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 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.

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 and parts 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 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.

Current wording

Of the total horsepower utilized as of September 30, 2025, 391,045 of horsepower was being rented under contracts expiring between 2025 and 2030 and 134,970 of horsepower was being rented on a month-to-month basis.

Previous 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.

Current wording

Rental revenue increased for the three and nine months ended September 30, 2025, as compared to the corresponding periods in 2024 due primarily to an increase in rented horsepower and units despite a decrease in total customers. The increase in revenue reflects a continuing trend of growing demand for our large horsepower units (400 horsepower and greater) which provide for higher rental rates and realized adjusted gross margins. Our utilized horsepower increased during the third quarter of 2025 as compared to the prior year period which reflects the continued addition of large horsepower units to our fleet consistent with our emphasis on larger units over the past several years, as well as the retirement of certain older medium and small horsepower units from the fleet partially offset by the return of small horsepower units to the idle fleet by certain customers at the end of their lease terms. Through September 30, 2025, we placed into service a total of 229 newly set units, including 188 from our existing fleet and 41 new units. Of those unit sets, a total of 78 were large horsepower units and 41 of those were new units to the fleet.

Previous wording

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. An expanding portion of our rented compressor units utilize our proprietary System Management and Recovery Technology (“SMART”) and telemetry software which reduces unplanned shutdowns and increases productivity. Despite inflationary pressure associated with our primary cost components, the SMART and telemetry technology allows us to streamline and manage our maintenance activities more efficiently and thereby mitigating the costs to a manageable extent. 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 and six months ended June 30, 2025, compared to the comparable periods in 2024.

Current wording

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. An expanding portion of our rented compressor units utilize our proprietary System Management and Recovery Technology (“SMART”) and telemetry software which reduces unplanned shutdowns and increases productivity. Despite inflationary pressure associated with our primary cost components, the SMART and telemetry technology allows us to streamline and manage our maintenance activities more efficiently and thereby mitigate the costs to a manageable extent. 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 and nine months ended September 30, 2025, compared to the comparable periods in 2024.

Previous 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.

Current wording

Sales revenue declined for the three and nine months ended September 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 nine months ended September 30, 2025, and 2024, respectively.

Previous 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.

Current wording

Third party aftermarket services revenues and costs declined for the three and nine months ended September 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 nine months ended September 30, 2025, and 2024, respectively.

Previous 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.

Current wording

SG&A expenses increased during the three andnine months ended September 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 increase in primary SG&A expenses during the three months ended September 30, 2025 as compared to 2024 reflects (i) higher information technology support costs of $0.3 million, (ii) higher occupancy and office costs of $0.2 million and (iii) higher salaries and benefits costs of $0.1 million which were partially offset by (i) lower credit loss expenses of $0.1 million and (ii) lower commissions of $0.2 million. The increase in primary SG&A expenses during the nine months ended September 30, 2025 as compared to 2024 was impacted by (i) higher information technology support costs of $0.7 million in support of our growth initiatives, (ii) higher salaries and benefits of $0.7 million reflecting support staff growth (iii) higher public company costs of $0.2 million and (iv) higher occupancy and office costs of $0.2 million. These increases were partially offset by (i)lower commissions of $0.6 million and (ii) lower credit loss expenses of $0.2 million. 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 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.

Current wording

Depreciation and amortization expense increased for the three andnine months ended September 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 September 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

During three months ended March 31, 2025, we recorded a nominal increase to the allowance for obsolescence primarily attributable to the transfer of inventory that remains useful from our former Midland, Texas facility, in connection with its closing in March 2025, to our other operating facilities. All of remaining inventory from the Midland, Texas facility that was subject to the allowance for obsolescence was written off during the three months ended March 31, 2025. As of June 30, 2025, we had an inventory obsolescence balance of $2.5 million as compared to $5.9 million as of December 31, 2024. Please see Note 4 (“Inventory”) to our Condensed Consolidated Financial Statements for additional information regarding the inventory allowance.

