What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2023-11-14 · 95 added, 110 removed, 100 unchanged (67% of the section changed)

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Please read Item 1A, Risk Factors, in our Annual Report, as it contains important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements.

We fabricate in-house and through third-party contractors, natural gas compressors and related equipment which we rent and sell to customers.

We rent, operate and maintain, as well as sell natural gas compressors and related equipment.

We also design, fabricate and manufacture compressor units both for sale and rental to our customers.

Some fabrication work is done in-house with an increasing amount done by third-party contractors.

Our primary focus is on the rental of natural gas compressors.

Our rental contracts typically provide for initial terms of 6 to 24 months, with our larger horsepower units having contract terms of up to 60 months.

After the initial term of our rental contracts, many of our customers have continued to rent our compressors on a month-to-month basis.

Rental amounts are billed monthly in advance and include maintenance of our rented compressors.

As of September 30, 2023, we had 1,233 natural gas compressors totaling 400,727 horsepower rented t o 78 customers compared to 1,196 natural gas compressors totaling 305,953 horsepower rented to 77 customers at September 30, 2022.

We also fabricate in-house and through third-party contractors, natural gas compressors for sale to our customers, designing compressors to meet unique specifications dictated by well pressures, production characteristics, and particular applications for which compression is sought.

Fabrication of compressors involves our purchase of engines, compressors, coolers, and other components, and assembly by us or third-party contractors of these components on skids for delivery to customer locations.

The major components of our compressor packages are acquired through periodic purchase orders placed with third-party suppliers on an “as needed” basis, which presently require lead times between three to six months with delivery dates scheduled to coincide with our estimated production schedules.

Our rental contracts generally provide for initial terms of six to 60 months, with our larger horsepower units having longer initial terms than our small and medium horsepower units.

After the initial term of our rental contracts, most of our customers have continued to rent our compressors on a month-to-month basis.

Rental amounts are billed monthly in advance and include maintenance of the rented compressors.

As of March 31, 2024, we had 1,245 natural gas compressors totaling 444,220 horsepower rented t o 80 customers compared to 1,245 natural gas compressors totaling 335,314 horsepower rented to 74 customers at March 31, 2023.

We also fabricate natural gas compressors for sale to our customers, designing compressors to meet unique specifications dictated by well pressures, production characteristics and particular applications for which compression is sought.

Fabrication of compressors involves our purchase of engines, compressors, coolers and other components, and our assembling of these components on skids for delivery to customer locations.

These major components of our compressors are acquired through periodic purchase orders placed with third-party suppliers on an “as needed” basis, which presently requires a minimum three to twelve month lead time with delivery dates scheduled to coincide with our estimated production schedules.

Although we do not have formal continuing supply contracts with any major supplier, we believe we have adequate alternative sources available.

Recent inflationary pressures have created price increases in both major and minor components for our compressors as well as longer than normal lead times for such components.

To date, generally we have been able to increase our rental rates and sales prices proportionally;

however, if cost increases continue and we are no longer able to increase our rental rates and sales prices such an event could have a material adverse effect on the results of our operations and financial condition.

We also manufacture a proprietary line of compressor frames, cylinders and parts, known as our CiP (Cylinder-in-Plane) product line.

Finally due to supply chain disruptions as a result of the COVID-19 pandemic, 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 may present challenges in increasing our rental rates to offset these increased costs which could have a material adverse effect on the results of our operations and financial condition, particularly if we were unable to increase our rental rates and sales prices proportionate to any such component price increases.

We also use third-party contractors for fabrication and these companies may experience the same risks.

In December 2023, we decided to cease fabrication of new compressor units for sale or rental to customers at our Midland, Texas facility.

We continue to maintain new unit compressor fabrication capability at our Tulsa, Oklahoma facility as well as having relationships with multiple outsourced compressor fabrication providers.

We also manufacture a line of compressor frames, cylinders and parts, known as our CiP (Cylinder-in-Plane) product line.

