UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): May 10, 2019
NATURAL GAS SERVICES GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
Colorado | 1-31398 | 75-2811855 | ||||||||||||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||||||||||||
404 Veterans Airpark Lane, Suite 300
Midland, TX 79705
(Address of Principal Executive Offices)
(432) 262-2700
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name or Former Address if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)).
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-14(c)).
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
o Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
Item 2.02. Results of Operations and Financial Condition.
On May 9, 2019, Natural Gas Services Group, Inc. issued a press release announcing its results of operations for first quarter ended March 31, 2019. The press release issued May 9, 2019 is furnished as Exhibit No. 99 to this Current Report on Form 8-K. Natural Gas Services Group's annual report on Form 10-K and its reports on Forms 10-Q and 8-K and other publicly available information should be consulted for other important information about Natural Gas Services Group, Inc.
The information in this Current Report on Form 8-K, including Exhibit No. 99 hereto, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section. The information in this Current Report shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
The Exhibit listed below is furnished as an Exhibit to this Current Report on Form 8-K.
Exhibit No. | Description | ||||
| Press release issued May 9, 2019 | |||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
NATURAL GAS SERVICES GROUP, INC. | |||||||||||||||||
| Date: | May 10, 2019 | ||||||||||||||||
By: | /s/ Stephen C. Taylor | ||||||||||||||||
Stephen C. Taylor | |||||||||||||||||
President & Chief Executive Officer | |||||||||||||||||
FOR IMMEDIATE RELEASE | NEWS | ||||
| May 9, 2019 | NYSE: NGS | ||||
Exhibit 99.1 | |||||
Natural Gas Services Group, Inc.
Reports First Quarter 2019 Financial and Operating Results
MIDLAND, Texas May 9, 2019 - Natural Gas Services Group, Inc. (“NGS” or the “Company”) (NYSE:NGS), a leading provider of gas compression equipment and services to the energy industry, today announced financial results for the three months ended March 31, 2019.
For the quarter ended March 31, 2019, NGS reported rental revenue of $13.4 million compared to $11.5 million for the quarter ended March 31, 2018. Sequentially, rental revenue increased from $12.8 million.
The Company reported net income for the first quarter of $357,000 compared to $225,000 in the same quarter in 2018 and a loss of $282,000 in the prior quarter. However, the fourth quarter net loss included an adjustment for income tax expense and interest (“tax adjustment”) related to executive compensation of $633,000. Excluding this tax adjustment net income slightly increased from $351,000. Earnings per diluted share for the quarter ended March 31, 2019 was 3 cents. Please see discussions of Non-GAAP Financial Measures-Special Items, below.
Highlights of the quarter include:
Revenue: Total revenue for the three months ended March 31, 2019 was $18.0 million, an increase from $14.7 million compared to the three months ended March 31, 2018. This increase was primarily driven by a greater number of units being rented, as well as increased rental rates as a result of our move into higher horsepower rentals. We also saw an increase in our compressor sales during first quarter 2019 compared to 2018. Sequentially, total revenue increased by $1.8 million to $18.0 million from $16.2 million, mainly due to higher compressor sales.
Operating Income: Operating income for the three months ended March 31, 2019 decreased to $209,000 from $350,000 compared to the same period in the prior year due to lower gross margins, higher indirect costs and depreciation. Sequentially, operating income increased to $209,000 from $106,000 mainly due to an increase in revenue for the three months ended March 31, 2019.
Adjusted Gross Margins: Total adjusted gross margin for the three months ended March 31, 2019 increased $502,000 to $8.3 million from $7.8 million for the same period ended March 31, 2018 and as a percentage of revenue decreased to 46% for the three months ended March 31, 2019 compared to 53% for the same period ended March 31, 2018. This decrease is due to the revenue mix shifting towards lower margin sales from higher margin rentals. Sequentially, adjusted gross margin of $8.3 million for the three months ending March 31, 2019 increased slightly compared to $8.2 million in the three months ended in December 31, 2018. Adjusted gross margin as a percentage of revenue decreased to 46% from 51% the previous quarter, driven by the same shift in revenues towards lower margin sales from higher margin rentals. Please see discussion of Non-GAAP Financial Measures - Adjusted Gross Margin at the conclusion of this release.
