Natural Gas Services Group, Inc. Reports First Quarter 2020 Financial and Operating Results
First Quarter 2020 Highlights
- Rental revenue for the first quarter of 2020 of
$16.1 million , an increase of 5% sequentially and 20% when compared to the first quarter of 2019. - Net income for the first quarter of 2020 of
$4.1 million ($0.30 per diluted share), which included a$4.9 million income tax benefit due to recent tax law changes. - Adjusted EBITDA for the first quarter of 2020 was
$5.8 million , an increase of 11% over the fourth quarter of 2019 and in line with first quarter of 2019. Please see Non-GAAP Financial Measures - Adjusted EBITDA, below. - The Company has a robust cash position, strong liquidity and low capital requirements.
- Cash of
$13.1 million and minimal debt ($0.4 million ) at the end of the first quarter. - Expect to receive
$15 million in federal income tax refunds due to recent tax law changes. - Minimal capital expenditures of
$5-$7 million anticipated for the remainder of 2020.
- Cash of
Additional Discussion of the Quarter
Revenue: Total revenue for the three months ended
Gross Margins: Total gross margins decreased 14% to
Operating (Loss) Income: Operating loss increased to
Net (Loss) Income: The Company generated net income of
Earnings per share: For the first quarter of 2020, the Company reported earnings per diluted share of
Adjusted EBITDA: Adjusted EBITDA increased slightly to
Cash flow: At
Paycheck Protection Program loan and repayment: As previously announced, on
After the Loan was funded, the
Commenting on First Quarter 2020 results, Stephen
“Given the challenges in our industry and the overall economy, we are pleased with our operational performance in the first quarter of 2020. Our rental revenue increased 5% sequentially and 20% when compared to the first quarter of 2019, which was driven by increased rentals of our large horsepower units. Our unit and horsepower utilization remained solid, and we generated adjusted EBITDA of
"The impact of COVID-19 and the resulting evisceration of oil demand continues to cloud our visibility for short-term business prospects. In April, as expected, we experienced an increase in unit returns and shut-in notices from customers. We anticipate and are prepared for additional volatility in our business over the course of the next several months. Nevertheless, unlike many other oilfield service companies, NGS has the balance sheet to withstand this environment. With
Selected data: The tables below show, for the three months ended
Revenue | |||||||||||||
Three months ended |
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2020 | 2019 | ||||||||||||
(in thousands) | |||||||||||||
Rental | $ | 16,100 | 90 | % | $ | 13,387 | 74 | % | |||||
Sales | 1,450 | 8 | % | 4,125 | 23 | % | |||||||
Service & Maintenance | 340 | 2 | % | 479 | 3 | % | |||||||
Total | $ | 17,890 | $ | 17,991 |
Gross Margin | |||||||||||||||
Three months ended |
|||||||||||||||
2020 | 2019 | ||||||||||||||
(in thousands) | |||||||||||||||
Rental | $ | 2,197 | 14 | % | 1,706 | 13 | % | ||||||||
Sales | (361 | ) | (25 | ) | % | 359 | 9 | % | |||||||
Service & Maintenance | 207 | 61 | % | 324 | 68 | % | |||||||||
Total | $ | 2,043 | 11 | % | $ | 2,389 | 13 | % |
Adjusted Gross Margin (1) | |||||||||||||||
Three months ended |
|||||||||||||||
2020 | 2019 | ||||||||||||||
(in thousands) | |||||||||||||||
Rental | $ | 8,203 | 51 | % | $ | 7,167 | 54 | % | |||||||
Sales | (289 | ) | (20 | ) | % | 426 | 10 | % | |||||||
Service & Maintenance | 215 | 63 | % | 332 | 69 | % | |||||||||
Total | $ | 8,129 | 45 | % | $ | 7,925 | 44 | % |
(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 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 expense), which are key operating components. Adjusted gross margin differs from gross margin in that gross margin includes depreciation 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, gross margin 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 |
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(in thousands) | |||||||||
2020 | 2019 | ||||||||
Total revenue | $ | 17,890 | $ | 17,991 | |||||
Costs of revenue, exclusive of depreciation | (9,761 | ) | (10,066 | ) | |||||
Depreciation allocable to costs of revenue | (6,086 | ) | (5,536 | ) | |||||
Gross margin | 2,043 | 2,389 | |||||||
Depreciation allocable to costs of revenue | 6,086 | 5,536 | |||||||
Adjusted Gross Margin | $ | 8,129 | $ | 7,925 |
Non-GAAP Financial Measures - Adjusted EBITDA: “Adjusted EBITDA” reflects net income or loss before interest, taxes, depreciation and amortization, impairment of goodwill, increases in inventory allowance 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 income (loss).