We use finished CiP component products in the fabrication of compressor units for sale or rental by us or sell the finished component products to other compressor fabricators.

To provide customer support for our compressor sales businesses, we stock varying levels of replacement parts at our Midland, Texas facility and at field service locations.

Although we have significantly de-emphasized our flare product line, we continue to hold a limited inventory of flare stacks and related ignition and control devices for onshore and offshore incineration of gas compounds such as hydrogen sulfide, carbon dioxide, natural gas and liquefied petroleum gases.

customer support for our compressor and flare sales businesses, we stock varying levels of replacement parts at our Midland, Texas facility and at field service locations.

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

We provide service and maintenance to our customers under written maintenance contracts or on an as-required basis in the absence of a service contract.

Maintenance agreements typically have terms of six months to one year and require payment of a monthly fee.

We provide aftermarket services to our non-rental customers under written maintenance contracts or on an as-required basis in the absence of a service contract.

The oil and natural gas equipment rental and services industry is cyclical in nature.

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As demand and prices increase, oil and natural gas producers typically increase their capital expenditures for drilling, development and production activities, although recent equity capital constraints and demands from institutional investors to keep spending within operating cash flow have meaningfully restrained capital expenditure budgets of domestic exploration and production companies.

Generally, increased capital expenditures ultimately result in greater revenues and profits for service and equipment companies.

In general, we expect our overall business activity and revenues to track the level of activity in the oil and natural gas industry, with changes in crude oil and condensate production and consumption levels and prices affecting our business more than changes in domestic natural gas production and consumption levels and prices.

In recent years we have increased our rentals and sales in unconventional oil shale plays, which are more dependent on crude oil prices.

Generally, increased capital expenditures result in greater revenues and profits for service and equipment companies.

Generally, higher commodity prices lead to higher capital expenditures by oil and natural gas producers and higher levels of production.

In general, we expect our overall business activity and revenues to track the level of activity in the oil and natural gas industry, specifically production levels, with changes in crude oil and condensate production and consumption levels and prices affecting our business more than changes in domestic natural gas production and consumption levels and prices.

In recent years we have increased our rental and sales in unconventional oil shale plays, which are more dependent on crude oil prices.

With this shift towards oil production, the demand for overall compression services and products is driven by two general factors;

an increased focus by producers on artificial lift applications, e.g., production enhancement with compression assisted gas lift;

and declining reservoir pressure in maturing natural gas producing fields, especially unconventional production.

These types of applications have historically been serviced by wellhead size compressors, and continue to be, but there has also been an economic move by our customers towards centralized drilling and production facilities, which has increased the market need for larger horsepower compressor packages.

We recognized this need in recent years and have been shifting our cash and fabrication resources towards designing, fabricating and renting gas compressor packages that range from 400 horsepower up to 2,500 horsepower.

and declining reservoir pressure in maturing natural gas producing fields, especially non-conventional production.

These latter types of applications have historically been serviced by wellhead size compressors, and continue to be, but there has also been an economic move by our customers towards centralized drilling and production facilities, which have increased the market need for single and multiple larger horsepower compressor packages.

We recognized this need and shifted our focus towards designing, fabricating and renting gas compressor packages that range from 400 horsepower up to 2,500 horsepower.

While this is a response to market conditions and trends, it also provides us with the opportunity to compete as a full-line compression provider.

In addition, recent heightened focus on the emissions profile of our customers has created a shift in demand from natural gas powered compression to electric motor compression in areas where the electric infrastructure can accommodate the energy demands of these units.

We typically experience a decline in demand during periods of low crude oil and natural gas prices.

In recent years, our level of activity has become more largely driven by the price of crude oil as opposed to natural gas.

During the first quarter of 2020, due to COVID, we saw a substantial decline in the prices for oil and natural gas.

While prices largely recovered in 2021 and then stabilized more recently, activity levels of exploration and production companies have been and will continue to be dependent not only on commodity prices, but also on their ability to generate sufficient operational cash flow to fund their activities.

