NATURAL GAS SERVICES GROUP INC 10-Q

Item 1. Financial Statements NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) June 30, December 31, 2021 2020 ASSETS Current Assets: Cash and cash equivalents $ 26,173 $ 28,925 Trade accounts receivable, net of allowance for doubtful accounts of $ 1,203 and $ 1,161 , respectively 12,229 11,884 Inventory 21,348 19,926 Federal income tax receivable 11,538 11,538 Prepaid income taxes 39 66 Prepaid expenses and other 775 379 Total current assets 72,102 72,718 Long-term inventory, net of allowance for obsolescence of $ 37 and $ 221 , respectively 1,171 1,065 Rental equipment, net of accumulated depreciation of $ 187,087 and $ 175,802 , respectively 208,176 207,585 Property and equipment, net of accumulated depreciation of $ 15,103 and $ 13,916 , respectively 21,180 21,749 Right of use assets - operating leases, net of accumulated amortization of $ 465 and $ 356 , respectively 375 483 Intangibles, net of accumulated amortization of $ 2,071 and $ 2,008 , respectively 1,088 1,151 Other assets 2,507 2,050 Total assets $ 306,599 $ 306,801 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 2,425 $ 2,373 Accrued liabilities 10,998 6,770 Line of credit — 417 Current operating leases 131 198 Deferred income 693 1,103 Total current liabilities 14,247 10,861 Deferred income tax liability 41,666 41,890 Long-term operating leases 244 285 Other long-term liabilities 2,541 2,221 Total liabilities 58,698 55,257 Commitments and contingencies (Notes 6 and 9) Stockholders’ Equity: Preferred stock, 5,000 shares authorized, no shares issued or outstanding — — Common stock, 30,000 shares authorized, par value $ 0.01 ; 13,394 and 13,296 shares issued, respectively 134 133 Additional paid-in capital 113,175 112,615 Retained earnings 136,974 139,286 Treasury Shares, at cost, 213 and 38 shares, respectively ( 2,382 ) ( 490 ) Total stockholders' equity 247,901 251,544 Total liabilities and stockholders' equity $ 306,599 $ 306,801 See accompanying notes to these unaudited condensed consolidated financial statements. 1 NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except earnings per share) (unaudited) Three months ended Six months ended June 30, June 30, 2021 2020 2021 2020 Revenue: Rental income $ 15,613 $ 15,131 $ 30,954 $ 31,231 Sales 1,573 2,008 4,284 3,458 Service and maintenance income 563 266 908 606 Total revenue 17,749 17,405 36,146 35,295 Operating costs and expenses: Cost of rentals, exclusive of depreciation stated separately below 9,082 6,629 16,239 14,526 Cost of sales, exclusive of depreciation stated separately below 1,777 1,860 4,392 3,599 Cost of service and maintenance, exclusive of depreciation stated separately below 250 100 298 225 Selling, general and administrative expenses 2,607 2,663 5,255 4,825 Depreciation and amortization 6,326 6,301 12,623 12,541 Total operating costs and expenses 20,042 17,553 38,807 35,716 Operating loss ( 2,293 ) ( 148 ) ( 2,661 ) ( 421 ) Other income (expense): Interest expense ( 14 ) ( 8 ) ( 16 ) ( 11 ) Other income (expense), net 50 378 151 193 Total other income (expense), net 36 370 135 182 Loss before provision for income taxes ( 2,257 ) 222 ( 2,526 ) ( 239 ) Income tax (expense) benefit 339 ( 57 ) 213 4,486 Net (loss) income $ ( 1,918 ) $ 165 $ ( 2,313 ) $ 4,247 (Loss) earnings per share: Basic $ ( 0.14 ) $ 0.01 $ ( 0.17 ) $ 0.32 Diluted $ ( 0.14 ) $ 0.01 $ ( 0.17 ) $ 0.32 Weighted average shares outstanding: Basic 13,305 13,237 13,284 13,197 Diluted 13,305 13,480 13,284 13,448 See accompanying notes to these unaudited condensed consolidated financial statements. 2 NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands) (unaudited) Preferred Stock Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Stockholders' Equity Shares Amount Shares Amount Shares Amount BALANCES, January 1, 2020 — $ — 13,178 $ 132 $ 110,573 $ 137,478 38 $ ( 490 ) $ 247,693 Compensation expense on common stock options — — — — 17 — — — 17 Issuance of restricted stock — — 95 — — — — — — Compensation expense on restricted common stock — — — 1 485 — — — 486 Taxes paid related to net shares settlement of equity awards — — — — ( 149 ) — — — ( 149 ) Net income — — — — — 4,082 — — 4,082 BALANCES, March 31, 2020 — — 13,273 133 110,926 141,560 38 ( 490 ) 252,129 Compensation expense on common stock options — — — — 1 — — — 1 Issuance of restricted stock — — 13 — — — — — — Compensation expense on restricted common stock — — — — 562 — — — 562 Net income — — — — — 165 — — 165 BALANCES, June 30, 2020 — $ — 13,286 $ 133 $ 111,489 $ 141,725 38 $ ( 490 ) $ 