What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-03-31 compared with 2022-03-18 · 31 added, 36 removed, 247 unchanged (21% of the section changed)

4 unchanged sentences

As such, we are eligible to comply with the scaled disclosure requirements in several Regulation S-K and Regulation S-X items.

Our disclosures in this Annual Report reflect these scaled requirements.

Our disclosures in this Annual Report reflect many of these scaled requirements.

We are a provider of natural gas compression equipment and services to the energy industry.

4 unchanged sentences

In addition, our customer base includes oil and natural gas exploration and production ("E&P") companies that are focused on natural gas-weighted production (with typically smaller horsepower applications) as well as midstream companies.

The Company's largest rental area is the Permian Basin (approximately 51.8% of rental revenues in 2021), with the large majority of its remaining rental revenue being generated in other oil and natural gas producing regions and plays in Texas, New Mexico and Oklahoma, including the San Juan Basin, the Texas Panhandle/western Oklahoma, the Barnett Shale, and central Oklahoma.

Other regions and plays in which we provide service include the Utica and Marcellus Shales, Michigan and the DJ Basin.

The Company's largest rental area is the Permian Basin (approximately 55.6% of rental revenues in 2022), with the majority of its remaining rental revenue being generated in other oil and natural gas producing regions and plays in Texas, New Mexico and Oklahoma, including the San Juan Basin, the Texas Panhandle/western Oklahoma, the Barnett Shale, and central Oklahoma.

Other regions and plays in which we provide service include the Utica and Marcellus Shales, Michigan and the DJ Basin of Colorado.

Our revenue increased 17.1% to $84.8 million for the year ended December 31, 2022 from $72.4 million for the year ended December 31, 2021.

This increase was largely the result of our rental revenues increasing 17.0% to $74.5 million in 2022 from $63.6 million in 2021 as well as sales revenue increasing 24.5% to $8.6 million in 2022 from $6.9 million in 2021.

For the year ended December 31, 2021 the Company reported a net loss of $9.2 million as compared to net income of $1.8 million for the year ended December 31, 2020.

In addition, the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") decreased 24.8% to $18.7 million in 2021 from $24.9 million in 2020.

See "Item 6, Selected Financial Data, Non-GAAP Financial Measures" for a reconciliation of adjusted EBITDA to its closest GAAP financial measure, net (loss) income.

At December 31, 2021, current assets were $65.1 million, which included $22.9 million of cash and cash equivalents.

For the year ended December 31, 2022, the Company reported a net loss of $0.6 million as compared to a net loss of $9.2 million for the year ended December 31, 2021.

In addition, the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") increased 55.8% to $29.2 million in 2022 from $18.7 million in 2021.

See "Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations" for a reconciliation of adjusted EBITDA to its closest GAAP financial measure, net (loss) income.

At December 31, 2022, our current assets were $54.1 million, which included $3.4 million of cash and cash equivalents.

Current liabilities were $30.4 million at year end 2022.

14 unchanged sentences

We added 45 units with approximately 33,000 horsepower to our fleet during 2022.

25 of those units were 400 horsepower or larger, representing approximately 56% of the horsepower added.

Thirty-five of those units were 400 horsepower or larger, representing approximately 80% of the horsepower added.

Engineered Equipment Sales.

3 unchanged sentences

In addition to fabricating compressors for our rental fleet, we engineer and fabricate custom-made natural gas compressors for sale to customers to meet their specifications based on well pressure, production characteristics and the particular applications for which compression is sought.

Fabricated compressors comprised 27.5% of our sales revenue during 2021.

Fabricated compressors comprised 42.0% and 27.5% of our sales revenue during 2022 and 2021, respectively.

• Parts sales and compressor rebuilds.

1 unchanged sentence

We also provide an exchange and rebuild program for small horsepower screw compressors and maintain an inventory of new and used compressors to facilitate this part of our business.

Parts sales and compressor rebuilds comprised 67.2% of our sales revenue during 2021.

Parts sales and compressor rebuilds comprised 55.2% and 67.2% of our sales revenue during 2022 and 2021, respectively.

• Flare fabrication.

21 unchanged sentences

including the San Juan Basin, the Texas Panhandle/western Oklahoma, the Barnett Shale, and central Oklahoma.

Other regions and plays in which we provide service include the Utica and Marcellus Shales, Michigan and the DJ Basin.

Other regions and plays in which we provide service include the Utica and Marcellus Shales, Michigan and the DJ Basin of Colorado.

• Selectively pursue acquisitions.

