What changed in this filing

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Item 1. Financial Statements

2023-08-14 compared with 2023-05-15 · 106 added, 83 removed, 358 unchanged (35% of the section changed)

3 unchanged sentences

(in thousands, except par value)

March 31, December 31,

June 30, December 31,

Current Assets:

1 unchanged sentence

$ 4,286 $ 3,372

Trade accounts receivable, net 14,971 14,668

Trade accounts receivable, net of allowance for doubtful accounts of $ 466 and $ 338 , respectively

20,872 14,668

Inventory 27,960 23,414

32 unchanged sentences

Retained earnings 130,408 129,534

Treasury shares, at cost, 1,310 shares, respectively

Treasury shares, at cost, 1,310 shares

( 15,004 ) ( 15,004 )

5 unchanged sentences

(in thousands, except earnings per share)

Three months ended

Three months ended Six months ended

June 30, June 30,

2023 2022 2023 2022

Rental income $ 24,105 $ 18,144 $ 46,828 $ 35,274

5 unchanged sentences

Cost of rentals, exclusive of depreciation stated separately below

11,343 9,242 22,988 18,472

Cost of sales, exclusive of depreciation stated separately below

1,876 1,440 5,113 3,428

Cost of service and maintenance, exclusive of depreciation stated separately below

969 234 1,578 407

Selling, general and administrative expenses 4,860 2,310 9,422 4,811

Depreciation and amortization 6,418 6,042 12,583 12,103

Impairment expense 779 — 779 —

Total operating costs and expenses 26,245 19,268 52,463 39,221

3 unchanged sentences

Other income (expense), net 226 ( 332 ) 341 ( 364 )

Total other income, net 118 ( 56 )

Total other income (expense), net 41 ( 356 ) 156 ( 413 )

Income before provision for income taxes 753 302 1,270 628

Income tax (expense) benefit ( 150 ) 11

Net income $ 370 $ 337

Earnings per share:

Income tax (expense) ( 249 ) ( 372 ) ( 396 ) ( 361 )

Net income (loss) $ 504 $ ( 70 ) $ 874 $ 267

Earnings (loss) per share:

Basic $ 0.04 $ ( 0.01 ) $ 0.07 $ 0.02

10 unchanged sentences

BALANCES, January 1, 2022 — $ — 13,394 $ 134 114,017 130,103 775 ( 8,344 ) 235,910

— $ — 13,394 $ 134 $ 114,017 $ 130,103 775 $ ( 8,344 ) $ 235,910

Compensation expense on common stock options — — — — 21 — — — 21

5 unchanged sentences

BALANCES, March 31, 2022 — — 13,473 135 114,080 130,440 1,022 ( 11,272 ) 233,383

— $ — 13,473 $ 135 $ 114,080 $ 130,440 1,022 $ ( 11,272 ) $ 233,383

Issuance of restricted stock 26

Compensation expense on common stock options — — — — 147 — — — 147

Compensation expense on restricted common stock — — — — 184 — — — 184

Taxes paid related to net shares settlement of equity awards — — — — ( 156 ) — — — ( 156 )

Purchase of treasury shares — — — — — — 288 ( 3,732 ) ( 3,732 )

Net income — — — — — ( 70 ) — — ( 70 )

BALANCES, June 30, 2022 — $ — 13,499 $ 135 $ 114,255 $ 130,370 1,310 $ ( 15,004 ) $ 229,756

See accompanying notes to these unaudited condensed consolidated financial statements.

NATURAL GAS SERVICES GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

Preferred Stock Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Stockholders' Equity

Shares Amount Shares Amount Shares Amount

BALANCES, January 1, 2023 — $ — 13,519 $ 135 $ 115,411 $ 129,534 1,310 $ ( 15,004 ) $ 230,076