The following table reconciles our net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:
Three months ended |
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(in thousands) | ||||||||
2020 | 2019 | |||||||
Net income | $ | 4,082 | $ | 98 | ||||
Interest expense | 3 | 4 | ||||||
Income tax expense (benefit) | (4,543 | ) | 58 | |||||
Depreciation and amortization | 6,240 | 5,577 | ||||||
Adjusted EBITDA | $ | 5,782 | $ | 5,737 |
Non GAAP Financial Measures - Adjusted Operating Loss and Adjusted Net Loss: From time to time, management may publicly disclose certain “non-GAAP financial measures”, such as adjusted operating loss or adjusted net loss, 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 an increase in inventory allowance in the fourth quarter of 2019, while adjusted net loss in the first quarter of 2020 excludes an income tax benefit related to a recent tax law change.
The reconciliation of operating loss to adjusted operating loss for the three months ended
Three months ended |
||||
(in thousands) | ||||
Reported operating loss | $ | (1,289 | ) | |
Inventory allowance | 408 | |||
Adjusted operating loss | $ | (881 | ) |
The reconciliation of net income to adjusted net loss for the three months ended
Three months ended |
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(in thousands) | per diluted share (1) | ||||||||
Reported net income | $ | 4,082 | $ | 0.30 | |||||
Income tax benefit related to recent tax law change | (4,890 | ) | (0.36 | ) | |||||
Adjusted net loss | $ | (808 | ) | $ | (0.06 | ) |
Note:
(1) For the three months ended
The reconciliation of net loss to adjusted net loss for the three months ended
Three months ended |
|||||||||
(in thousands) | per diluted share(1) | ||||||||
Reported net loss | $ | (1,710 | ) | $ | (0.13 | ) | |||
Inventory allowance | 408 | 0.03 | |||||||
Income tax adjustment related to the exclusion of these non-cash charges | (97 | ) | (0.01 | ) | |||||
Adjusted net loss | $ | (1,399 | ) | $ | (0.11 | ) |
Note:
(1) 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 |
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (unaudited) |
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2020 |
|||||||||
ASSETS | |||||||||
Current Assets: | |||||||||
Cash and cash equivalents | $ | 13,051 | $ | 11,592 | |||||
Trade accounts receivable, net of allowance for doubtful accounts of |
10,519 | 9,106 | |||||||
Inventory | 19,424 | 21,080 | |||||||
Federal income tax receivable | 14,992 | — | |||||||
Prepaid income taxes | 68 | 40 | |||||||
Prepaid expenses and other | 225 | 597 | |||||||
Total current assets | 58,279 | 42,415 | |||||||
Long-term inventory, net of allowance for obsolescence of |
1,108 | 1,068 | |||||||
Rental equipment, net of accumulated depreciation of |
217,846 | 217,742 | |||||||
Property and equipment, net of accumulated depreciation of |
22,236 | 21,869 | |||||||
Right of use assets - operating leases, net of accumulated amortization of |
559 | 604 | |||||||
Intangibles, net of accumulated amortization of |
1,245 | 1,276 | |||||||
Other assets | 1,396 | 1,603 | |||||||
Total assets | $ | 302,669 | $ | 286,577 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
Current Liabilities: | |||||||||
Accounts payable | $ | 2,255 | $ | 1,975 | |||||
Accrued liabilities | 3,020 | 2,287 | |||||||
Line of credit | 417 | 417 | |||||||
Current operating leases | 187 | 189 | |||||||
Deferred income | 1,190 | 640 | |||||||
Total current liabilities | 7,069 | 5,508 | |||||||
Deferred income tax liability | 41,683 | 31,243 | |||||||
Long-term operating leases | 372 | 415 | |||||||
Other long-term liabilities | 1,416 | 1,718 | |||||||
Total liabilities | 50,540 | 38,884 | |||||||
Commitments and contingencies | |||||||||
Stockholders’ Equity: | |||||||||
Preferred stock, 5,000 shares authorized, no shares issued or outstanding | — | — | |||||||
Common stock, 30,000 shares authorized, par value |
133 | 132 | |||||||
Additional paid-in capital | 110,926 | 110,573 | |||||||
Retained earnings | 141,560 | 137,478 | |||||||
Treasury Shares, at cost, 38 shares | (490 | ) | (490 | ) | |||||