Generally, we feel that the level of demand for our compressor services is more closely tied to production activities, which are likely to fare better than drilling activity in periods of declining commodity prices.

For fiscal year 2024, our forecasted capital expenditures will be directly dependent upon our customers’ compression requirements and our capital availability, while maintaining prudent levels of debt.

We believe that cash on hand, cash flows from operations and borrowings under our revolving credit facility will be sufficient to satisfy our capital and liquidity requirements through 2024.

If we require additional capital to fund any significant unanticipated expenditures, including any material acquisitions of other businesses, joint ventures or other opportunities, this additional capital could exceed our current resources, might not be available to us when we need it, or might not be on acceptable terms.

Industry Update

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During the first quarter of 2020, we saw a substantial decline in the prices for oil and natural gas.

Commodity prices stabilized somewhat during 2021 and increased in the first half of 2022 and declined in the second half of 2022 and began increasing so far in 2023.

Commodity prices stabilized somewhat during 2021 and increased in the first half of 2022 and declined in the second half of 2022 but have remained relatively stable since that time.

Historically, activity levels of exploration and production companies have been dependent on commodity prices.

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This is reflected in both the stability of our rental revenues, which is driven by production activities, and the volatility of our compressor sales, which tends to fluctuate with customers' capital allocations.

As such, we still expect compressor sales to be low for the remainder of 2023, as exploration and production companies have elected to rent compression units rather than allocating capital dollars to purchase new compression.

As such, we still expect compressor sales to be low for the foreseeable future, as exploration and production companies have elected to rent compression units rather than allocating capital dollars to purchase new compression.

Accordingly, we have chosen to deemphasize the new unit fabrication portion of our business and instead focus our efforts on our rental business.

Results of Operations

Three months ended September 30, 2023, compared to the three months ended September 30, 2022.

The table below shows our revenues and percentage of total revenues of each of our product lines for the three months ended September 30, 2023 and 2022.

Three months ended September 30,

Three months ended March 31, 2024, compared to the three months ended March 31, 2023.

The table below shows our revenues and percentage of total revenues of each of our product lines for the three months ended March 31, 2024 and 2023.

Three months ended March 31,

(in thousands)

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Total $ 36,907 $ 26,620

Total revenue increased 42.3% to $31.4 million for the three months ended September 30, 2023 compared to $22.0 million for the three months ended September 30, 2022.

Total revenue increased 38.6% to $36.9 million for the three months ended March 31, 2024 compared to $26.6 million for the three months ended March 31, 2023.

This increase was primarily a result of higher rental revenue (48.5% increase) during 2024.

Rental revenue increased to $27.7 million for the three months ended September 30, 2023 compared to $18.6 million for the same period in 2022.

This increase during the third quarter of 2023 was attributable to (i) an increase in high horsepower compression rentals as these units carry a higher rental revenue rate than our lower horsepower units and (ii) $0.3 million in rental rate increases across a portion of our fleet intended to offset inflationary pressures related to the costs of our rental fleet.

As of September 30, 2023, we had 1,947 compressor packages in our fleet, down from 1,976 units at September 30, 2022 due to the retirement of units during the fourth quarter of 2022 and th e disposition of a small number of compressors from the fleet during this year.

The Company's total unit horsepower increased to 509,198 horsepower at September 30, 2023 compared to 423,658 horsepower at September 30, 2022, due to additions to the Company's fleet of 59 high horsepower compressors over the past 12 months.

As of September 30, 2023, we had 1,233 natural gas compressors with a total of 400,727 horsepower rented to 78 customers, compared to 1,196 natural gas compressors with a total of 305,953 horsepower rented to 77 customers as of September 30, 2022.

As a result, our total rented horsepower as of September 30, 2023 increased by 31.0% over the last twelve months.