13,519 $ 135 $ 115,411 $ 129,534 1,310 $ ( 15,004 ) $ 230,076

Compensation expense on common stock options — — — — 22 — — — 22

4 unchanged sentences

BALANCES, March 31, 2023 — — 13,548 135 115,714 129,904 1,310 ( 15,004 ) 230,749

— $ — 13,548 $ 135 $ 115,714 $ 129,904 1,310 $ ( 15,004 ) $ 230,749

Compensation expense on common stock options — — — — 30 — — — 30

Issuance of restricted stock — — 140 1 ( 1 ) — — — —

Compensation expense on restricted common stock — — — — 1,100 — — — 1,100

Taxes paid related to net shares settlement of equity awards — — — — ( 798 ) — — — ( 798 )

Net Income — — — — — 504 — — 504

BALANCES, June 30, 2023 — $ — 13,688 $ 136 $ 116,045 $ 130,408 1,310 $ ( 15,004 ) $ 231,585

See accompanying notes to these unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Three months ended

Six months ended

CASH FLOWS FROM OPERATING ACTIVITIES:

3 unchanged sentences

Amortization of debt issuance costs 184 24

Deferred income tax (benefit) expense 148 ( 11 )

Deferred income tax expense 396 356

Stock-based compensation 1,617 754

Bad debt allowance 128 —

Impairment expense 779 —

Gain on sale of assets ( 206 ) ( 151 )

41 unchanged sentences

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 March 31, 2023 and the results of our operations for the three months ended March 31, 2023 and 2022 not misleading.

These financial statements include all adjustments, consisting of only normal recurring adjustments, which are necessary to make our financial position at June 30, 2023 and the results of our operations for the three and six months ended June 30, 2023 and 2022 not misleading.

As permitted by the rules and regulations of the Securities and Exchange Commission (the "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).

1 unchanged sentence

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 months ended March 31, 2023 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2023.

The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2023.

Revenue Recognition Policy

33 unchanged sentences

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 March 31, 2023 or 2022.

There was no revenue recognized for bill and hold arrangements for the six months ended June 30, 2023 or 2022.

Parts - Revenue is recognized after the customer obtains control of the parts.

7 unchanged sentences

The Company provides routine or call-out services on customer owned equipment.

Revenue is recognized after services in the contract are rendered.

Revenue is recognized after services 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.

1 unchanged sentence

Disaggregation of Revenue

The following table shows the Company's revenue disaggregated by product or service type for the three months ended March 31, 2023 and 2022:

Three months ended March 31,

(in thousands)

The following table shows the Company's revenue disaggregated by product or service type for the three and six months ended June 30, 2023 and 2022:

Three months ended June 30,

Six months ended June 30,

2023 2022 2023 2022

(in thousands) (in thousands)

Compressors - sales $ 38 $ 286 $ 1,007 $ 2,253

Flares - sales 86 83 86 83

Other (parts/rebuilds) - sales 1,471 923 3,494 1,848

4 unchanged sentences

Contract Balances

As of March 31, 2023 and December 31, 2022, we had the following receivables and deferred income from contracts with customers:

March 31, 2023 December 31, 2022

As of June 30, 2023 and December 31, 2022, we had the following receivables and deferred income from contracts with customers:

June 30, 2023 December 31, 2022

(in thousands)

6 unchanged sentences

Deferred income $ — $ 37

The Company recognized sales revenues of $ 37,000 for the three months ended March 31, 2023 that was included in deferred income at the beginning of 2023.

The Company recognized sales revenues of $ 37 thousand for the six months ended June 30, 2023 that was included in deferred income at the beginning of 2023.

The increase in accounts receivable and decrease in deferred income were primarily due to normal timing differences between our performance and the customers’ payments.

Remaining Performance Obligations

As of March 31, 2023, the Company had deferred revenue of $ 114 thousand related to unsatisfied performance obligations.

As of June 30, 2023, the Company had no deferred revenue related to unsatisfied performance obligations.

Contract Costs

9 unchanged sentences

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 March 31, 2023.

We have no liabilities for uncertain tax positions as of June 30, 2023.

Our policy regarding income tax interest and penalties is to expense those items as interest expense and other expense, respectively.

2 unchanged sentences

Capitalized interest is added to the cost of the underlying asset and is amortized over the useful lives of the assets in the same manner as the underlying assets.

For the three months ended March 31, 2023, the Company capitalized interest aggregating approximately $ 855,000 .

For the six months ended June 30, 2023, the Company capitalized interest aggregating approximately $ 2.7 million.