Current wording

During three months ended March 31, 2025, we recorded a nominal increase to the allowance for obsolescence primarily attributable to the transfer of inventory that remains useful from our former Midland, Texas facility, in connection with its closing in March 2025, to our other operating facilities. All of the remaining inventory from the Midland, Texas facility that was subject to the allowance for obsolescence was written off during the three months ended March 31, 2025. As of September 30, 2025, we had an inventory obsolescence balance of $2.5 million as compared to $5.9 million as of December 31, 2024. Please see Note 4 (“Inventory”) to our Condensed Consolidated Financial Statements for additional information regarding the inventory allowance.

Previous 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.

Current wording

We retired certain small and medium horsepower compressor units during the nine months ended September 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 and six months ended June 30, 2025 are primarily attributable to the sales of trucks after the completion of their useful lives.

Current wording

Gains recognized during the three and nine months ended September 30, 2025 and 2024 are primarily attributable to the sales of trucks after the completion of their useful lives.

Previous 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.

Current wording

Interest expense increased for the three andnine months ended September 30, 2025, as compared to thecorresponding periods in 2024, due primarily to the effect of $0.4 million and $1.7 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 nine months ended September 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 nine months ended September 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 halves of 2024 and 2025 as well as the lower interest rates attributable to the Fourth Amendment.

Previous wording

This caption primarily reflects non-operating items of income and loss including non-cash gains and losses attributable to our corporate-owned life insurance (“COLI”) policies related to our deferred compensation plan.

Current wording

This caption primarily reflects non-operating items of income and loss including non-cash gains and losses attributable to our corporate-owned life insurance (“COLI”) policies related to our deferred compensation plan as well as other credits, charges and scrap asset sales.

Previous 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.

Current wording

Other income (expense), net improved for the three andnine months ended September 30, 2025 as compared to the corresponding periods in 2024 due primarily to certain non-operating credits and scrap asset sales as well as unrealized gains attributable to our COLI policies associated with our deferred compensation plan.

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 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.

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 September 30, 2025, the borrowing base under the Credit Facility was $371.0 million with $208.0 million of borrowings outstanding leaving $163.0 million of availability under the Credit Facility.

Previous 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.

Current wording

Cash From Operating Activities. Our cash provided by operating activities was $49.1 million for the nine months ended September 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 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:

Current wording

Credit Facility Borrowings. During the nine months ended September 30, 2025, we borrowed $38.0 million, net of repayments, under the Credit Facility. The following table summarizes our borrowing activity under the Credit facility for the periods presented:

Previous 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.

Current wording

Cash Flows from Operating Activities. Our cash flows from operating activities decreased by $8.0 million during the nine months ended September 30, 2025, as compared to the comparable period in 2024. From a broad perspective, cash flows declined in the 2025 period due primarily to the substantial progress made in the 2024 period for improving our processes for billings and collections from certain customers that had the effect of lowering our days sales outstanding (“DSO”) statistics for accounts receivable accounts. While these efforts have continued with favorable DSO performance into 2025, the timing effect was more beneficial during the 2024 period while the 2025 period reflects a more normalized cash operating cycle. In addition, we increased our maintenance parts inventory in the 2025 period in support of our growing fleet. These working capital uses were partially offset by growth in accounts payable and the favorable effects of higher realized margins attributable to growth in our high horsepower unit rentals.

Previous 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.

Current wording

Cash Flows from Investing Activities. For the nine months ended September 30, 2025, and 2024, we invested approximately $86.9 million and $57.4 million, respectively, in rental equipment, property and other equipment. Included in these totals for 2025 and 2024 were $82.3 million and $54.7 million in new equipment to our rental fleet and $4.7 million and $2.7 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 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.

Current wording

Cash Flows from Financing Activities. During the nine months ended September 30, 2025 we had net borrowings of $38.0 million and for the nine months ended September 30, 2024, we had net repayments of $1.0 million under the Credit Facility. We paid debt issuance costs that were $0.3 million higher in connection with the Fourth Amendment in the 2025 period as compared to the costs for amendments to the Credit Facility in 2024. The 2025 period includes a payment of $1.3 million for our first common stock dividend.

Previous 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.

Current wording

As of September 30, 2025 we had $208.0 million outstanding under our Credit Facility with a weighted average interest rate of 7.04%. As of September 30, 2025, we had approximately $163.0 million available for borrowing under the Credit Facility, subject to a borrowing base determination. As of September 30, 2025, we were in compliance with all financial covenants in our Credit Facility.