuing through June 30, 2025. These higher horsepower unit additions, which began in earnest during 2023, are reflective of our strategic plans to concentrate our business development on these higher margin applications.

Previous wording

We retired certain small and medium horsepower compressor units during the three months ended March 31, 2025. Such retirements were minimal during the comparable period during 2024.

Current wording

We retired certain small and medium horsepower compressor units during the six months ended June 30, 2025 with only those units retired during the three months ended March 31, 2025 and 2024 having any remaining carrying value. Such retirements were minimal during the comparable periods during 2024.

Previous wording

Gains recognized during the three months ended March 31, 2025 are primarily attributable to the sales of trucks after the completion of their useful lives.

Current wording

Gains recognized during the three and six months ended June 30, 2025 are primarily attributable to the sales of trucks after the completion of their useful lives.

Previous wording

Interest expense primarily reflects the costs of borrowing, including commitment fees and the amortization of debt issue costs, under our Credit Facility, net of amounts capitalized attributable to certain capital projects. Also included is interest expense on our financing leases.

Current wording

Interest expense primarily reflects the costs of borrowing, including commitment fees and the amortization of debt issue costs, under our senior secured revolving credit agreement, as amended (the “Credit Facility”), net of amounts capitalized attributable to certain capital projects. Also included is interest expense on our financing leases during the 2024 periods as all were settled before 2025.

Previous wording

Interest expense increased for the three months ended March 31, 2025, as compared to the comparable period in 2024, due primarily to the effect of $0.6 million of lower capitalized interest due primarily to the timing of completion of certain projects in the 2025 period. Amortization of debt issue costs increased marginally during thethree months ended March 31, 2025, as compared to the comparable period in 2024 due primarily to the amortization of costs associated with certain amendments to the Credit Facility that took place in June of 2024. While average borrowings outstanding under our Credit Facility were relatively flat during thethree months ended March 31, 2025, as compared to the comparable period in 2024, we experienced lower average interest rates consistent with the Federal Reserve interest rate reductions implemented in the second half of 2024.

Current wording

Interest expense increased for the three andsix months ended June 30, 2025, as compared to thecorresponding periods in 2024, due primarily to the effect of $0.8 million and $1.3 million lower capitalized interest, respectively, due primarily to the volume and timing of the completion of certain compressor assembly projects in the 2025 periods. In addition, amortization of debt issue costs increased during thethree and six months ended June 30, 2025, as compared to the comparable periods in 2024 due primarily to the amortization of costs associated with certain amendments to the Credit Facility that took place in June of 2024 as well as thethe Fourth Amendment to the Amended and Restated Credit Agreement (the “Fourth Amendment”)that was completed in April 2025. While the average borrowings outstanding under our Credit Facility have increased during thethree and six months ended June 30, 2025, as compared to the comparable periods in 2024, we experienced lower average interest rates consistent with the Federal Reserve interest rate reductions implemented in the second half of 2024 as well as the lower interest rates attributable to the Fourth Amendment.

Previous wording

Other income (expense), net declined for the three months ended March 31, 2025, as compared to the comparable period in 2024, due primarily to higher unrealized losses attributable to our COLI policies associated with our deferred compensation plan.

Current wording

Other income (expense), net improved for the three months ended June 30, 2025 as compared to the corresponding period in 2024 due primarily to certain non-operating credits and unrealized gains attributable to our COLI policies associated with our deferred compensation plan while thesix months ended June 30, 2025 declined as compared to the comparable period in 2024, due primarily to higher unrealized gains attributable to our COLI policies in the 2024 period.

Previous wording

Our primary sources of liquidity include cash provided by operating activities and borrowings under our Credit Facility. On April 18, 2025, we entered into the Fourth Amendment to the Amended and Restated Credit Agreement (the “Fourth Amendment”). The Fourth Amendment provides us with up to $400.0 million in borrowing commitments with an additional $100 million at our request through an accordion feature. Prior to the Fourth Amendment and as of March 31, 2025, the borrowing base under the Credit Facility was $300.0 million with $168.0 million of borrowings outstanding leaving $132.0 million of availability under the Credit Facility.

Current wording

Our primary sources of liquidity include cash provided by operating activities and borrowings under our Credit Facility. On April 18, 2025, we entered into the Fourth Amendment which provides us with up to $400.0 million in borrowing commitments with an additional $100.0 million at our request through an accordion feature. The accordion feature is subject to certain conditions, including the absence of a default, the consent of new or existing lenders willing to provide additional commitments, and our pro forma compliance with the Credit Facility’s financial covenants. As of June 30, 2025, the borrowing base under the Credit Facility was $354.3 million with $182.0 million of borrowings outstanding leaving $172.3 million of availability under the Credit Facility.

Previous wording

Our cash flows from operating and investing activities are subject to a degree of volatility due primarily to (i) the consistency of our customers in remitting amounts owed to us for our services in full and on a timely basis and (ii) the timing of payments to our vendors and suppliers for capital projects which are often made well in advance of placing new compressor equipment into service. In order to mitigate such volatility we employ disciplined efforts to monitor customer credit and maintain communications to support collection efforts when necessary. Furthermore, and in certain circumstances, we require deposits in advance of transactions that require substantial investment on our part. To the extent necessary, we rely on the availability of our Credit Facility to fund capital expenditures beyond that provided by our cash flows from operating activities.

Current wording

Our cash flows from operating and investing activities are subject to a degree of volatility due primarily to (i) the consistency of our customers in remitting amounts owed to us for our services in full and on a timely basis and (ii) the timing of payments to our vendors and suppliers for capital projects which are often made well in advance of placing new compressor equipment into service. In order to mitigate such volatility we employ disciplined efforts to monitor customer credit and maintain communications to support collection efforts when necessary. To the extent necessary, we rely on the availability of our Credit Facility to fund capital expenditures beyond that provided by our cash flows from operating activities.