Recently Issued Accounting Pronouncements

3 unchanged sentences

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 have adopted ASU 2016-13 on January 1, 2023.

We adopted ASU 2016-13 on January 1, 2023.

The adoption did not result in any material change to our financial statements.

Our inventory, net of allowance for obsolescence of $ 40,000 at March 31, 2023 and $ 120,000 at December 31, 2022, consisted of the following amounts:

March 31, 2023 December 31, 2022

There were no other recent accounting pronouncements during the six months ended June 30, 2023 that are expected to have a material impact on our financial statements.

Our inventory, net of allowance for obsolescence of $ 40,000 at June 30, 2023 and $ 120,000 at December 31, 2022, consisted of the following amounts:

June 30, 2023 December 31, 2022

(in thousands)

2 unchanged sentences

Inventory - current 27,960 23,414

Raw materials - long term (net of allowances of $ 40 and $ 120 , respectively)

Raw materials - long term (net of allowance of $ 40 and $ 120 , respectively)

Inventory - total $ 30,117 $ 24,971

3 unchanged sentences

A summary of our inventory allowance is as follows:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in thousands)

6 unchanged sentences

The CARES Act allowed 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 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 March 31, 2023 and December 31, 2022.

The Company generated significant NOLs during 2018 and 2019, and has filed amended returns to carryback these losses for five

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.

Rental Equipment

Our rental equipment and associated accumulated depreciation as of March 31, 2023 and December 31, 2022, respectively, consisted of the following:

March 31, 2023 December 31, 2022

Our rental equipment and associated accumulated depreciation as of June 30, 2023 and December 31, 2022, respectively, consisted of the following:

June 30, 2023 December 31, 2022

(in thousands)

4 unchanged sentences

Rental equipment, net of accumulated depreciation $ 326,691 $ 246,450

We evaluated our rental equipment for potential impairment as of March 31, 2023, and determined that no such impairment existed as of that date.

We evaluated our rental equipment for potential material impairment as of June 30, 2023, and determined that no such impairment existed as of that date.

Long-term Debt

Our long-term debt consists of the following:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in thousands)

Total long-term debt $ 100,011 $ 25,000

Credit Agreement

Amended and Restated Credit Agreement

On May 11, 2021, we entered into a five-year senior secured revolving credit agreement ("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 Credit Agreement is May 11, 2026.

The obligations under the 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.

As of December 31, 2022, we were in compliance with all financial covenants in our Credit Agreement.

At December 31, 2022, we had $ 25 million outstanding under the Credit Agreement with a weighted average interest rate of 7.32 % .

Amended and Restated Credit Agreement

On February 28, 2023, we entered into a five-year senior secured revolving credit agreement (“Amended and Restated Credit Agreement”) with Texas Capital Bank, as administrative agent (the “Lender”), TCBI Securities, Inc., as joint lead arranger and sole book runner and Bank of America, N.A., as joint lead arranger, with an initial commitment of $ 175 million as of the closing date.

On February 28, 2023, we replaced our Credit Agreement by entering into a five-year senior secured revolving credit agreement (“Amended and Restated Credit Agreement”) with Texas Capital Bank, as administrative agent (the “Lender”), TCBI Securities, Inc., as joint lead arranger and sole book runner and Bank of America, N.A., as joint lead arranger, with an initial commitment of $ 175 million as of the closing date.

Subject to collateral availability, we also have a right to request from the Lender, on an uncommitted basis, an increase of up to $ 125 million on the aggregate commitment;

1 unchanged sentence

The maturity date of the Amended and Restated Credit Agreement is February 28, 2028.

The obligations under the Amended and Restated 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.

The obligations under the Amended and Restated Credit Agreement are secured by a first priority lien on most 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 Amended and Restated Credit Agreement, we may draw, repay and re-borrow amounts available under the borrowing base up to the maximum aggregate availability discussed above.

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 (d) 80 % of the net book value, valued at the lower cost (excluding any costs for capitalized interest or other non-cash capitalized costs) or market of the eligible new compressor fleet, minus (e) any required availability reserves determined by the Lender in its sole discretion.

