What changed in this filing

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Item 1. Financial Statements

2023-11-14 compared with 2023-08-14 · 81 added, 66 removed, 398 unchanged (27% of the section changed)

3 unchanged sentences

(in thousands, except par value)

June 30, December 31,

September 30, December 31,

Current Assets:

45 unchanged sentences

(in thousands, except earnings per share)

Three months ended Six months ended

June 30, June 30,

Three months ended Nine months ended

September 30, September 30,

2023 2022 2023 2022

1 unchanged sentence

Sales 1,413 3,086 6,000 7,270

Service and maintenance income 1,257 490 2,162 804

Aftermarket services 2,251 326 4,413 1,129

Total revenue

5 unchanged sentences

1,505 2,083 6,618 5,512

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

Cost of aftermarket services, exclusive of depreciation stated separately below

1,846 186 3,424 593

3 unchanged sentences

Total operating costs and expenses 26,465 22,337 78,928 61,558

Operating income 712 658 1,114 1,041

Operating income (expense) 4,904 ( 294 ) 6,018 746

Other income (expense):

2 unchanged sentences

Total other income (expense), net ( 1,687 ) 141 ( 1,531 ) ( 271 )

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

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

Income (loss) before provision for income taxes 3,217 ( 153 ) 4,487 475

Income tax (expense) benefit ( 1,046 ) 73 ( 1,442 ) ( 288 )

Net income (loss) $ 2,171 $ ( 80 ) $ 3,045 $ 187

24 unchanged sentences

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

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

Net loss — — — — — ( 70 ) — — ( 70 )

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

Compensation expense on common stock options — — — — 193 — — — 193

Compensation expense on restricted common stock — — — — 390 — — — 390

Net loss — — — — — ( 80 ) — — ( 80 )

BALANCES, September 30, 2022 — $ — 13,499 $ 135 $ 114,838 $ 130,290 1,310 $ ( 15,004 ) $ 230,259

See accompanying notes to these unaudited condensed consolidated financial statements.

17 unchanged sentences

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

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

Compensation expense on restricted common stock — — — — 187 — — — 187

Net income — — — — — 2,171 — — 2,171

BALANCES, September 30, 2023 — $ — 13,688 $ 136 $ 116,254 $ 132,579 1,310 $ ( 15,004 ) $ 233,965

See accompanying notes to these unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Six months ended

Nine months ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

43 unchanged sentences

Natural Gas Services Group, Inc.

(the "Company", “NGS”, "Natural Gas Services Group", "we" or "our") (a Colorado corporation), is a provider of natural gas compression equipment and services to the energy industry.

(the "Company", “NGS”, "Natural Gas Services Group", "we" or "our") (a Colorado corporation), is a leading provider of natural gas compression equipment, technology and services to the energy industry.

The Company manufactures, fabricates, rents, sells and maintains natural gas compressors 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.

The company also has increasingly used third-party fabricators as well.

Summary of Significant Accounting Policies

2 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 June 30, 2023 and the results of our operations for the three and six months ended June 30, 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 September 30, 2023 and the results of our operations for the three and nine months ended September 30, 2023 and 2022 not misleading.

Some adjustments may cause the prior year number in these financial statements to differ from the prior year interim financial statements.

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 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.

The results of operations for the three and nine months ended September 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

12 unchanged sentences

Rental Revenue.

The Company generates revenue from renting compressors systems to our customers.

The Company generates revenue from renting compressor 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 during the rental contract period.

13 unchanged sentences

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 this equipment from our finished goods, such that this equipment is not available to fill other orders.

The customer will formally request that we ship the equipment per their direction from our manufacturing facility or the third-party fabrication site at a later specified date and that we segregate this equipment from our finished goods, such that this equipment is 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.

2 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 six months ended June 30, 2023 or 2022.

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

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

5 unchanged sentences

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 .

Aftermarket Services .

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

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.

The company also provides freight and commissioning services for new compressor sets.

Payment terms for sales revenue and aftermarket services 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, 2023 and 2022:

Three months ended June 30,

Six months ended June 30,

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

Three months ended September 30,

Nine months ended September 30,

2023 2022 2023 2022

3 unchanged sentences

Other (parts/rebuilds) - sales 1,206 1,655 4,699 3,503

Service and maintenance 1,257 490 2,162 804

Aftermarket services 2,251 326 4,413 1,129

Total revenue from contracts with customers 3,664 3,412 10,413 8,399

2 unchanged sentences

Contract Balances

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

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

September 30, 2023 December 31, 2022

(in thousands)

6 unchanged sentences

Deferred income $ — $ 37

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 Company recognized sales revenues of $ 37 thousand for the nine months ended September 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 June 30, 2023, the Company had no deferred revenue related to unsatisfied performance obligations.

