Natural Gas Services Group Announces Earnings for the Three Months Ended March 31, 2010
Sequential Rental Revenues and Margins Improve while Sales Remain Under Pressure
Positive Net Cash Flow from Operating Activities of $8.3 million for the quarter ended March 31, 2010
MIDLAND, Texas, May 10, 2010 /PRNewswire via COMTEX/ --Natural Gas Services Group, Inc. (NYSE: NGS), a leading provider of gas compression equipment and services to the natural gas industry, announces its financial results for three months ended March 31, 2010.
Revenue: Total revenue decreased from $20.0 million to $11.5 million, or 42.3%, for the three months ended March 31, 2010, compared to the same period ended March 31, 2009. This was mainly the result of decreased compressor unit sales and compressor rental revenue due to the decline in the natural gas industry. Sales revenue decreased 78.9%, rental revenue decreased 22.8%, and service and maintenance revenue decreased 31.2%.
GrossMargins: Overall gross margins increased to 57.2% for the three months ended March 31, 2010, up from 52.9% for the same period ended March 31, 2009. In sequential quarters, gross margins increased from 49% to 57% of revenue. These increases were primarily the result of a product mix shift as the ratio of higher margin rental revenue increased relative to sales revenue. Rental revenue grew to 85.5% of our total revenue for the quarter ended March 31, 2010 compared to 63.9% for the same period ended March 31, 2009.
Net income: Net income for the three months ended March 31, 2010 decreased to $1.4 million, when compared to net income of $3.8 million for the same period in 2009. Net income margins decreased from 19% to 12% in the year-over-year periods, but held steady at 12% for sequential quarters. These decreases were mainly the result of the severe downturn in compressor unit sales experienced industry-wide.
Earnings per share: Our earnings per diluted share were $0.11 for the three months ended March 31, 2010 as compared to $0.31 for the same 2009 period.
EBITDA: EBITDAdecreased to $5.1 million, or 44% of revenue, for the three months ended March 31, 2010 versus $9.0 million, or 45% of revenue, for the same period ended March 31, 2009. EBITDA margins in sequential quarters increased from 40% to 44%. Please see discussion of Non-GAAP Measures in this release.
Cash flow: At March 31, 2010, cash and cash equivalents were approximately $21.6 million, working capital was $42.1 million with a total debt level of $5.9 million, of which approximately $3.9 million was classified as current. Positive net cash flow from operating activities was approximately $8.3 million during the three months ended March 31, 2010 compared to $5.8 million in the year ago quarter.
Commenting on first quarter 2010 results, Stephen Taylor, President and CEO, said:
"Although our first quarter results reflect the comparatively weak state of our industry, we are beginning to see some positive signs. Our rental fleet utilization has currently flattened and, albeit at a low level, we are seeing some new compressor sales orders materialize. We continue to maintain or improve our margins and generate exceptional cash flows and have retired the majority of borrowings on our line of credit. We think the balance of the year will exhibit a slow recovery in our markets, but it may be the end of the year before we may see any definitive signs of progress."
Selected data: The table below shows revenues, percentage of total revenues, gross margin, exclusive of depreciation, and gross margin percentage of each business segment for the three months ended March 31, 2010 and 2009. Gross margin is the difference between revenue and cost of sales, exclusive of depreciation.
Revenue
-------
Three Months Ended March
31,
2009 2010
(dollars in thousands)
(unaudited)
Sales $6,929 35% $1,461 13%
Rental 12,788 64% 9,876 86%
Service &
Maintenance 308 1% 212 2%
--- ---
Total $20,025 $11,549
Gross Margin, Exclusive of
Depreciation(1)
--------------------------
Three Months Ended March 31,
----------------------------
2009 2010
(dollars in thousands)
(unaudited)
Sales $2,400 35% $470 32%
Rental 8,099 63% 6,073 62%
Service &
Maintenance 93 30% 58 27%
--- ---
Total $10,592 53% $6,601 57%
(1) For a reconciliation of gross margin to its most directly
comparable financial measure calculated and presented in accordance
with GAAP, please read Non-GAAP Financial Measures" in this
report.