252,857 3 NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands) (unaudited) Preferred Stock Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Stockholders' Equity Shares Amount Shares Amount Shares Amount BALANCES, January 1, 2021 — $ — 13,296 $ 133 $ 112,615 $ 139,286 38 $ ( 490 ) $ 251,544 Issuance of restricted stock — — 62 — — — — — — Compensation expense on restricted common stock — — — 1 473 — — — 474 Taxes paid related to net shares settlement of equity awards — — — — ( 224 ) — — — ( 224 ) Net loss — — — — — ( 394 ) — — ( 394 ) BALANCES, March 31, 2021 — — 13,358 134 112,864 138,892 38 ( 490 ) 251,400 Issuance of restricted stock — — 36 — — — — — — Compensation expense on restricted common stock — — — — 421 — — — 421 Taxes paid related to net shares settlement of equity awards — — — — ( 110 ) — — — ( 110 ) Purchase of treasury shares — — — — — — 175 ( 1,892 ) ( 1,892 ) Net loss — — — — — ( 1,918 ) — — ( 1,918 ) BALANCES, June 30, 2021 — $ — 13,394 $ 134 $ 113,175 $ 136,974 213 $ ( 2,382 ) $ 247,901 See accompanying notes to these unaudited condensed consolidated financial statements. 4 NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Six months ended June 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ ( 2,313 ) $ 4,247 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 12,623 12,541 Amortization of debt issuance costs 7 — Deferred income taxes ( 224 ) 399 Stock-based compensation 896 1,066 Bad debt allowance 65 63 Gain on sale of assets — ( 273 ) Loss (gain) on company owned life insurance ( 188 ) 92 Changes in operating assets and liabilities: Trade accounts receivables ( 410 ) ( 2,631 ) Inventory ( 1,543 ) 5,262 Federal income tax receivable — ( 14,992 ) Prepaid expenses and prepaid income taxes ( 369 ) ( 95 ) Accounts payable and accrued liabilities 4,281 ( 536 ) Deferred income ( 410 ) ( 515 ) Deferred tax liability increase due to tax law change — 10,103 Other 337 71 NET CASH PROVIDED BY OPERATING ACTIVITIES 12,752 14,802 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of rental equipment, property and other equipment ( 12,567 ) ( 10,989 ) Purchase of company owned life insurance ( 55 ) ( 196 ) Proceeds from sale of property and equipment — 383 Proceeds from sale of deferred compensation mutual fund — 10 NET CASH USED IN INVESTING ACTIVITIES ( 12,622 ) ( 10,792 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loan — 4,601 Repayment of loan — ( 4,601 ) Payments of other long-term liabilities, net ( 1 ) ( 2 ) Payments of debt issuance costs ( 237 ) — Repayments of line of credit, net ( 417 ) — Purchase of treasury shares ( 1,892 ) — Taxes paid related to net share settlement of equity awards ( 335 ) ( 149 ) NET CASH USED IN FINANCING ACTIVITIES ( 2,882 ) ( 151 ) NET CHANGE IN CASH AND CASH EQUIVALENTS ( 2,752 ) 3,859 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,925 11,592 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,173 $ 15,451 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 9 $ 11 Income taxes paid $ — $ 63 NON-CASH TRANSACTIONS Right of use asset acquired through an operating lease $ — $ 5 See accompanying notes to these unaudited condensed consolidated financial statements. 5 Natural Gas Services Group, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 1. Description of Business Natural Gas Services Group, Inc. (the "Company", “NGS”, "Natural Gas Services Group", "we" or "our") (a Colorado corporation), is a leading provider of natural gas compression equipment and services to the energy industry. The Company manufactures, fabricates, rents, sells and maintains natural gas compressors and flare systems for oil and natural gas 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 oil and natural gas producing basins in the U.S. 2. Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its subsidiary, NGSG Properties, LLC and the rabbi trust associated with the Company's deferred compensation plan. All significant intercompany accounts and transactions for the periods presented have been eliminated in consolidation. These financial statements include all adjustments, consisting of only normal recurring adjustments, which are necessary to make our financial position at June 30, 2021 and the results of our operations for the three and six months ended June 30, 2021 and 2020 not misleading. As permitted by the rules and regulations of the Securities and Exchange Commission (SEC), the accompanying condensed consolidated financial statements do not include all disclosures normally required by generally accepted accounting principles in the United States of America (GAAP). These financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 on file with the SEC. In our opinion, the condensed consolidated financial statements are a fair presentation of the financial position, results of operations, changes in stockholders' equity and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2021. Revenue Recognition Policy The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers ("ASC 606"). Under ASC 606, revenue is measured based on a consideration specified in a customer’s contract, excluding any sale incentives and taxes collected on behalf of third parties (i.e. sales and property taxes). Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that we expect to receive for those goods or services. To recognize revenue, we (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, we satisfy the performance obligation(s). Shipping and handling costs incurred are accounted for as fulfillment costs and are included in cost of revenues in our condensed consolidated statements of operations. Nature of Goods and Services The following is a description of principal activities from which the Company generates its revenue: Rental Revenue. The Company generates revenue from renting compressors and flare systems to our customers. These contracts, which all qualify as operating leases under ASC Topic 842, Leases (ASC 842), may also include a fee for servicing the compressor or flare during the rental contract period. Our rental contracts typically range from six to 24 months, with our larger horsepower compressors having contract terms of up to 60 months. Our revenue is recognized over time, with equal monthly payments over the term of the contract. After the terms of the contract have expired, a customer may renew their contract or continue renting on a monthly basis thereafter. In accordance ASC 842, we have applied the practical expedient ASC 842-10-15-42A, which allows the Company to combine lease and non-lease components. Sales Revenue. The Company generates revenue by the sale of custom/fabricated compressors, flare systems and parts, as well as, exchange/rebuilding customer owned compressors and sale of used rental equipment. 6 Custom/fabricated compressors and flare systems - The Company designs and fabricates compressors and flares based on the customer’s specifications outlined in their contract. Though the equipment being built is customized by the customer, control under these contracts does not pass to the customer until the compressor or flare package is complete and shipped, or in accordance with a bill and hold arrangement, the customer accepts title and assumes the risk and rewards of ownership. We request some of our customers to make progressive payments as the product is being built; these payments are recorded as a contract liability on the Deferred Income line on the condensed consolidated balance sheet until control has been transferred. These contracts also may include an assurance warranty clause to guarantee the product is free from defects in material and workmanship for a set duration of time; this is a standard industry practice and is not considered a performance obligation. From time to time we recognize revenue when manufacturing is complete and the equipment is ready for shipment. At the customer’s request, we will bill the customer upon completing all performance obligations, but before shipment. The customer will formally request that we ship the equipment per their direction from our manufacturing facility at a later specified date and that we segregate the equipment from our finished goods, such that they are not available to fill other orders. Per the customer’s agreement change of control is passed to the customer once the equipment is complete and ready for shipment. We have operated using bill and hold agreements with certain customers for many years, with consistent and satisfactory results for both the customer and us. The credit terms on these agreements are consistent with the credit terms on all other sales. All control is maintained by the customer and there are no exceptions to the customer’s commitment to accept and pay for the manufactured equipment. There was no revenue recognized for bill and hold arrangements for the three months ended June 30, 2021. Revenue recognized related to bill and hold arrangements for the six months ended June 30, 2020 was approximately $ 852,000 . Parts - Revenue is recognized after the customer obtains control of the parts. Control is passed either by the customer taking