Net Income: Net income for the three months ended March 31, 2019 increased to $357,000 compared to net income of $225,000 for the same period in 2018. Sequentially, net income also increased to $357,000 from a net loss of $282,000. Excluding the tax adjustment, when comparing sequential periods, net income increased slightly from $351,000. Please see discussions of Non-GAAP Financial Measures-Special Items, below.
Earnings Per Share: Comparing the first quarter of 2019 versus 2018, earnings per diluted share was 3 cents, up 1 cent from 2018. Sequentially, diluted earnings per share increased to 3 cents from a net loss per diluted share of 2 cents. Excluding the tax adjustment, when comparing sequential periods, earnings per diluted share remained flat. Please see discussions of Non-GAAP Financial Measures-Special Items, below.
Adjusted EBITDA: Adjusted EBITDA increased to $6.1 million compared to the same period ended March 31, 2018 of $5.7 million but decreased as a percentage of revenue to 34% from 38% for the three months ended March 31, 2019 and March 31, 2018, respectively. Adjusted EBITDA increased approximately $296,000 in the sequential quarters and slightly decreased as a percentage of revenue to 34% from 36%. Please see discussion of Non-GAAP Financial Measures - Adjusted EBITDA at the conclusion of this release.
Cash Flow: At March 31, 2019, cash and cash equivalents were $40.0 million with a bank debt level of $417,000, all classified as non-current. We had negative net cash flow from operating activities of $3.9 million during the three months ended of 2019.
Commenting on First Quarter 2019 results, Stephen C. Taylor, President and CEO, said:
“This morning we reported first quarter 2019 results and we are pleased with our operational performance. Our revenues grew 11% sequentially, with all aspects of our business contributing to the increase. Compressor sales were very strong this quarter and our core rental revenues advanced 4%, sequentially. EBITDA was $6.1 million this quarter, a 5% sequential and 7% year-over-year gain. We continue to construct and commission our large horsepower units, all of which are contracted, and both our medium and large horsepower units show net gains in quarterly utilization. We ended the quarter with almost $40 million in cash, virtually zero debt and remain positioned to further our growth this year.”
Selected data: The tables below show revenues and percentage of total revenues, along with our adjusted gross margin, exclusive of depreciation and amortization, and related percentages of each of our product lines for the three months ended March 31, 2019 and 2018. Adjusted gross margin is the difference between revenue and cost of sales, exclusive of depreciation and amortization.
Revenue | Adjusted Gross Margin(1) | ||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended March 31, | Three months ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
Rental | $ | 13,387 | 74 | % | $ | 11,471 | 78 | % | $ | 7,502 | 56 | % | $ | 6,767 | 59 | % | |||||||||||||||||||||||||||||||
Sales | 4,125 | 23 | % | 2,998 | 20 | % | 426 | 10 | % | 807 | 27 | % | |||||||||||||||||||||||||||||||||||
Service & Maintenance | 479 | 3 | % | 249 | 2 | % | 332 | 69 | % | 184 | 74 | % | |||||||||||||||||||||||||||||||||||
Total | $ | 17,991 | $ | 14,718 | $ | 8,260 | 46 | % | $ | 7,758 | 53 | % | |||||||||||||||||||||||||||||||||||
(1) For a reconciliation of adjusted gross margin to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Non-GAAP Financial Measures - Adjusted Gross Margin” below.