The Lender may adjust the borrowing base components if the material deviations in the collateral are discovered in the future audits of the collateral.

At March 31, 2023, our borrowing base was approximately $ 138 million.

Generally, the borrowing base equals the sum of (a) 85 % of eligible accounts receivable owed to the Company, plus (b) 50 % of the eligible inventory, valued at the lower of cost or market value at such time, subject to a cap of the component not to exceed $ 2.5 million, plus (c) 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 (d) 80 % of the net book value, valued at the lower cost (excluding any costs for capitalized interest or other non-cash capitalized costs) or market of the eligible new compressor fleet, minus (e) any required availability reserves determined by the Lender in its sole discretion.

The Lender may adjust the borrowing base components if the material

deviations in the collateral are discovered in the future audits of the collateral.

At June 30, 2023, our borrowing base was approximately $ 175 million.

Interest and Fees .

28 unchanged sentences

Obligations outstanding under the Amended and Restated Credit Agreement may be accelerated upon the occurrence of an event of default.

As of March 31, 2023, we were in compliance with all financial covenants in our 2023 Amended and Restated Credit Agreement.

At March 31, 2023, we had $ 61 million outstanding under our Amended and Restated Credit Agreement with a weighted average interest rate of 8.55 %.

At March 31, 2023, we had approximately $ 77 million available for borrowing under the Amended and Restated Credit Agreement, subject to borrowing base determination.

As of June 30, 2023, we were in compliance with all financial covenants in our Amended and Restated Credit Agreement.

As of June 30, 2023, we had approximately $ 100 million outstanding under our Amended and Restated Credit Agreement with a weighted average interest rate of 8.48 %.

At June 30, 2023, we had approximately $ 75 million available for borrowing under the Amended and Restated Credit Agreement, subject to borrowing base determination.

Stock-Based and Other Long-Term Incentive Compensation

Stock Options

A summary of all option activity as of December 31, 2022, and changes during the three months ended March 31, 2023 is presented below:

A summary of all option activity as of December 31, 2022, and changes during the six months ended June 30, 2023 is presented below:

Stock Options

5 unchanged sentences

( 38,000 ) 16.28 — —

Outstanding, March 31, 2023 185,917 $ 19.49 3.84 $ —

Exercisable, March 31, 2023 147,084 $ 21.72 2.51 $ —

The following table summarizes information about our stock options outstanding at March 31, 2023:

Outstanding, June 30, 2023 155,417 20.22 4.11 —

Exercisable, June 30, 2023 123,250 $ 22.67 2.94 $ —

The following table summarizes information about our stock options outstanding at June 30, 2023:

Range of Exercise Prices

10 unchanged sentences

155,417 4.11 $ 20.22 123,250 $ 22.67

The summary of the status of our unvested stock options as of December 31, 2022 and changes during the three months ended March 31, 2023 is presented below:

The summary of the status of our unvested stock options as of December 31, 2022 and changes during the six months ended June 30, 2023 is presented below:

Unvested Stock Options:

2 unchanged sentences

39,000 $ 5.44

Vested, outstanding shares ( 2,499 ) 6.57

Cancelled/Forfeited ( 4,334 ) 5.15

Unvested at March 31, 2023

Unvested at June 30, 2023

32,167 $ 5.39

As of March 31, 2023, there was $ 157 thousand of unrecognized compensation cost related to unvested options.

For the three months ended March 31, 2023, there was $ 22 thousand of compensation expense for stock options.

For the three months ended March 31, 2022, there was $ 21 thousand of compensation expense for stock options.

As of June 30, 2023, there was $ 123,000 of unrecognized compensation cost related to unvested options.

For the six months ended June 30, 2023, there was $ 52,000 of compensation expense for stock options.

For the six months ended June 30, 2022, there was $ 168,000 of compensation expense for stock options.

Restricted Shares/Units

1 unchanged sentence

The restricted stock issued to these directors vest in one year from the date of grant.

On August 15, 2022, the Compensation Committee awarded 32,040 shares of restricted common stock to two executive officers that vest ratably over three years , beginning on April 25, 2023.

In addition, on August 15, 2022, the Compensation Committee awarded 60,839 shares of restricted stock to Mr.