Previous wording

The level of our capital expenditures will vary in future periods depending on energy market conditions and other related economic factors. Based upon existing economic and market conditions, we believe that cash on hand, cash flows from operating activities and borrowings under the Credit Facility will be sufficient to satisfy our capital and liquidity requirements for at least the twelve months subsequent to the date that this Quarterly Report on Form 10-Q was filed. We also believe we have flexibility with respect to our financing alternatives and can make adjustments to our capital expenditure plans if circumstances warrant. We do not have any material continuing commitments related to our current operations that cannot be met with our cash on hand, cash from operating activities and borrowings under our Credit Facility.

Current wording

The level of our capital expenditures will vary in future periods depending on energy market conditions and other related economic factors. Based upon existing economic and market conditions, we believe that cash on hand, cash flows from operating activities and borrowings under the Credit Facility will be sufficient to satisfy our capital, dividend and liquidity requirements for at least the twelve months subsequent to the date that this Quarterly Report on Form 10-Q was filed. We also believe we have flexibility with respect to our financing alternatives and can make adjustments to our capital expenditure plans if circumstances warrant. We do not have any material continuing commitments related to our current operations that cannot be met with our cash on hand, cash from operating activities and borrowings under our Credit Facility.

Previous wording

Cash From Operating Activities. As of March 31, 2025, we had $2.1 million of cash on hand. For additional information and an analysis of our historical cash flows from operating activities, see the “Cash Flows” discussion that follows.

Current wording

Cash From Operating Activities. As of June 30, 2025, we had $0.3 million on hand and our cash provided by operating activities was $32.3 million for the six months ended June 30, 2025. For additional information and an analysis of our historical cash flows from operating activities, see the “Cash Flows” discussion that follows.

Previous wording

Credit Facility Borrowings. During the three months ended March 31, 2025, we repaid $2.0 million, net of borrowings, under the Credit Facility. The following table summarizes our borrowing activity under the Credit facility for the period presented:

Current wording

Credit Facility Borrowings. During the six months ended June 30, 2025, we borrowed $12.0 million, net of repayments, under the Credit Facility. The following table summarizes our borrowing activity under the Credit facility for the period presented:

Previous wording

Cash Flows from Operating Activities. Our cash flows from operating activities increased by $15.7 million during the three months ended March 31, 2025, as compared to the comparable period in 2024. From a broad perspective, cash flows improved due to: (i) growth in accounts payable, (ii) substantial progress in improving our processes for billings and collections from certain customers and lowering our “days sales outstanding” statistics for accounts receivable and (iii) higher realized margins attributable to growth in our high horsepower unit rentals. Our accounts receivable efforts arose from the negative impact on working capital during 2023 and into 2024 as our rental activities began to grow significantly. We anticipate a continued focus on these efforts throughout 2025 as we concentrate on further improvements to our working capital performance statistics.

Current wording

Cash Flows from Operating Activities. Our cash flows from operating activities increased by $1.1 million during the six months ended June 30, 2025, as compared to the comparable period in 2024. From a broad perspective, cash flows improved due to: (i) growth in accounts payable, (ii) substantial progress in improving our processes for billings and collections from certain customers and lowering our “days sales outstanding” statistics for accounts receivable and (iii) higher realized margins attributable to growth in our high horsepower unit rentals. Our accounts receivable efforts arose from the negative impact on working capital during 2023 and into 2024 as our rental activities began to grow significantly. We anticipate a continued focus on these efforts throughout 2025 as we concentrate on further improvements to our working capital performance statistics.

Previous wording

Cash Flows from Investing Activities. For the three months ended March 31, 2025, and 2024, we invested approximately $19.3 million and$10.9 million, respectively, in rental equipment, property and other equipment. Included in these totals for 2025 and 2024 were $18.7 million and $10.9 million in new equipment to our rental fleet and $0.6 million and less than $0.1 million in other property and equipment, respectively. Our investment in rental equipment includes any changes to work-in-progress related to our rental fleet projects at the beginning of the year compared to the end of the year.

Current wording

Cash Flows from Investing Activities. For the six months ended June 30, 2025, and 2024, we invested approximately $45.1 million and$28.3 million, respectively, in rental equipment, property and other equipment. Included in these totals for 2025 and 2024 were $41.2 million and $28.2 million in new equipment to our rental fleet and $3.9 million and less than $0.1 million in other property and equipment, respectively. Our investment in rental equipment includes any changes to work-in-progress related to our rental fleet projects at the beginning of the year compared to the end of the year.

Previous wording

Cash Flows from Financing Activities. During 2025, we had net repayments of $2.0 million under the Credit Facility while the 2024 period included net borrowings of $8.0 million.

Current wording

Cash Flows from Financing Activities. During the six months ended June 30, 2025 we had net borrowings of $12.0 million and for the six months ended June 30, 2024, we had net repayments of $1.0 million under the Credit Facility.

Previous wording

As of March 31, 2025 we had $168.0 million outstanding under our Credit Facility with a weighted average interest rate of 7.93%. As of March 31, 2025, prior to the effective date of the Fourth Amendment, we had approximately $132.0 million available for borrowing under the Credit Facility, subject to a borrowing base determination. As of March 31, 2025, we were in compliance with all financial covenants in our Credit Facility.

Current wording

As of June 30, 2025 we had $182.0 million outstanding under our Credit Facility with a weighted average interest rate of 7.23%. As of June 30, 2025, we had approximately $172.3 million available for borrowing under the Credit Facility, subject to a borrowing base determination. As of June 30, 2025, we were in compliance with all financial covenants in our Credit Facility.