Non-GAAP Financial Measure - Adjusted Gross Margin: “Adjusted Gross Margin” is defined as total revenue less cost of sales (excluding depreciation and amortization expense). Adjusted gross margin is included as a supplemental disclosure because it is a primary measure used by management as it represents the results of revenue and cost of sales (excluding depreciation and amortization expense), which are key operating components. Depreciation expense is a necessary element of costs and the ability to generate revenue and selling, general and administrative expense is a necessary cost to support operations and required corporate activities. Management uses this non-GAAP measure as a supplemental measure to other GAAP results to provide a more complete understanding of the company's performance. As an indicator of operating performance, adjusted gross margin should not be considered an alternative to, or more meaningful than, operating income as determined in accordance with GAAP. Adjusted Gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate adjusted gross margin in the same manner.
The reconciliation of operating income to adjusted gross margin is as follows:
| Three months ended March 31, | |||||||||||
(in thousands) | |||||||||||
| 2019 | 2018 | ||||||||||
| Operating Income | $ | 209 | $ | 350 | |||||||
| Depreciation and amortization | 5,558 | 5,387 | |||||||||
| Selling, general, and administration expenses | 2,493 | 2,021 | |||||||||
| Adjusted Gross Margin | $ | 8,260 | $ | 7,758 | |||||||
Non GAAP Financial Measures - Adjusted EBITDA: Adjusted EBITDA: “Adjusted EBITDA” reflects net income or loss before interest, taxes, depreciation and amortization. Adjusted EBITDA is a measure used by analysts and investors as an indicator of operating cash flow since it excludes the impact of movements in working capital items, non-cash charges and financing costs. Therefore, Adjusted EBITDA gives the investor information as to the cash generated from the operations of a business. However, Adjusted EBITDA is not a measure of financial performance under accounting principles GAAP, and should not be considered a substitute for other financial measures of performance. Adjusted EBITDA as calculated by NGS
may not be comparable to Adjusted EBITDA as calculated and reported by other companies. The most comparable GAAP measure to Adjusted EBITDA is net income.
The reconciliation of net income to Adjusted EBITDA and gross margin is as follows:
| Three months ended March 31, | |||||||||||
(in thousands) | |||||||||||
| 2019 | 2018 | ||||||||||
| Net income | $ | 357 | $ | 225 | |||||||
| Interest expense | 4 | 3 | |||||||||
| Provision for income taxes | 153 | 49 | |||||||||
| Depreciation and amortization | 5,558 | 5,387 | |||||||||
| Adjusted EBITDA | $ | 6,072 | $ | 5,664 | |||||||
Non GAAP Financial Measures - Special Items: From time to time, management may publicly disclose certain “non-GAAP financial measures”, such as adjusted operating income and net income, 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 net income reflects net income before the income adjustment related to executive compensation. The reconciliation of reported net (loss) income to adjusted net income for December 31, 2018 is as follows:
| Three months ended | Year ended | ||||||||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||||
| Condensed | Diluted Per Share | Condensed | Diluted Per Share | ||||||||||||||||||||
| Reported net (loss) income | $ | (282) | $ | (0.02) | $ | 426 | $ | 0.03 | |||||||||||||||
| Income tax adjustment related to executive compensation | 633 | 0.05 | 633 | 0.05 | |||||||||||||||||||
| Adjusted net income | $ | 351 | $ | 0.03 | $ | 1,059 | $ | 0.08 | |||||||||||||||
Conference Call Details:
Teleconference: Thursday, May 9, 2019 at 10:00 a.m. Central (11:00 a.m. Eastern). Live via phone by dialing 877-358-7306, pass code “Natural Gas Services”. All attendees and participants to the conference call should arrange to call in at least 5 minutes prior to the start time.
Live Webcast: The webcast will be available in listen only mode via our website www.ngsgi.com, investor relations section.
Webcast Reply: For those unable to attend or participate, a replay of the conference call will be available within 24 hours on the NGS website at www.ngsgi.com.
Stephen C. Taylor, President and CEO of Natural Gas Services Group, Inc. will be leading the call and discussing the financial results for the three ended March 31, 2019.