As of September 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 June 30, 2023.

We have no liabilities for uncertain ta x positions as of September 30, 2023.

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

Capitalized Interest

Beginning January 1, 2023, the Company began capitalizing interest from external borrowings on significant expenditures for the fabrication of its natural gas compressor equipment until such projects are ready for their intended use.

Effective January 1, 2023, the Company began capitalizing interest from external borrowings on significant expenditures for the fabrication of its natural gas compressor equipment until such projects are ready for their intended use.

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

For the nine months ended September 30, 2023, the Company capitalized interest aggregating approximately $ 4.1 million.

Recently Issued Accounting Pronouncements

5 unchanged sentences

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

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

There were no other recent accounting pronouncements during the nine months ended September 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 September 30, 2023 and $ 120,000 at December 31, 2022, consisted of the following amounts:

September 30, 2023 December 31, 2022

(in thousands)

4 unchanged sentences

Inventory - total $ 28,287 $ 24,971

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.

Our long-term inventory consists of raw materials that remain viable but that the Company does not expect to sell or use within one year.

Inventory Allowance

1 unchanged sentence

A summary of our inventory allowance is as follows:

June 30, 2023 December 31, 2022

September 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

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 June 30, 2023 and December 31, 2022.

Rental Equipment

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

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

September 30, 2023 December 31, 2022

(in thousands)

4 unchanged sentences

Rental equipment, net of accumulated depreciation $ 355,382 $ 246,450

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.

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

Long-term Debt

Our long-term debt consists of the following:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands)

11 unchanged sentences

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.

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

Interest and Fees .

26 unchanged sentences

certain ERISA events;

certain change in control events and the defectiveness of any liens under the secured revolving credit agreement.

certain change in control events and the defectiveness of any

liens under the secured revolving credit agreement.

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

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.

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

As of September 30, 2023, we had approximately $ 128 million outstanding under our Amended and Restated Credit Agreement with a weighted average interest rate of 8.98 %.

At September 30, 2023, we had approximately $ 47 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 six months ended June 30, 2023 is presented below:

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

Stock Options

3 unchanged sentences

Outstanding, December 31, 2022 201,584 $ 19.32 3.90 $ 41

Granted 1,000 $ 10.12 9.76 $ —

Cancelled / Forfeited ( 12,500 ) $ 15.60 — 4

( 38,000 ) $ 16.28 — —

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:

Outstanding, September 30, 2023 152,084 $ 20.33 3.81 —

Exercisable, September 30, 2023 119,750 $ 22.89 2.58 $ —

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

Range of Exercise Prices

10 unchanged sentences

152,084 3.81 $ 20.33 119,750 $ 22.89

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:

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

Unvested Stock Options:

2 unchanged sentences

39,000 $ 5.44

Granted 1,000 $ 5.30

Vested, outstanding shares ( 3,332 ) $ 6.26

Cancelled/Forfeited ( 4,334 ) $ 5.15

Unvested at June 30, 2023

Unvested at September 30, 2023

32,334 $ 5.38

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.

As of September 30, 2023, there was $ 108,000 of unrecognized compensation cost related to unvested options.

For the nine months ended September 30, 2023, there was $ 74,000 of compensation expense for stock options.

For the nine months ended September 30, 2022, there was 361,000 of compensation expense for stock options.

Restricted Shares/Units

On April 26, 2022, 4,212 shares of restricted common stock were awarded to each of our three independent Board members.

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

The restricted stock issued to these directors vests 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 of these 32,040 shares, 11,024 shares were forfeited in connection with the executive officer's resignation.

6 unchanged sentences

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:

On June 30, 2023 Stephen C.

Taylor was granted restricted stock units for 10,101 shares 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 $ 1.7 million and $ 1.0 million for the nine months ended September 30, 2023, and 2022, respectively.

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

Shares Weighted Average

7 unchanged sentences

( 14,357 ) $ 10.04 $ 158

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

Outstanding, September 30, 2023 122,914 $ 10.29 4.84 $ 1,482

Other Long-Term Incentive Compensation

3 unchanged sentences

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 in the agreement).

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.

Total compensation expense related to these and other long-term incentive awards was approximately $ 426,000 and $ 672,000 for the nine months ended September 30, 2023 and 2022, respectively.

As of September 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 Six months ended

June 30, June 30,

Three months ended Nine months ended

September 30, September 30,

2023 2022 2023 2022

15 unchanged sentences

Subsequent Events

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.

In accordance with ASC 855 - Subsequent Events - the Company has evaluated all events subsequent to the balance sheet date as of September 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