17 unchanged sentences

Our control systems are technically advanced, as these systems allow the operator to monitor as well as start and stop the majority of our units remotely and/or in accordance with well conditions.

• Experienced management team.

• Experienced management and operating team.

On average, our executive and operating team members have over 25 years of oilfield services and other energy industry experience.

We believe our management team has successfully demonstrated its ability to grow our business during times of expansion and to manage through downturns.

We believe our management and operating team has successfully demonstrated its ability to grow our business during times of expansion and to manage through downturns.

• Broad geographic presence.

8 unchanged sentences

The level of activity and capital expenditures has generally been dependent upon the prevailing view of future gas and oil prices, which are influenced by numerous supply and demand factors, including availability and cost of capital, well productivity and development costs, global and domestic economic conditions, environmental regulations, policies of OPEC countries and Russia, and other factors.

In addition, while some recent capital budget increases have occurred, capital expenditure budgets of energy companies have become significantly more constrained over the last several years due to the deterioration of energy equity markets and strong demands from institutional investors that companies keep capital spending within operating cash flow and return capital through dividends and share repurchases.

While our rental agreements are not typically capital in nature, overall capital investment typically drives our

customers demand for incremental compression needs.

In addition, while overall capital budgets of E&P companies have increased relative to 2021, overall capital expenditure budgets of energy companies have become significantly more constrained over the last several years due to the deterioration of energy equity markets and strong demands from institutional investors that companies keep capital spending within operating cash flow and

return capital through dividends and share repurchases.

While our rental agreements are not typically capital in nature, overall capital investment typically drives our customers demand for incremental compression needs.

Oil and natural gas prices and the level of development and production activity have historically been characterized by significant volatility.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus known as COVID-19 due to the risks it imposes on the international community as the virus spreads globally.

In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

During this time, the market began to experience a decline in oil prices in response to oil demand concerns due to the global economic impacts of COVID-19.

These developments led to significant weakness in oil prices and ensuing reductions of exploration and production company capital and operating budgets.

In recent months, oil and natural gas prices have shown significant increases but we believe energy company capital budgets have not increased at the same levels which continues to adversely affect our compressor sales.

Finally, due to supply chain disruptions as a result of the COVID-19 pandemic, we continue to experience cost increases and sporadic availability of many of our parts needed to fabricate and maintain our rental fleet.

Finally, due to supply chain disruptions as a result of the COVID-19 pandemic and the Russian invasion of the Ukraine and the increased rate of inflation, we continue to experience cost increases and sporadic unavailability of many of our parts needed to fabricate and maintain our rental fleet.

While we have a robust supplier network, pricing pressure from our customers and competitors presents challenges in increasing our rental rates to offset these increased costs.

Our relationship with our major customer continues to be strong, and they have continued to pay our invoices in a timely, consistent manner.

We believe our relationship with our major customer identified below continues to be strong, and it has continued to pay our invoices in a timely, consistent manner.

Nevertheless, if any of these circumstances change, our business could be adversely affected.

Please read Item 1A, Risk Factors, in this report.

Major Customers

Major Customer

Sales and rental income to Occidental Permian, LTD.

2 unchanged sentences

Oxy amounted to 55% of our accounts receivable as of December 31, 2022 and 46% of our accounts receivable as of December 31, 2021.

No other customers amounted to more than 10% of our accounts receivable as of December 31, 2021 and 2020.

No other customers amounted to more than 10% of our accounts receivable as of December 31, 2022 or 2021.

The loss of this key customer would have a material adverse effect on our business, financial condition, results of operations and cash flows, depending upon the demand for our compressors at the time of such loss and our ability to attract new customers.

9 unchanged sentences

As the number of rental compressors in our rental fleet increases, the number of sales, support, and maintenance personnel required and the minimum level of inventory do not increase proportionately.

As of December 31, 2021, we had a sales backlog of approximately $1.5 million compared to $1.4 million as of December 31, 2020.

As of December 31, 2022, we had no sales backlog compared to $1.5 million as of December 31, 2021.

Sales backlog consists of firm customer orders for which a purchase or work order has been received, satisfactory credit or a financing arrangement exists, and delivery is scheduled.

25 unchanged sentences

The modification of existing laws or regulations or the adoption of new laws or regulations that result in the curtailment of exploratory or developmental drilling for oil and gas could materially and adversely affect our operations by discouraging our customers from drilling for hydrocarbons, disrupting revenue through permitting or similar delays.

example, on January 20, 2021, the Acting Secretary for the Department of the Interior signed an order effectively suspending new fossil fuel leasing and permitting on federal lands, including in the US Gulf of Mexico, for 60 days.