About Natural Gas Services Group, Inc. (NGS): NGS is a leading provider of gas compression equipment to the natural gas industry with a primary focus on the non-conventional gas and oil industry, i.e., coalbed methane, gas and oil shales and tight gas. The Company manufactures, fabricates, rents, sells and maintains natural gas compressors and flare systems for gas and oil production and plant facilities. NGS is headquartered in Midland, Texas with fabrication facilities located in Tulsa, Oklahoma and Midland, Texas and service facilities located in major gas and oil producing basins in the U.S. Additional information can be found at www.ngsgi.com.
Cautionary Note Regarding Forward-Looking Statements:
Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause NGS's actual results in future periods to differ materially from forecasted results. Those risks include, among other things, the loss of market share through competition or otherwise; the introduction of competing technologies by other companies; a prolonged, substantial reduction in oil and gas prices which could cause a decline in the demand for NGS's products and services; and new governmental safety, health and environmental regulations which could require NGS to make significant capital expenditures. The forward-looking statements included in this press release are only made as of the date of this press release, and NGS undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. A discussion of these factors is included in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.
For More Information, Contact: | Alicia Dada, Investor Relations | ||||
(432) 262-2700 Alicia.Dada@ngsgi.com | |||||
www.ngsgi.com | |||||
NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (unaudited) | |||||||||||
| March 31, 2019 | December 31, 2018 | ||||||||||
ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 39,992 | $ | 52,628 | |||||||
| Trade accounts receivable, net of allowance for doubtful accounts of $299 and $291, respectively | 10,298 | 7,219 | |||||||||
| Inventory | 35,499 | 30,974 | |||||||||
| Prepaid income taxes | 3,100 | 3,148 | |||||||||
| Prepaid expenses and other | 1,702 | 2,430 | |||||||||
| Total current assets | 90,591 | 96,399 | |||||||||
Long-term inventory, net of allowance for obsolescence of $19 | 3,997 | 3,980 | |||||||||
| Rental equipment, net of accumulated depreciation of $168,466 and $165,428, respectively | 179,442 | 175,886 | |||||||||
| Property and equipment, net of accumulated depreciation of $11,665 and $11,556, respectively | 17,134 | 16,587 | |||||||||
| Right of use assets - operating leases, net of accumulated amortization $36 | 541 | — | |||||||||
| Goodwill | 10,039 | 10,039 | |||||||||
| Intangibles, net of accumulated amortization of $1,789 and $1,758, respectively | 1,370 | 1,401 | |||||||||
| Other assets | 1,243 | 1,109 | |||||||||
Total assets | $ | 304,357 | $ | 305,401 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts payable | $ | 3,450 | $ | 2,122 | |||||||
| Accrued liabilities | 4,341 | 8,743 | |||||||||
| Current operating leases | 148 | — | |||||||||
| Deferred income | 133 | 81 | |||||||||
| Total current liabilities | 8,072 | 10,946 | |||||||||
| Line of credit, non-current portion | 417 | 417 | |||||||||
| Deferred income tax liability | 32,315 | 32,158 | |||||||||
| Long-term operating leases | 393 | — | |||||||||
| Other long-term liabilities | 1,764 | 1,699 | |||||||||
| Total liabilities | 42,961 | 45,220 | |||||||||
| Commitments and contingencies | |||||||||||
| Stockholders’ Equity: | |||||||||||
| Preferred stock, 5,000 shares authorized, no shares issued or outstanding | — | — | |||||||||
| Common stock, 30,000 shares authorized, par value $0.01; 13,133 and 13,005 shares issued and outstanding, respectively | 131 | 130 | |||||||||
Additional paid-in capital | 108,617 | 107,760 | |||||||||
| Retained earnings | 152,648 | 152,291 | |||||||||
| Total stockholders' equity | 261,396 | 260,181 | |||||||||
| Total liabilities and stockholders' equity | $ | 304,357 | $ | 305,401 | |||||||
NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED INCOME STATEMENTS (in thousands, except earnings per share) (unaudited) | |||||||||||
Three months ended | |||||||||||
| March 31, | |||||||||||
| 2019 | 2018 | ||||||||||
Revenue: | |||||||||||
Rental income | $ | 13,387 | $ | 11,471 | |||||||
Sales | 4,125 | 2,998 | |||||||||
Service and maintenance income | 479 | 249 | |||||||||
Total revenue | 17,991 | 14,718 | |||||||||
Operating costs and expenses: | |||||||||||
Cost of rentals, exclusive of depreciation and amortization stated separately below | 5,885 | 4,704 | |||||||||
Cost of sales, exclusive of depreciation and amortization stated separately below | 3,699 | 2,191 | |||||||||
Cost of service and maintenance | 147 | 65 | |||||||||
| Selling, general, and administrative expense | 2,493 | 2,021 | |||||||||
| Depreciation and amortization | 5,558 | 5,387 | |||||||||
Total operating costs and expenses | 17,782 | 14,368 | |||||||||
| Operating (loss) income | 209 | 350 | |||||||||
| Other income (expense): | |||||||||||
| Interest expense | (4) | (3) | |||||||||
| Other income, net | 305 | (73) | |||||||||
Total other income (expense), net | 301 | (76) | |||||||||
| Income before provision for income taxes | 510 | 274 | |||||||||
| Income tax (benefit) expense | 153 | 49 | |||||||||
| Net income | $ | 357 | $ | 225 | |||||||
Earnings per share: | |||||||||||
| Basic | $ | 0.03 | $ | 0.02 | |||||||
| Diluted | $ | 0.03 | $ | 0.02 | |||||||
| Weighted average shares outstanding: | |||||||||||
| Basic | 13,064 | 12,920 | |||||||||
| Diluted | 13,268 | 13,169 | |||||||||
NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) | |||||||||||
| Three months ended | |||||||||||
| March 31, | |||||||||||
| 2019 | 2018 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
Net income | $ | 357 | $ | 225 | |||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||||||
| Depreciation and amortization | 5,558 | 5,387 | |||||||||
| Deferred income taxes | 157 | 48 | |||||||||
| Stock-based compensation | 495 | 428 | |||||||||
| Bad debt (recovery) allowance | 10 | (50) | |||||||||
| Gain on sale of assets | (22) | — | |||||||||
| (Gain) loss on company owned life insurance | (99) | 67 | |||||||||
Changes in operating assets and liabilities: | |||||||||||
| Trade accounts receivables, net | (3,089) | 865 | |||||||||
| Inventory | (4,468) | 15 | |||||||||
| Prepaid expenses and prepaid income taxes | 202 | 488 | |||||||||
| Accounts payable and accrued liabilities | (3,074) | (2,539) | |||||||||
| Deferred income | 52 | 109 | |||||||||
| Other | 75 | 85 | |||||||||
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | (3,846) | 5,128 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchase of property and equipment | (9,130) | (8,712) | |||||||||
| Purchase of company owned life insurance | (40) | (139) | |||||||||
| Proceeds from sale of property and equipment | 11 | — | |||||||||
| Proceeds from insurance claims of property and equipment | 11 | — | |||||||||
| NET CASH USED IN INVESTING ACTIVITIES | (9,148) | (8,851) | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Payments from other long-term liabilities, net | (5) | (9) | |||||||||
| Proceeds from exercise of stock options | 555 | 157 | |||||||||
| Taxes paid related to net share settlement of equity awards | (192) | (495) | |||||||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 358 | (347) | |||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | (12,636) | (4,070) | |||||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 52,628 | 69,208 | |||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 39,992 | $ | 65,138 | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||||
| Interest paid | $ | 4 | $ | 3 | |||||||
| Income taxes paid | $ | 2 | $ | — | |||||||
| NON-CASH TRANSACTIONS | |||||||||||
| Transfer of rental equipment components to inventory | $ | — | $ | 40 | |||||||
| Transfer of prepaids to rental equipment and inventory | $ | 574 | $ | — | |||||||
| Right of use acquired through an operating lease | $ | 126 | $ | — | |||||||