physical possession or the parts being shipped. The amount of revenue recognized is not adjusted for expected returns, as our historical part returns have been de minimis. Exchange or rebuilding customer owned compressors - Based on the contract, the Company will either exchange a new/rebuilt compressor for the customer’s malfunctioning compressor or rebuild the customer’s compressor. Revenue is recognized after control of the replacement compressor has transferred to the customer based on the terms of the contract, i.e., by physical delivery, delivery and installment, or shipment of the compressor. Used compressors or flares - From time to time, a customer may request to purchase a used compressor or flare out of our rental fleet. Revenue from the sale of rental equipment is recognized when the control has passed to the customer based on the terms of the contract, i.e., when the customer has taken physical possession or the equipment has been shipped. Service and Maintenance Revenue . The Company provides routine or call-out services on customer owned equipment. Revenue is recognized after services in the contract are rendered. Payment terms for sales revenue and service and maintenance revenue discussed above are generally 30 to 60 days, although terms for specific customers can vary. Also, transaction prices are not subject to variable consideration constraints. Disaggregation of Revenue The following table shows the Company's revenue disaggregated by product or service type for the three and six months ended June 30, 2021 and 2020: Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 (in thousands) (in thousands) Compressors - sales $ — $ 1,360 $ 1,891 $ 2,212 Flares - sales 29 160 75 240 Other (parts/rebuilds) - sales 1,544 488 2,318 1,006 Service and maintenance 563 266 908 606 Total revenue from contracts with customers 2,136 2,274 5,192 4,064 Add: ASC 842 rental revenue 15,613 15,131 30,954 31,231 Total revenue $ 17,749 $ 17,405 $ 36,146 $ 35,295 7 Contract Balances As of June 30, 2021 and December 31, 2020, we had the following receivables and deferred income from contracts with customers: June 30, 2021 December 31, 2020 (in thousands) Accounts Receivable Accounts receivable - contracts with customers $ 3,778 $ 3,243 Accounts receivable - ASC 842 9,654 9,802 Total Accounts Receivable $ 13,432 $ 13,045 Less: Allowance for doubtful accounts ( 1,203 ) ( 1,161 ) Total Accounts Receivable, net $ 12,229 $ 11,884 Deferred income $ 693 $ 1,103 The Company recognized sales and rental revenues of $ 1.1 million and $ 2,000 , respectively, for the six months ended June 30, 2021 that was included in deferred income at the beginning of 2021. For the year ended December 31, 2020, the Company recognized sales and rental revenues of $ 533,000 and $ 73,000 , respectively, that was included in deferred income at the beginning of 2020. The increases (decreases) of accounts receivable and deferred income were primarily due to normal timing differences between our performance and the customers’ payments. Remaining Performance Obligations As of June 30, 2021, the Company did no t have revenue related to unsatisfied performance obligations. Contract Costs The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general and administrative expenses on our condensed consolidated statements of operations. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. To the extent we establish a valuation allowance or increase this allowance in a period, we include an expense in the tax provision in our condensed consolidated statements of operations. We account for uncertain tax positions in accordance with guidance in ASC 740, which prescribes the minimum recognition threshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the condensed consolidated financial statements. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon settlement. A liability for unrecognized tax benefits is recorded for any tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. We have no liabilities for uncertain tax positions as of June 30, 2021. Our policy regarding income tax interest and penalties is to expense those items as interest expense and other expense, respectively. 