For example, on January 20, 2021, the Acting Secretary for the Department of the Interior signed an order effectively suspending new fossil fuel leasing and permitting on federal lands, including in the US Gulf of Mexico, for 60 days.

Then on January 27, 2021, President Biden issued an executive order indefinitely suspending new oil and natural gas leases on public lands or in offshore waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices.

52 unchanged sentences

These standards expanded the 2012 standards by using certain equipment-specific emissions control practices, requiring additional controls for pneumatic controllers and pumps as well as compressors, and imposing leak detection and repair requirements for natural gas compressor and booster stations.

In addition, in November 2021, the EPA proposed a rule to further reduce methan and VOC emissions from new and existing sources in the oil and gas sector.

In addition, in November 2021, the EPA proposed a rule to further reduce methane and VOC emissions from new and existing sources in the oil and gas sector.

These standards, as well as any future laws and their implementing regulations, may impose stringent air permit requirements, or mandate the use of specific equipment or technologies to control emissions.

6 unchanged sentences

Climate Change

In response to findings that emissions of carbon dioxide, methane and other Greenhouse Gases (“GHG”) endanger public health and the environment, federal legislation has been donsidere to reduce GHG emissions.

At the federal level, the government could seek to pursue legislative, regulatory or executive initiatives that may impose significant restrictions on fossil-fuel exploration and production and use such as limitations or bans on hydraulic fracturing of oil and gas wells, bans or restrictions on new leases for production of minerals on federal properties, and imposing restrictive requirements on new pipeline infrastructure or fossil-fuel export facilities.

1 unchanged sentence

At the state level, many states, including the states in which we or our customers conduct operations, have adopted legal requirements that have imposed new or more stringent permitting, disclosure or well construction requirements on oil and gas activities.

Further, although Congress has not passed such legislation, almost half of the states have begun to address GHG emissions, primarily through the planned development of emissions inventories or regional GHG cap and trade programs.

Further, although Congress has not passed such legislation, almost half of

the states have begun to address GHG emissions, primarily through the planned development of emissions inventories or regional GHG cap and trade programs.

Depending on the particular program, we could be required to control GHG emissions or to purchase and surrender allowances for GHG emissions resulting from our operations.

19 unchanged sentences

We believe that our existing environmental control procedures are adequate and that we are in substantial compliance with environmental laws and regulations, and the phasing in of emission controls and other known regulatory requirements should not have a material adverse affect on our financial condition or operational results.

However, it is possible that future developments, such as new or increasingly strict requirements and environmental laws and enforcement policies there under, could lead to material costs of environmental compliance by us.

However, it is possible that future developments, such as new or increasingly strict requirements and environmental laws and enforcement policies there under,

could lead to material costs of environmental compliance by us.

While we may be able to pass on the additional cost of complying with such laws to our customers, there can be no assurance that attempts to do so will be successful.

17 unchanged sentences

However, the occurrence of such an event could have a material adverse effect on the results of our operations and financial condition, particularly if we are unable to increase our rental rates and sale prices proportionate to any such component price increases.

In addition, the COVID-19 outbreak poses the risk that our suppliers may be prevented from conducting their business at sufficient levels to provide us with necessary equipment and supplies in a timely and sufficient amount.

We have experienced no significant supply disruptions but have incurred longer than normal delivery estimates.

To the extent we have difficulties in obtaining needed products and supplies in a timely manner, our results of operations and financial position may be adversely affected.

In addition, the COVID-19 outbreak and subsequent supply chain disruptions has increased the risk that our suppliers may be prevented from conducting their business at sufficient levels to provide us with necessary equipment and supplies in a timely and sufficient amount.

While we have experienced no significant supply disruptions that materially disrupted operations, to the extent we have difficulties in obtaining needed products and supplies in a timely manner, our results of operations and financial position may be adversely affected.

Available Information

We use our website as a channel of distribution for Company information.

We make available free of charge on the Investor Relations section of our website ( www.ngsgi.com ) our Annual Report on Form 10-K, Quarterly Reports on Form 10-

Q, and Current Reports on Form 8-K.

We make available free of charge on the Investor Relations section of our website ( www.ngsgi.com ) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

We also make available through our website other reports filed with or furnished to the SEC under the Securities Exchange Act of 1934, as amended, including our proxy statements and reports filed by officers and directors under Section 16(a) of the Exchange Act, as well as our Code of Business Ethics and the charters to our various Committees of our Board of Directors.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business