Our rental fleet had unit utilization as of September 30, 2023, and 2022, respectively, of 63.3% and 60.5%, and our horsepower utilization for the same dates increased to 78.7% from 72.2%.

Our total rented horsepower increased by 31.0% contrasted against a 3.1% increase in total rented units.

This illustrates the growing demand for our high horsepower units while the demand for our smaller and medium horsepower units has not recovered in line with recent commodity price increases.

Sales revenue decreased (54.2)% to $1.4 million for the three months ended September 30, 2023 compared to $3.1 million for the three months ended September 30, 2022.

This decrease is primarily attributable to lower compressor sales during the third quarter of 2023 compared to the same period in 2022.

Sales are subject to fluctuations in timing of industry activity related to our customers' capital projects and, as such, can vary substantially between periods.

Aftermarket service revenue increased 590% to $2.3 million for the three months ended September 30, 2023 compared to $0.3 million for the three months ended September 30, 2022.

This increase is primarily attributable to freight and commissioning of high horsepower units during the three months ended September 30, 2023.

Cost of rentals increased t o $13.5 million during the three months ended September 30, 2023 compared to $10.0 million during the three months ended September 30, 2022.

This 34.8% increase in costs of rentals is primarily due to more rented horsepower during 2023.

Cost of sales decreased 27.7% to $1.5 million during the three months ended September 30, 2023 compared to $2.1 million during the three months ended September 30, 2022.

Rental revenue increased to $33.7 million for the three months ended March 31, 2024 compared to $22.7 million for the same period in 2023.

This increase during the first quarter of 2024 was attributable to an increase in high horsepower compression rentals and rate increases.

As of March 31, 2024, we had 1,894 compressor packages in our fleet, up from 1,875 units at March 31, 2023 due to the additional of high horsepower units during 2023 partially offset by the retirement of units during the fourth quarter of 2023 and th e disposition of a small number of compressors from the fleet during this year.

The Company's total unit horsepower increased to 542,256 horsepower at March 31, 2024 compared to 433,013 horsepower at March 31, 2023, due to additions to the Company's fleet of 78 high horsepower compressors over the past 12 months.

As of March 31, 2024, we had 1,245 natural gas compressors with a total of 444,220 horsepower rented to 80 customers, compared to 1,245 natural gas compressors with a total of 335,314 horsepower rented to 74 customers as of March 31, 2023.

As a result of the addition of high horsepower units during 2023 and these units being rented to customers, our total rented horsepower as of March 31, 2024 increased by 32.5% over the last twelve months.

Our rental fleet had unit utilization as of March 31, 2024, and 2023, respectively, of 65.7% and 66.4%, and our horsepower utilization for the same dates increased to 81.9% from 77.4%.

Our total rented horsepower increased by 32.5% contrasted against a flat number of total rented units.

This illustrates the growing demand for our high horsepower units while the demand for our smaller and medium horsepower units has remained relatively constant over this time period.

Sales revenue decreased (16.3)% to $2.5 million for the three months ended March 31, 2024 compared to $3.0 million for the three months ended March 31, 2023.

This decrease is primarily attributable to lower compressor sales during the first quarter of 2024 compared to the same period in 2023.

Sales are subject to fluctuations in timing of industry activity related to our customers' capital projects and, as such, can vary substantially between periods and due in part to this, we have decided to shift the focus of our business away from sales of new compressor packages to renting our owned units to our customers.

Aftermarket service revenue decreased 26.0% to $0.7 million for the three months ended March 31, 2024 compared to $0.9 million for the three months ended March 31, 2023.

This decrease is primarily attributable to lower revenue from commissioning of new units during the three months ended March 31, 2024 compared to the same quarter in the previous year.

Cost of rentals increased t o $13.1 million during the three months ended March 31, 2024 compared to $11.6 million during the three months ended March 31, 2023.

This 12.6% increase in costs of rentals is primarily due to more rented horsepower during the first quarter of 2024.

