Natural Gas Services Group, Inc. Reports Fourth Quarter 2019 Earnings
Revenue: Total revenue increased by 22% to
Operating (Loss) Income: Operating loss for the three months ended
Gross Margins: Total gross margins remained flat at
Net (Loss) Income: The Company reported a net loss of
Earnings per share: For the fourth quarter 2019, the Company reported a loss per diluted share of
Adjusted EBITDA: Adjusted EBITDA remained flat at
Cash flow: At
Commenting on fourth quarter and year-end 2019 results, Stephen
“Despite continued volatility in the energy markets and pressures on commodity prices, NGS continued to make progress in our core business during the fourth quarter of 2019. Rental revenue increased 6% sequentially and 19% when compared to the fourth quarter of 2018. We are pleased with our full year 2019 adjusted EBITDA of
There is little doubt that we are operating in an environment with significant headwinds and an unprecedented level of uncertainty. The NGS team will continue to deliver best-in-class service to our long-term customers who continue to need quality and reliable compression services. We will continue to focus on operating efficiently, use our existing contracts to generate cash and look for opportunities to allocate cash that provide returns to our stakeholders. With little short-term visibility for new projects, we expect capital expenditures to decline at least 75% in 2020, from approximately
Selected data: The tables below show, for the three months and year ended
Revenue | |||||||||||||||||||||||||||
Three Months Ended |
Year Ended |
||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||
Rental | $ | 15,308 | 78 | % | $ | 12,829 | 79 | % | $ | 56,701 | 72 | % | $ | 47,766 | 73 | % | |||||||||||
Sales | 3,947 | 20 | % | 2,941 | 18 | % | 19,763 | 25 | % | 16,269 | 25 | % | |||||||||||||||
Service & Maintenance | 451 | 2 | % | 390 | 3 | % | 1,980 | 3 | % | 1,443 | 2 | % | |||||||||||||||
Corporate | — | — | % | — | — | % | — | — | % | — | — | % | |||||||||||||||
Total | $ | 19,706 | $ | 16,160 | $ | 78,444 | $ | 65,478 |
Operating Loss | |||||||||||||||||||||||||||||||||||
Three Months Ended |
Year Ended |
||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||||||||||
Rental | $ | 7,265 | 47 | % | $ | 6,762 | 53 | % | $ | 29,118 | 51 | % | $ | 25,906 | 54 | % | |||||||||||||||||||
Sales | 358 | 9 | % | 573 | 19 | % | 3,666 | 19 | % | 3,705 | 23 | % | |||||||||||||||||||||||
Service & Maintenance | 291 | 65 | % | 278 | 71 | % | 1,350 | 68 | % | 1,058 | 73 | % | |||||||||||||||||||||||
Corporate | (9,203 | ) | NA | (8,104 | ) | NA | (49,287 | ) | NA | (31,176 | ) | NA | |||||||||||||||||||||||
Total | $ | (1,289 | ) | (7 | ) | % | $ | (491 | ) | (3 | ) | % | $ | (15,153 | ) | (19 | ) | % | $ | (507 | ) | (1 | ) | % |
Adjusted Gross Margin (1) | |||||||||||||||||||||||||||
Three Months Ended |
Year Ended |
||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||
Rental | $ | 7,265 | 47 | % | $ | 6,762 | 53 | % | $ | 29,118 | 51 | % | $ | 25,906 | 54 | % | |||||||||||
Sales | 358 | 9 | % | 573 | 19 | % | 3,666 | 19 | % | 3,705 | 23 | % | |||||||||||||||
Service & Maintenance | 291 | 65 | % | 278 | 71 | % | 1,350 | 68 | % | 1,058 | 73 | % | |||||||||||||||
Corporate | — | NA | — | NA | — | NA | — | NA | |||||||||||||||||||
Total | $ | 7,914 | 40 | % | $ | 7,613 | 47 | % | $ | 34,134 | 44 | % | $ | 30,669 | 47 | % |
(1) For a reconciliation of adjusted gross margin to its most directly comparable financial measure calculated and presented in accordance 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. Adjusted gross margin differs from gross margin in that gross margin includes deprecation expense. We believe adjusted gross margin is important because it focuses on the current operating performance of our operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those operations. Depreciation expense reflects the systematic allocation of historical property and equipment values over the estimated useful lives.
Adjusted gross margin has certain material limitations associated with its use as compared to gross margin. Depreciation expense is a necessary element of our costs and our ability to generate revenue. Management uses this non-GAAP measure as a supplemental measure to other GAAP results to provide a more complete understanding of the company's performance. As an indicator of operating performance, adjusted gross margin should not be considered an alternative to, or more meaningful than, operating income as determined in accordance with GAAP. Adjusted Gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate adjusted gross margin in the same manner.