Total stockholders' equity | 252,129 | 247,693 | |||||||
Total liabilities and stockholders' equity | $ | 302,669 | $ | 286,577 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except earnings per share) (unaudited) |
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Three months ended | |||||||||
2020 | 2019 | ||||||||
Revenue: | |||||||||
Rental income | $ | 16,100 | $ | 13,387 | |||||
Sales | 1,450 | 4,125 | |||||||
Service and maintenance income | 340 | 479 | |||||||
Total revenue | 17,890 | 17,991 | |||||||
Operating costs and expenses: | |||||||||
Cost of rentals, exclusive of depreciation stated separately below | 7,897 | 6,220 | |||||||
Cost of sales, exclusive of depreciation stated separately below | 1,739 | 3,699 | |||||||
Cost of service and maintenance, exclusive of depreciation stated separately below | 125 | 147 | |||||||
Selling, general and administrative expenses | 2,162 | 2,493 | |||||||
Depreciation and amortization | 6,240 | 5,577 | |||||||
Total operating costs and expenses | 18,163 | 18,136 | |||||||
Operating loss | (273 | ) | (145 | ) | |||||
Other income (expense): | |||||||||
Interest expense | (3 | ) | (4 | ) | |||||
Other (expense) income, net | (185 | ) | 305 | ||||||
Total other (expense) income, net | (188 | ) | 301 | ||||||
(Loss) income before provision for income taxes | (461 | ) | 156 | ||||||
Income tax benefit (expense) | 4,543 | (58 | ) | ||||||
Net income | $ | 4,082 | $ | 98 | |||||
Earnings per share: | |||||||||
Basic | $ | 0.31 | $ | 0.01 | |||||
Diluted | $ | 0.30 | $ | 0.01 | |||||
Weighted average shares outstanding: | |||||||||
Basic | 13,157 | 13,064 | |||||||
Diluted | 13,416 | 13,268 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) |
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Three months ended | |||||||||
2020 | 2019 | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||
Net income | $ | 4,082 | $ | 98 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||
Depreciation and amortization | 6,240 | 5,577 | |||||||
Deferred income taxes | 337 | 68 | |||||||
Stock-based compensation | 502 | 495 | |||||||
Bad debt allowance | 21 | 10 | |||||||
Gain on sale of assets | (68 | ) | (22 | ) | |||||
Loss (gain) on company owned life insurance | 262 | (99 | ) | ||||||
Changes in operating assets and liabilities: | |||||||||
Trade accounts receivables | (1,434 | ) | (3,089 | ) | |||||
Inventory | 1,616 | (3,986 | ) | ||||||
Federal income tax receivable | (14,992 | ) | — | ||||||
Prepaid expenses and prepaid income taxes | 344 | 149 | |||||||
Accounts payable and accrued liabilities | 1,013 | (3,074 | ) | ||||||
Deferred income | 550 | 52 | |||||||
Deferred tax liability increase due to tax law change | 10,103 | — | |||||||
Other | (301 | ) | 75 | ||||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 8,275 | (3,746 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||
Purchase of rental equipment and property and equipment | (6,679 | ) | (9,230 | ) | |||||
Purchase of company owned life insurance | (54 | ) | (40 | ) | |||||
Proceeds from sale of property and equipment | 68 | 11 | |||||||
Proceeds from insurance claims of property and equipment | — | 11 | |||||||
(6,665 | ) | (9,248 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||
Payments from other long-term liabilities, net | (2 | ) | (5 | ) | |||||
Proceeds from exercise of stock options | — | 555 | |||||||
Taxes paid related to net share settlement of equity awards | (149 | ) | (192 | ) | |||||
(151 | ) | 358 | |||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | 1,459 | (12,636 | ) | ||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 11,592 | 52,628 | |||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 13,051 | $ | 39,992 | |||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||
Interest paid | $ | 3 | $ | 4 | |||||
Income taxes paid | $ | 40 | $ | 2 | |||||
NON-CASH TRANSACTIONS | |||||||||
Transfer of rental equipment components to inventory | $ | — | $ | 574 | |||||
Right of use acquired through an operating lease | $ | 4 | $ | 126 |
Source: Natural Gas Services Group, Inc.