8 On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the economic impact caused by the COVID-19 pandemic. The CARES Act, among other things, permits federal income tax net operating loss ("NOL") carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid federal income taxes. Please see Note 4, Federal Income Tax Receivable for a discussion about the impact on our condensed consolidated financial statements. Recently Issued Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments to ASC Topic 326 require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including trade receivables. For companies that qualify as smaller reporting companies, the amendments in this update are effective for interim and annual periods beginning after January 1, 2023. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements and note disclosures. 3. Inventory Our inventory, net of allowance for obsolescence of $ 37,000 at June 30, 2021 and $ 221,000 at December 31, 2020, consisted of the following amounts: June 30, 2021 December 31, 2020 (in thousands) Raw materials - current $ 20,343 $ 18,026 Work-in-process 1,005 1,900 Inventory - current 21,348 19,926 Raw materials - long term (net of allowances of $ 37 and $ 221 , respectively) 1,171 1,065 Inventory - total $ 22,519 $ 20,991 Our long-term inventory consists of raw materials that remain viable but that the Company does not expect to sell or use within the year. Inventory Allowance Due to the slow moving nature or obsolescence of a portion of its long-term inventory and inventory related to the periodic retirement of rental equipment, the Company routinely reviews its inventory allowance balance for costs that may not be recoverable in the future. A summary of our inventory allowance is as follows: June 30, 2021 December 31, 2020 (in thousands) Beginning balance $ ( 221 ) $ ( 24 ) Accruals — ( 251 ) Write-offs 184 54 Ending balance $ ( 37 ) $ ( 221 ) 4. Federal Income Tax Receivable As discussed in Note 2, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid federal income taxes. The Company generated significant NOLs during 2018 and 2019, and has filed amended returns to carryback these losses for five years. Accordingly, during 2020, the Company recorded a federal income tax receivable of $ 15.0 million and an increase to its deferred income tax liability of $ 10.1 million on its condensed consolidated balance sheet. During the third quarter of 2020, the Company received 9 refunds totaling $ 3.9 million related to its 2018 NOLs, which reduced its federal income tax receivable to $ 11.5 million on its condensed consolidated balance sheet as of June 30, 2021. 5. Rental Equipment Our rental equipment and associated accumulated depreciation as of June 30, 2021 and December 31, 2020, respectively, consisted of the following: June 30, 2021 December 31, 2020 (in thousands) Compressor units $ 390,930 $ 379,623 Work-in-process 4,333 3,764 Rental equipment 395,263 383,387 Accumulated depreciation ( 187,087 ) ( 175,802 ) Rental equipment, net of accumulated depreciation $ 208,176 $ 207,585 We evaluated our rental equipment for potential impairment as of June 30, 2021, and determined that no such impairment existed as of that date. 6. Credit Facility Previous Credit Agreement We had a senior secured revolving credit agreement the ("Previous Credit Agreement") with JP Morgan Chase Bank, N.A (the "Lender") that matured on March 31, 2021. Prior to maturation, the outstanding balance of $ 417,000 was repaid. The Previous Credit Agreement had an aggregate commitment of $ 30 million, subject to collateral availability. New Credit Agreement On May 11, 2021, we entered into a five year senior secured revolving credit agreement ("New Credit Agreement") with Texas Capital Bank, National Association (the "Lender") with an initial commitment of $ 20 million and an accordion feature that would increase the maximum commitment to $ 30 million, subject to collateral availability. We also have a right to request from the Lender, on an uncommitted basis, an increase of up to $ 30 million on the aggregate commitment; provided, however, the aggregate commitment amount is not permitted to exceed $ 50 million. The maturity date of the New Credit Agreement is May 11, 2026. The obligations under the New Credit Agreement are secured by a first priority lien on a variety of our assets, including inventory and accounts receivable as well as a variable number of our leased compressor equipment. Borrowing Base. At any time before the maturity of the New Credit Agreement, we may draw, repay and re-borrow amounts available under the borrowing base up to the maximum aggregate availability discussed above. Generally, the borrowing base equals the sum of (a) 90 % of eligible accounts receivable owed to the Company by investment grade debtors, plus (b) 85 % of the eligible accounts receivable owing by non-investment grade debtors, plus (c) 50 % of the eligible