Non GAAP Measures: "EBITDA" reflects net income or loss before interest, taxes, depreciation and amortization. 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, EBITDA gives the investor information as to the cash generated from the operations of a business. However, EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States of America ("GAAP"), and should not be considered a substitute for other financial measures of performance. EBITDA as calculated by NGS may not be comparable to EBITDA as calculated and reported by other companies. The most comparable GAAP measure to EBITDA is net income.
Gross margin is defined as total revenue less cost of sales (excluding depreciation and amortization expense). Gross margin is included as a supplemental disclosure because it is a primary measure used by management as it represents the results of revenue and cost of sales (excluding depreciation and amortization expense), which are key operating components. Depreciation expense is a necessary element of costs and the ability to generate revenue and selling, general and administrative expense is a necessary cost to support operations and required corporate activities. Management uses this non-GAAP measure as a supplemental measure to other GAAP results to provide a more complete understanding the company's performance. As an indicator of operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income as determined in accordance with GAAP. Gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate gross margin in the same manner.
The reconciliation of net income to EBITDA and gross margin is as follows:
Three months ended
(in thousands of dollars) March 31,
2009 2010
---- ----
Net income $3,797 $1,364
Interest expense 160 74
Provision for income taxes 2,053 767
Depreciation and amortization 2,958 2,874
----- -----
EBITDA $8,968 $5,079
Other operating expenses 1,577 1,499
Other expense (income) 47 23
--- ---
Gross margin $10,592 $6,601
======= ======
Cautionary Note Regarding Forward-Looking Statements:
Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause NGS's actual results in future periods to differ materially from forecasted results. Those risks include, among other things, the loss of market share through competition or otherwise; the introduction of competing technologies by other companies; a prolonged, substantial reduction in oil and gas prices which could cause a decline in the demand for NGS's products and services; and new governmental safety, health and environmental regulations which could require NGS to make significant capital expenditures. The forward-looking statements included in this press release are only made as of the date of this press release, and NGS undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. A discussion of these factors is included in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Conference Call Details:
Teleconference: Monday, May 10, 2010 at 9:30 a.m. Central (10:30 a.m. Eastern). Live via phone by dialing 800-624-7038, 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 relation 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 Taylor, President and CEO of Natural Gas Services Group, Inc. will be leading the call and discussing the financial results for the three months ended March 31, 2010.
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 industry, i.e., coal bed methane, gas shale and tight gas. The Company manufactures, fabricates, rents and maintains natural gas compressors that enhance the production of natural gas wells. The Company also designs and sells custom fabricated natural gas compressors to particular customer specifications and sells flare systems for gas plant and production facilities. NGS is headquartered in Midland, Texas with manufacturing facilities located in Tulsa, Oklahoma, Lewiston, Michigan and Midland, Texas and service facilities located in major gas producing basins in the U.S.
For More Information, Contact: Kimberly Huckaba, Investor Relations
(432) 262-2700
Kim.Huckaba@ngsgi.com
www.ngsgi.com
NATURAL GAS SERVICES GROUP, INC.
BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
December
31, March 31,
--------- ---------
2009 2010
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $23,017 $21,618
Trade accounts receivable, net of
allowance for doubtful accounts of
$363 and $212, respectively 7,314 3,780
Inventory, net of allowance for
obsolescence of $345 and $311,
respectively 24,037 23,508
Prepaid income taxes 1,556 1,756
Prepaid expenses and other 279 294
--- ---
Total current assets 56,203 50,956
Rental equipment, net of accumulated
depreciation of $34,008 and $36,428,
respectively 110,263 109,935
Property and equipment, net of
accumulated depreciation of $7,210
and $7,578, respectively 7,626 7,302
Goodwill, net of accumulated
amortization of $325, both periods 10,039 10,039
Intangibles, net of accumulated
amortization of $1,497 and $1,562,
respectively 2,721 2,656
Other assets 19 19
--- ---
Total assets $186,871 $180,907
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $3,378 $3,378
Line of credit 7,000 500
Accounts payable 2,239 1,113
Accrued liabilities 1,485 1,496
Current income tax liability 1,708 2,265
Deferred income 90 113
--- ---
Total current liabilities 15,900 8,865
Long -term debt, less current portion 2,817 1,972
Deferred income tax payable 25,498 25,775
Other long term liabilities 558 557
--- ---
Total liabilities 44,773 37,169
------ ------
Stockholders' equity:
Preferred stock, 5,000 shares
authorized, no shares issued or
outstanding - -
Common stock, 30,000 shares
authorized, par value $0.01;12,101
and 12,103 shares issued and
outstanding, respectively 121 121
Additional paid-in capital 84,570 84,846
Retained earnings 57,407 58,771
------ ------
Total stockholders' equity 142,098 143,738
------- -------
Total liabilities and stockholders'
equity $186,871 $180,907
======== ========
NATURAL GAS SERVICES GROUP, INC.
INCOME STATEMENTS
(in thousands, except earnings per share)
(unaudited)
Three months ended
------------------
March 31,
---------
2009 2010
---- ----
Revenue:
Sales, net $6,929 $1,461
Rental income 12,788 9,876
Service and maintenance income 308 212
--- ---
Total revenue 20,025 11,549
------ ------
Operating costs and expenses:
Cost of sales, exclusive of depreciation
stated separately below 4,529 991
Cost of rentals, exclusive of depreciation
stated separately below 4,689 3,803
Cost of service and maintenance, exclusive
of depreciation stated separately below 215 154
Selling, general, and administrative expense 1,577 1,499
Depreciation and amortization 2,958 2,874
----- -----
Total operating costs and expenses 13,968 9,321
------ -----
Operating income 6,057 2,228
Other income (expense):
Interest expense (160) (74)
Other income (expense) (47) (23)
--- ---
Total other income (expense) (207) (97)
---- ---
Income before provision for income taxes 5,850 2,131
Provision for income taxes (2,053) (767)
Net income $3,797 $1,364
====== ======
Earnings per share:
Basic $0.31 $0.11
Diluted $0.31 $0.11
Weighted average shares outstanding:
Basic 12,094 12,102
Diluted 12,099 12,185
NATURAL GAS SERVICES GROUP, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
------------------
March 31,
---------
2009 2010
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,797 $1,364
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 2,958 2,874
Deferred taxes 2,053 210
Employee stock options expense 121 306
Gain on disposal of assets 4 -
Changes in current assets and
liabilities:
Trade accounts receivables, net 1,000 3,534
Inventory, net 2,540 754
Prepaid income taxes and prepaid
expenses (107) (214)
Accounts payable and accrued
liabilities (6,651) (1,115)
Current income tax liability - 557
Deferred income 104 23
NET CASH PROVIDED BY OPERATING
ACTIVITIES 5,819 8,293
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5,824) (2,383)
Redemption of short-term investments 2,300 -
Proceeds from sale of property and
equipment 19 -
--- ---
NET CASH USED IN INVESTING ACTIVITIES (3,505) (2,383)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from other long-term
liabilities, net 123 (1)
Repayments of long-term debt (845) (845)
Repayments of line of credit - (6,500)
Proceeds from exercise of stock
options - 37
--- ---
NET CASH USED IN FINANCING ACTIVITIES (722) (7,309)
---- ------
NET CHANGE IN CASH 1,592 (1,399)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,149 23,017
----- ------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $2,741 $21,618
====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $164 $100
Income taxes paid $ - $200
NON-CASH TRANSACTIONS:
Transfer of rental equipment to
inventory $1,286 $225
SOURCE Natural Gas Services Group, Inc.