The following table calculates gross margin, the most directly comparable GAAP financial measure, and reconciles it to adjusted gross margin:
Three months ended |
Year ended |
||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||
Total revenue | $ | 19,706 | $ | 16,160 | $ | 78,444 | $ | 65,478 | |||||||||||
Costs of revenue, exclusive of depreciation and amortization | (11,792 | ) | (8,547 | ) | (44,310 | ) | (34,809 | ) | |||||||||||
Depreciation allocable to costs of revenue | (5,897 | ) | (5,647 | ) | (22,908 | ) | (21,904 | ) | |||||||||||
Gross margin | 2,017 | 1,966 | 11,226 | 8,765 | |||||||||||||||
Depreciation allocable to costs of revenue | 5,897 | 5,647 | 22,908 | 21,904 | |||||||||||||||
Adjusted Gross Margin | $ | 7,914 | $ | 7,613 | $ | 34,134 | $ | 30,669 |
Non-GAAP Financial Measures - Adjusted EBITDA: “Adjusted EBITDA” reflects net income or loss before interest, taxes, depreciation and amortization, impairment of goodwill, an increase in inventory allowance and write-off and retirement of rental equipment. Adjusted EBITDA is a measure used by management, 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 (loss) income.
The following table reconciles our net (loss) income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:
Three months ended |
Year ended |
||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||
Net loss | $ | (1,710 | ) | $ | (749 | ) | $ | (13,864 | ) | $ | (466 | ) | |||||||
Interest expense | 3 | 59 | 15 | 69 | |||||||||||||||
Income tax expense (benefit) | 450 | 192 | (693 | ) | 72 | ||||||||||||||
Depreciation and amortization | 6,051 | 5,691 | 23,268 | 22,080 | |||||||||||||||
Impairment of goodwill | — | — | 10,039 | — | |||||||||||||||
Inventory allowance | 408 | — | 3,758 | — | |||||||||||||||
Retirement of rental equipment | — | — | 1,512 | — | |||||||||||||||
Adjusted EBITDA | $ | 5,202 | $ | 5,193 | $ | 24,035 | $ | 21,755 |
Non GAAP Financial Measures - Impairment and Other Non-Cash Charges: From time to time, management may publicly disclose certain “non-GAAP financial measures”, such as adjusted operating income below, in our earnings releases, financial presentations or earnings conference calls. These non-GAAP measures are not in accordance with, or a substitute for, measures prepared in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations that would be reflected in measures determined in accordance with GAAP. Adjusted operating loss and adjusted net loss exclude goodwill impairment, an increase in inventory allowance, and retirement of rental equipment taken in 2019.
The reconciliation of operating loss to adjusted operating loss income is as follows:
Three months ended |
||||
(in thousands) | ||||
Reported operating loss | $ | (14,021 | ) | |
Impairment of goodwill | 10,039 | |||
Inventory allowance | 3,350 | |||
Retirement of rental equipment | 1,512 | |||
Adjusted operating income | $ | 880 |
The reconciliation of net loss to adjusted net loss is as follows:
Three months ended |
|||||||||
(in thousands) | Per diluted share(1) | ||||||||
Reported net loss | $ | (12,579 | ) | $ | (0.96 | ) | |||
Impairment of goodwill | 10,039 | 0.77 | |||||||
Inventory allowance | 3,350 | 0.26 | |||||||
Retirement of rental equipment | 1,512 | 0.12 | |||||||
Income tax adjustment related to the exclusion of these non-cash charges | (1,355 | ) | (0.10 | ) | |||||
Change in diluted shares (1) | — | (0.02 | ) | ||||||
Adjusted net income | $ | 967 | $ | 0.07 |
Notes:
(1) For the three months ended
The reconciliation of operating loss to adjusted operating (loss) income is as follows:
Three months ended |
Year ended |
||||||||
(in thousands) | |||||||||
2019 | |||||||||
Reporting operating loss | $ | (1,289 | ) | $ | (15,153 | ) | |||
Impairment of goodwill | — | 10,039 | |||||||
Inventory allowance | 408 | 3,758 | |||||||
Retirement of rental equipment | — | 1,512 | |||||||
Adjusted operating (loss) income | (881 | ) | 156 |
The reconciliations of net loss to adjusted net loss (income) for the three months and year ended
Three months ended | Year ended | ||||||||||||||||||
(in thousands) | Per Diluted Share(1) | (in thousands) | Per Diluted Share(1) | ||||||||||||||||
Reported net loss | $ | (1,710 | ) | $ | (0.13 | ) | $ | (13,864 | ) | $ | (1.06 | ) | |||||||
Impairment of goodwill | — | — | 10,039 | 0.77 | |||||||||||||||
Inventory allowance | 408 | 0.03 | 3,758 | 0.29 | |||||||||||||||
Retirement of rental equipment | — | — | 1,512 | 0.11 | |||||||||||||||
Income tax adjustment related to the exclusion of these non-cash charges | (97 | ) | (0.01 | ) | (1,452 | ) | (0.11 | ) | |||||||||||
Adjusted net loss | $ | (1,399 | ) | $ | (0.11 | ) | $ | (7 | ) | $ | — |
Three months ended | Year ended | ||||||||||||||||||
(in thousands) | Per Diluted Share(2) | (in thousands) | Per Diluted Share(2) | ||||||||||||||||
Reported net loss | $ | (749 | ) | $ | (0.06 | ) | $ | (466 | ) | $ | (0.04 | ) | |||||||
Income tax adjustment related to executive compensation | 603 | 0.05 | 603 | 0.05 | |||||||||||||||
Adjusted net (loss) income | $ | (146 | ) | $ | (0.01 | ) | $ | 137 | $ | 0.01 |
Notes:
(1) For the three months and year ended
(2) For the three months ended
Conference Call Details:
Teleconference:
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.