inventory, valued at the lower of cost or market value at such time, subject to a cap of this component not to exceed $ 2.0 million, plus (d) the lesser of (i) 95 % of the net book value of the compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time and (ii) 80 % of the net liquidation value percentage of the net book value of the eligible compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time, plus (e) 80 % of the value at cost (excluding any costs for capitalized interest or other non-cash capitalized costs) of the eligible new compressor fleet, minus (f) any required availability reserves determined by the Lender in its sole discretion. The Lender may adjust the borrowing base components if material deviations in the collateral are discovered in future audits of the collateral. As of June 30, 2021, our allowable borrowing base was $ 20.0 million. Interest and Fees. Under the terms of the New Credit Agreement, we have the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) the Base Rate (as defined below) plus the Applicable Margin, or (b) in the case of a Eurodollar Rate Loan, the Adjusted Eurodollar Rate plus the Applicable Margin. "Base Rate" means, for any day, a rate of interest per annum equal to the highest of (a) the prime rate for such day; (b) the sum of the federal funds rate for such day plus 0.50 %; and (c) the Adjusted Eurodollar Rate for such day plus 1.00 %. The Applicable Margin is determined based upon the leverage ratio as set forth in the most recent compliance certificate received by the Lender for each fiscal quarter from time to time pursuant to the New Credit Agreement. Depending on the leverage ratio, the Applicable Margin can be 0.25 % to 0.75 % for Base Rate Loans (as defined in the New Credit Agreement) and 1.25 % to 1.75 % for Eurodollar Rate Loans and for requested letters of credit. Accrued interest is payable monthly on outstanding principal amounts, provided that accrued interest on Eurodollar Rate Loans is payable at the end of each interest period, but in no event less frequently than quarterly. 10 Covenants. The New Credit Agreement contains customary representations and warranties, as well as covenants which, among other things, condition or limit our ability to incur additional indebtedness and liens; enter into transactions with affiliates; make acquisitions in excess of certain amounts; pay dividends; redeem or repurchase capital stock or senior notes; make investments or loans; make negative pledges; consolidate, merge or effect asset sales; or change the nature of our business. In addition, we also have certain financial covenants that are applicable during certain trigger periods specified in the Credit Agreement and require us during such trigger periods to maintain a leverage ratio less than or equal to 3.00 to 1.00 as of the last day of each fiscal quarter and a fixed charge coverage ratio greater than or equal to 1.00 to 1.00 as of the last day of each fiscal quarter. Events of Default and Acceleration. The New Credit Agreement contains customary events of default for credit facilities of this size and type, and includes, without limitation, payment defaults; defaults in performance of covenants or other agreements contained in the Credit Agreement and the other transaction documents; inaccuracies in representations and warranties; certain defaults, termination events or similar events; certain defaults with respect to any other Company indebtedness in excess of $ 1.0 million; certain bankruptcy or insolvency events; the rendering of certain judgments in excess of $ 1.0 million; certain ERISA events; certain change in control events and the defectiveness of any liens under the secured revolving credit agreement. Obligations outstanding under the Credit Agreement may be accelerated upon the occurrence of an event of default. As of June 30, 2021, we were in compliance with all financial covenants in our New Credit Agreement. A default under our New Credit Agreement could trigger the acceleration of our debt such that it is immediately due and payable. Such default would likely limit our ability to access other credit. At June 30, 2021, we had no amounts outstanding under the New Credit Agreement. 