Stephen Taylor, our Interim Chief Executive Officer, that will vest in full on June 30, 2023.

On August 15, 2022, the Compensation Committee awarded 32,040 shares of restricted common stock to two executive officers that vest ratably over three years , beginning on April 25, 2023 of these 32,040 shares, 11,024 shares were forfeited in connection with the executive officer's resignation.

In addition, on August 15, 2022, the Compensation Committee awarded 60,839 shares of restricted stock to Stephen C.

Taylor, our Interim Chief Executive Officer, that vested in full on June 30, 2023.

On April 25, 2023, the Compensation Committee awarded 27,840 shares of restricted stock to our Chief Technical Officer that vest ratably over three years , beginning on April 25, 2024.

Pursuant to the Retirement Agreement dated May 17, 2022, between the Company and Stephen C.

Pursuant to the Retirement Agreement dated May 17, 2022, between the Company and Mr.

Taylor, our Interim Chief Executive Officer, on April 25, 2023, the Compensation Committee awarded 58,790 fully vested shares of common stock to Mr.

Stephen Taylor, our Interim Chief Executive Officer that vest immediately.

Total compensation expense related to these and previously granted restricted stock awards was $ 0.5 million and $ 0.4 million for the three months ended March 31, 2023, and 2022, respectively.

A summary of all restricted stock/units outstanding as of December 31, 2022 and activity during the three months ended March 31, 2023 is presented below:

On May 9, 2023, the Compensation Committee awarded each of our four independent Board members 9,470 restricted stock units.

These restricted stock units vest one year from the date of grant.

On June 30, 2023 Stephen Taylor was granted 10,101 share of common stock that will vest one year from the date of grant.

Total compensation expense related to these and previously granted restricted stock awards was $ 1.1 million and $ 200,000 for the three months ended June 30, 2023, and 2022, respectively.

A summary of all restricted stock/units outstanding as of December 31, 2022 and activity during the six months ended June 30, 2023 is presented below:

Shares Weighted Average

7 unchanged sentences

( 14,357 ) 10.04 158

Outstanding, March 31, 2023 196,851 $ 8.40 1.20 $ 1,587

Outstanding, June 30, 2023 123,994 $ 10.29 1.68 $ 1,018

Other Long-Term Incentive Compensation

1 unchanged sentence

These awards vested on April 26, 2023 and have been paid.

There were no long-term incentive awards issued to executives during the three months ended March 31, 2023.

The Company accounts for these other long-term incentive awards as liabilities under accrued liabilities on our condensed consolidated balance sheet.

In general the vesting of long term 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 and other long-term incentive awards was approximately $ 300,000 and $ 700,000 for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, there was a total of $ 200,000 of unrecognized compensation expense related to these other long-term incentive awards which is expected to be recognized over the next 3 months.

Earnings per Share

Total compensation expense related to these and other long-term incentive awards was approximately $ 426,000 and $ 431,000 for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, all compensation expense related to these other long-term incentive awards had been recognized.

Earnings (loss) per Share

The following table reconciles the numerators and denominators of the basic and diluted earnings per share computation :

Three months ended

Three months ended Six months ended

June 30, June 30,

2023 2022 2023 2022

(in thousands, except per share data)

Net income $ 370 $ 337

Net income (loss) $ 504 $ ( 70 ) $ 874 $ 267

Denominator for earnings per basic common share:

4 unchanged sentences

Diluted weighted average shares 12,394 12,305 12,374 12,528

Earnings per common share:

Earnings (loss) per common share:

Basic $ 0.04 $ ( 0.01 ) $ 0.07 $ 0.02

2 unchanged sentences

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.

1 unchanged sentence

Subsequent Events

In accordance with ASC 855 - Subsequent Events - the Company has evaluated all events subsequent to the balance sheet date as of March 31, 2023 through the date of this report and believes nothing is required thereunder.

In accordance with ASC 855 - Subsequent Events - the Company has evaluated all events subsequent to the balance sheet date as of June 30, 2023 through the date this report was issued and believes nothing is required thereunder.

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-Q

Item 1. Financial Statements