Cost of sales decreased 32.7% to $2.2 million during the three months ended March 31, 2024 compared to $3.2 million during the three months ended March 31, 2023.

This decrease was primarily due to lower sales activity.

Selling, general, and administrative ("SG&A") expenses decreased 30.0% to $2.8 million for the three months ended September 30, 2023 compared $4.1 million during the same period in 2022.

This decrease in SG&A expenses was primarily attributable to (i) a decrease of $0.6 million in severance expenses related to the retirement agreement between NGS and Stephen C.

Taylor, our prior permanent Chief Executive Officer and current interim Chief Executive Officer, and (ii) $0.4 million decrease in stock compensation expenses.

Taylor continues to be employed as our interim CEO while we search for his permanent replacement.

Depreciation and amortization expense increased to $6.8 million for the three months ended September 30, 2023 compared to $6.0 million for the three months ended September 30, 2022, due to increased capital expenditures.

We recorded an income tax expense of approximately $1.0 million for the three months ended September 30, 2023 compared to an income tax benefit of $0.1 million for the three months ended September 30, 2022.

Selling, general, and administrative ("SG&A") expenses increased 3.1% to $4.7 million for the three months ended March 31, 2024 compared $4.6 million during the same period in 2023.

SG&A increased due to higher consulting and health insurance expenses partially offset by lower legal fees.

Depreciation and amortization expense increased to $7.1 million for the three months ended March 31, 2024 compared to $6.2 million for the three months ended March 31, 2023, due to depreciation expense for high horsepower units acquired during 2023.

We recorded an income tax expense of approximately $1.5 million for the three months ended March 31, 2024 compared to an income tax expense of $0.2 million for the three months ended March 31, 2023.

For interim periods, our income tax expense is computed based upon our estimated annual effective tax rate and any discrete items that impact the interim periods.

Our estimated annual effective tax rate differs from the U.S.

federal statutory rate of 21% primarily as a result of expenses not deductible for income tax purposes.

Nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.

The table below shows our revenues and percentage of total revenues of each of our product lines for the nine months ended September 30, 2023 and 2022.

Nine months ended September 30,

(in thousands)

Rental $ 74,533 87.7 % $ 53,905 86.5 %

Sales 6,000 7.1 % 7,270 11.7 %

Aftermarket services 4,413 5.2 % 1,129 1.8 %

Total $ 84,946 $ 62,304

Total revenue increased 36.3% to $84.9 million for the nine months ended September 30, 2023 compared to $62.3 million during the nine months ended September 30, 2022.

This increase was primarily a result of higher rental revenue (38.3% increase) and higher aftermarket service revenue during the first nine months of 2023 (290.9% increase).

Rental revenue increased to $74.5 million for the nine months ended September 30, 2023 compared to $53.9 million during the nine months ended September 30, 2022.

This increase during the first nine months of 2023 was attributable to an increase in high horsepower compression rentals as these units carry a higher rental revenue rate than our lower horsepower units and, to a lesser extent, rental rate increases across a portion of our fleet intended to offset inflationary pressures related to the costs of our rental fleet.

Sales revenue decreased to $6.0 million for the nine months ended September 30, 2023 compared to $7.3 million for the same period in 2022.

This decrease is mostly attributable to a decrease in compressor sales.

Sales are subject to fluctuations in timing of industry activity related to capital projects and, as such, can vary substantially between periods.

Aftermarket service revenue increased 290.9% to $4.4 million for the nine months ended September 30, 2023 compared to $1.1 million for the nine months ended September 30, 2022.

This increase is primarily attributable to freight and commissioning of high horsepower units during the nine months ended September 30, 2023.

Cost of rentals increased 28.1% to $36.5 million during the nine months ended September 30, 2023 compared to $28.5 million during the nine months ended September 30, 2022.

This increase was primarily due to inflationary pressures on labor and parts as well as increased high horsepower units being placed into service.