7. Stock-Based and Other Long-Term Incentive Compensation Stock Options A summary of all option activity as of December 31, 2020, and changes during the six months ended June 30, 2021 is presented below. Number of Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value (in thousands) Outstanding, December 31, 2020 161,334 $ 24.48 3.48 $ — Granted — — — — Cancelled / Forfeited — — — — Expired ( 16,000 ) 17.81 — — Outstanding, June 30, 2021 145,334 $ 25.21 3.37 $ — Exercisable, June 30, 2021 145,334 $ 25.21 3.37 $ — The following table summarizes information about our stock options outstanding at June 30, 2021: Range of Exercise Prices Options Outstanding Options Exercisable Shares Weighted Average Remaining Contractual Life (years) Weighted Average Exercise Price Shares Weighted Average Exercise Price $ 0.01 - 18.00 8,500 0.57 $ 14.89 8,500 $ 14.89 $ 18.01 - 22.00 20,500 1.72 18.75 20,500 18.75 $ 22.01 - 26.00 42,167 3.79 22.90 42,167 22.90 $ 26.01 - 30.00 30,000 5.63 28.15 30,000 28.15 $ 30.01 - 34.00 44,167 2.72 30.41 44,167 30.41 145,334 3.37 $ 25.21 145,334 $ 25.21 11 As of June 30, 2021 and December 31, 2020, there were no unvested stock options. As of June 30, 2021, there was no unrecognized compensation cost related to unvested options. For the six months ended June 30, 2020, total compensation expense for stock options was $ 18,000 . For the six months ended June 30, 2021 there was no compensation expense for stock options. Restricted Shares/Units In accordance with the Company's employment agreement with Stephen Taylor, the Company's Chief Executive Officer, the Compensation Committee of the Company's Board of Directors reviewed his performance in determining the issuance of restricted common stock. Based on this review, which included consideration of the Company's 2020 performance, Mr. Taylor was awarded 109,212 restricted shares/units on March 18, 2021, which vest over three years , in equal annual installments, beginning March 18, 2022. On March 18, 2021, the Compensation Committee awarded 20,000 restricted shares to our Vice President of Technical Services, James Hazlett. The restricted shares to Mr. Hazlett vest over three years , in equal annual installments, beginning March 18, 2022. On June 17, 2021, the Compensation Committee awarded 5,000 restricted shares to our Vice President and Chief Financial Officer, Micah C. Foster. The restricted shares granted to Mr. Foster vest over 3 years, in equal annual installments, beginning on June 17, 2021. On March 18, 2021, we also awarded and issued 5,612 shares of restricted common stock to each of our three independent members of our Board of Directors as partial payment for their services in 2021. On April 1, 2021, we awarded and issued 5,291 shares of restricted common stock to a newly appointed member of our Board of Directors as partial payment for his services in 2021. These awards of restricted stock vest one year from the date of grant. Total compensation expense related to these and previously granted restricted stock awards was $ 896,000 and $ 485,000 for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, there was a total of $ 2.2 million of unrecognized compensation expense related to these shares/units which is expected to be recognized over the next 1.9 years. A summary of all restricted stock/units outstanding as of December 31, 2020 and activity during the six months ended June 30, 2021 is presented below: Number of Shares Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value (in thousands) Outstanding, December 31, 2020 258,101 $ 12.87 1.61 $ 2,447 Granted 156,339 8.93 — 1,406 Vested ( 134,788 ) 14.94 — 1,258 Canceled/Forfeited ( 3,333 ) 12.26 — 31 Outstanding, June 30, 2021 276,319 $ 9.63 2.27 $ 2,841 12 Other Long-Term Incentive Compensation On April 28, 2020, based on its review of Mr. Taylor's 2019 performance, the Compensation Committee issued a long-term incentive award of $ 1.1 million to Mr. Taylor that vests in equal, annual tranches over 3 years beginning on the anniversary of the grant date. At the time of vesting, each tranche was or will be payable in cash or common stock at the discretion of the Compensation Committee. On March 18, 2021, based on its review of Mr. Taylor's 2020 performance, the Compensation Committee issued a long-term incentive award of $ 973,080 to Mr. Taylor that vests in equal, annual tranches over 3 years beginning on the anniversary of the grant date. In addition, on April 28, 2020, we issued a $ 50,000 award to three of our independent members of our Board of Directors as partial payment for their services in 2020. These awards vest one year from the date of grant and are payable in cash upon vesting. On March 18, 2021, we issued a $ 50,000 award to three of our independent members of our Board of Directors as partial payment for their services in 2021. On April 1, 2021, we issued a $ 50,000 award to a newly appointed