About
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
For More Information, Contact: | |
(432) 262-2700 Alicia.Dada@ngsgi.com |
|
www.ngsgi.com |
CONSOLIDATED BALANCE SHEETS (in thousands) |
||||||||
2019 | 2018 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 11,592 | $ | 52,628 | ||||
Trade accounts receivable, net of allowance for doubtful accounts of |
9,106 | 7,219 | ||||||
Inventory | 21,080 | 30,190 | ||||||
Prepaid income taxes | 40 | 3,188 | ||||||
Prepaid expenses and other | 597 | 1,696 | ||||||
Total current assets | 42,415 | 94,921 | ||||||
Long-Term Inventory, net of allowance for obsolescence of |
1,068 | 3,980 | ||||||
Rental equipment, net of accumulated depreciation of |
217,742 | 176,106 | ||||||
Property and equipment, net of accumulated depreciation of |
21,869 | 16,644 | ||||||
Right of use assets - operating leases, net of accumulated amortization |
604 | — | ||||||
— | 10,039 | |||||||
Intangibles, net of accumulated amortization of |
1,276 | 1,401 | ||||||
Other assets | 1,603 | 1,109 | ||||||
Total assets | $ | 286,577 | $ | 304,200 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 1,975 | $ | 2,122 | ||||
Accrued liabilities | 2,287 | 8,743 | ||||||
Line of credit | 417 | — | ||||||
Current operating leases | 189 | — | ||||||
Deferred income | 640 | 81 | ||||||
Total current liabilities | 5,508 | 10,946 | ||||||
Line of credit | — | 417 | ||||||
Deferred income tax liability | 31,243 | 31,906 | ||||||
Long-term operating leases | 415 | — | ||||||
Other long-term liabilities | 1,718 | 1,699 | ||||||
Total liabilities | 38,884 | 44,968 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ Equity: | ||||||||
Preferred stock, 5,000 shares authorized, no shares issued or outstanding | — | — | ||||||
Common stock, 30,000 shares authorized, par value |
132 | 130 | ||||||
Additional paid-in capital | 110,573 | 107,760 | ||||||
Retained earnings | 137,478 | 151,342 | ||||||
(490 | ) | — | ||||||
Total stockholders' equity | 247,693 | 259,232 | ||||||
Total liabilities and stockholders' equity | $ | 286,577 | $ | 304,200 |
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share) |
||||||||||||||
For the Years Ended |
||||||||||||||
2019 | 2018 | 2017 | ||||||||||||
Revenue: | ||||||||||||||
Rental income | $ | 56,701 | $ | 47,766 | $ | 46,046 | ||||||||
Sales | 19,763 | 16,269 | 20,208 | |||||||||||
Service and maintenance income | 1,980 | 1,443 | 1,439 | |||||||||||
Total revenue | 78,444 | 65,478 | 67,693 | |||||||||||
Operating costs and expenses: | ||||||||||||||
Cost of rentals, exclusive of depreciation stated separately below | 27,583 | 21,860 | 18,160 | |||||||||||
Cost of sales, exclusive of depreciation stated separately below | 16,097 | 12,564 | 16,022 | |||||||||||
Cost of service and maintenance, exclusive of depreciation stated separately below | 630 | 385 | 370 | |||||||||||
Selling, general and administrative expenses | 10,710 | 9,096 | 10,081 | |||||||||||
Depreciation and amortization | 23,268 | 22,080 | 21,316 | |||||||||||
Impairment of goodwill | 10,039 | — | — | |||||||||||
Inventory allowance | 3,758 | — | 273 | |||||||||||
Retirement of rental equipment | 1,512 | — | — | |||||||||||
Total operating costs and expenses | 93,597 | 65,985 | 66,222 | |||||||||||
Operating (loss) income | (15,153 | ) | (507 | ) | 1,471 | |||||||||
Other income (expense): | ||||||||||||||
Interest expense | (15 | ) | (69 | ) | (14 | ) | ||||||||
Other income | 611 | 182 | 50 | |||||||||||
Total other income, net | 596 | 113 | 36 | |||||||||||
(Loss) income before income taxes: | (14,557 | ) | (394 | ) | 1,507 | |||||||||
(Provision for) benefit from income taxes: | ||||||||||||||
Current | 31 | 242 | (3,288 | ) | ||||||||||
Deferred | 662 | (314 | ) | 21,575 | ||||||||||
Total income tax benefit (expense) | 693 | (72 | ) | 18,287 | ||||||||||
Net (loss) income | $ | (13,864 | ) | $ | (466 | ) | $ | 19,794 | ||||||
(Loss) earnings per share: | ||||||||||||||
Basic | $ | (1.06 | ) | $ | (0.04 | ) | $ | 1.54 | ||||||
Diluted | $ | (1.06 | ) | $ | (0.04 | ) | $ | 1.51 | ||||||
Weighted average shares outstanding: | ||||||||||||||
Basic | 13,114 | 12,965 | 12,831 | |||||||||||
Diluted | 13,114 | 12,965 | 13,110 |
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) |
||||||||||||||
For the Years Ended |
||||||||||||||
2019 | 2018 | 2017 | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||
Net (loss) income | $ | (13,864 | ) | $ | (466 | ) | $ | 19,794 | ||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||||||||
Depreciation and amortization | 23,268 | 22,080 | 21,316 | |||||||||||
Deferred taxes | (662 | ) | 314 | (21,575 | ) | |||||||||
Gain on disposal of assets | (55 | ) | (69 | ) | (87 | ) | ||||||||
Retirement of rental equipment | 1,512 | — | — | |||||||||||
Bad debt allowance (recovery) | 664 | (185 | ) | 90 | ||||||||||
Inventory allowance | 3,758 | — | 273 | |||||||||||
Impairment of goodwill | 10,039 | — | — | |||||||||||
Stock-based compensation | 2,582 | 2,385 | 4,038 | |||||||||||
(Gain) loss on company owned life insurance | (219 | ) | 154 | (67 | ) | |||||||||
Changes in operating assets and liabilities: | ||||||||||||||
Trade accounts receivables | (2,550 | ) | 1,500 | (1,246 | ) | |||||||||
Inventory | 8,256 | (5,102 | ) | (5,221 | ) | |||||||||
Prepaid income taxes and prepaid expenses | 3,288 | (578 | ) | (1,852 | ) | |||||||||
Accounts payable and accrued liabilities | (7,225 | ) | 3,597 | 3,410 | ||||||||||
Deferred income | 559 | (104 | ) | (2,040 | ) | |||||||||
Other | 61 | 163 | 666 | |||||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 29,412 | 23,689 | 17,499 | |||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||
Purchase of rental equipment, property and other equipment | (69,938 | ) | (40,065 | ) | (13,536 | ) | ||||||||
Purchase of company owned life insurance | (302 | ) | (289 | ) | (620 | ) | ||||||||
Proceeds from insurance claim | 35 | — | 1,231 | |||||||||||
Proceeds from sale of property and equipment | 30 | 69 | 87 | |||||||||||
(70,175 | ) | (40,285 | ) | (12,838 | ) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||
Proceeds of other long-term liabilities | (16 | ) | (35 | ) | (23 | ) | ||||||||
Proceeds from exercise of stock options | 506 | 680 | 1,120 | |||||||||||
Purchase of treasury shares | (490 | ) | — | — | ||||||||||
Taxes paid related to net share settlement of equity awards | (273 | ) | (629 | ) | (644 | ) | ||||||||
(273 | ) | 16 | 453 | |||||||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | (41,036 | ) | (16,580 | ) | 5,114 | |||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 52,628 | 69,208 | 64,094 | |||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 11,592 | $ | 52,628 | $ | 69,208 | ||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||||
Interest paid | $ | 39 | $ | 14 | $ | 14 | ||||||||
Income taxes paid | $ | 275 | $ | 85 | $ | 3,725 | ||||||||
NON-CASH TRANSACTIONS | ||||||||||||||
Transfer of rental equipment to inventory | $ | 836 | $ | 144 | $ | 55 | ||||||||
Transfer of inventory to rental equipment | $ | 1,184 | $ | — | $ | — | ||||||||
Transfer of prepaids to rental equipment and inventory | $ | 958 | $ | — | $ | — | ||||||||
Right of use asset acquired through an operating lease | $ | 762 | $ | — | $ | — |
Source: Natural Gas Services Group, Inc.