independent member of our Board of Directors as partial payment for his services in 2021. These awards vest one year from the date of grant and are payable in cash upon vesting. The Company accounts for these other long-term incentive awards to Mr. Taylor and our independent Board members as liabilities under accrued liabilities on our condensed consolidated balance sheet. The vesting of these awards awards is subject to acceleration upon certain events, such as (i) death or disability of the recipient, (ii) certain circumstances in connection with a change of control of the Company, (iii) for executive officers, termination without cause (as defined in the agreement), and (iv) for executive officers, resignation for good reason (as defined). Total compensation expense related to these other long-term incentive awards was approximately $ 381,000 for the six months ended June 30, 2021. As of June 30, 2021, there was a total of $ 1.6 million of unrecognized compensation expense related to these other long-term incentive awards which is expected to be recognized over the next 2.1 years. 8. (Loss) Earnings per Share The following table reconciles the numerators and denominators of the basic and diluted (loss) earnings per share computation: Three months ended Six months ended June 30, June 30, 2021 2020 2021 2020 (in thousands, except per share data) Numerator: Net (loss) income $ ( 1,918 ) $ 165 $ ( 2,313 ) $ 4,247 Denominator for (loss) earnings per basic common share: Weighted average common shares outstanding 13,305 13,237 13,284 13,197 Denominator for (loss) earnings per diluted common share: Weighted average common shares outstanding 13,305 13,237 13,284 13,197 Dilutive effect of stock options and restricted stock/units — 243 — 251 Diluted weighted average shares 13,305 13,480 13,284 13,448 (Loss) earnings per common share: Basic $ ( 0.14 ) $ 0.01 $ ( 0.17 ) $ 0.32 Diluted $ ( 0.14 ) $ 0.01 $ ( 0.17 ) $ 0.32 For the three and six months ended June 30, 2021, 276,319 restricted stock/units and 145,334 stock options were not included in the computation of diluted loss per share due to their antidilutive effect. For the three months ended June 30, 2020, 168,334 stock options were not included in the computation of diluted earnings per share due to their antidilutive effect. For the six months ended June 30, 2020, 175,587 stock options were not included in the computation of diluted earnings per share due to their antidilutive effect. 13 9. Commitments and Contingencies From time to time, we are a party to various legal proceedings in the ordinary course of our business. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on our financial position, results of operations or cash flow. We are not currently a party to any material legal proceedings, and we are not aware of any threatened material litigation. Stock Repurchase Program On August 12, 2019, the Company announced the Board of Directors had authorized the repurchase of up to $ 10.0 million of its outstanding shares of common stock in the open market, block trades or privately negotiated transactions. The timing and extent of any repurchase is subject to the discretion of management and is dependent upon market pricing and conditions, business, legal, accounting and other considerations. The repurchase program does not obligate the Company to purchase any shares and was set to expire on September 30, 2020, subject to earlier termination of the program by the Board of Directors. On October 23, 2020, the Board of Directors authorized the extension of the repurchase program through September 30, 2021. The repurchase program may be modified, suspended or terminated at any time without notice, in the Company’s discretion, based upon a number of factors, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, the need for capital in the Company’s operations and other factors deemed appropriate. The Company intends to finance the repurchases with existing liquidity and free cash flow. For the six months ended June 30, 2021, the Company repurchased 175,007 of its outstanding shares of common stock with a value of $ 1.9 million, at an average price of $ 10.81 . As of June 30, 2021, the Company has repurchased 212,943 of its outstanding shares of common stock with a value of $ 2.4 million, at an average price of $ 11.19 . As of June 30, 2021, the Company had approximately $ 7.6 million remaining under the repurchase authorization. For further information, see Part II Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds. 10. Subsequent Events None 14