While repair and maintenance expenses are customary in our business, the timing of such expenses can fluctuate between periods resulting in periods with larger than normal expenses.

Cost of sales increased 20.1% to $6.6 million during the nine months ended September 30, 2023 compared to $5.5 million during the nine months ended September 30, 2022.

This increase during the first nine months of 2023 was primarily due to a increased fabrication costs attributable to our fabrication shops.

Selling, general, and administrative expenses increased 38.2% to $12.3 million for the nine months ended September 30, 2023 compared to $8.9 million for the same period in 2022.

SG&A expenses during the first nine months of 2023 were impacted by (i) $ 1.2 million of severance expenses related to the retirement agreement between NGS and Mr.

Stephen Taylor, our prior Chief Executive Officer, (ii) a $0.5 million increase in stock compensation expense when compared to the first 9 months of 2022 and (iii) $0.4 million one time increase in legals costs associated with our cooperation agreement.

Depreciation and amortization expense increased 7.0% to $19.4 million for the nine months ended September 30, 2023 compared to $18.1 million for the nine months ended September 30, 2022.

This increase was the result of units in service during 2023.

We recorded an income tax expense of $1.4 million for the nine months ended September 30, 2023 and $0.3 million for the nine months ended September 30, 2022.

For interim periods, our income tax (expense) benefit is computed based upon our estimated annual effective tax rate and any discrete items that impact the interim periods.

We recorded an impairment expense of $0.8 million related to capitalized software costs for the nine months ended September 30, 2023.

federal statutory rate of 21% primarily as a result of certain expenses not being deductible for income tax purposes.

Non-GAAP Financial Measures

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There are other material limitations to using Adjusted EBITDA as a measure of performance, including the inability to analyze the impact of certain recurring items that materially affect our net income or loss, and the lack of comparability of results of operations of different companies.

Please read the table below under “Reconciliation” to see how Adjusted EBITDA reconciles to our net (loss) income, for the three months ended and the nine months ended September 30, 2023 and 2022, the most directly comparable GAAP financial measure.

Please read the table below under “Reconciliation” to see how Adjusted EBITDA reconciles to our net (loss) income, for the three months ended and the nine months ended March 31, 2024 and 2023, the most directly comparable GAAP financial measure.

Reconciliation

The following table reconciles our net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:

Three months ended September 30, Nine months ended September 30,

2023 2022 2023 2022

Three months ended March 31,

(in thousands)

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Severance expenses — 612

Impairment expense — — 779 —

Retirement of rental equipment 5 —

Adjusted EBITDA $ 16,878 $ 7,784

For the three months ended September 30, 2023, Adjusted EBITDA increased $4.1 million 53.1% due primarily to a $9.3 million increase in total revenues partially offset by a $3.5 million increase in costs of rentals.

For the nine months ended September 30, 2023, Adjusted EBITDA increased $8.1 million (37.7%) due primarily to an $20.6 million increase in rental revenue partially offset by an increase of $8.0 million for cost of rentals.

For the three months ended March 31, 2024, Adjusted EBITDA increased $9.1 million, or 116.8%, due primarily to an $11.0 million i ncrease in rental revenues partially offset by a $1.5 million increase in costs of rentals.

Liquidity and Capital Resources

Our working capital positions as of September 30, 2023 and December 31, 2022 are set forth below:

September 30, December 31,

Our working capital positions as of March 31, 2024 and December 31, 2023 are set forth below:

March 31, December 31,

(in thousands)

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Federal income tax receivable 11,512 11,538

Prepaid income taxes — 10

Prepaid expenses and other 938 1,162

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Accrued liabilities 11,995 15,085

Current operating leases 98 155

Deferred income — 37

Total current liabilities 24,426 32,713

Total working capital $ 54,415 $ 43,558

For the nine months ended September 30, 2023, we invested $128.6 million in rental and property and other equipment by adding $126.4 million in new equipment to our rental fleet and $2.2 million primarily in vehicles as well as various other machinery and equipment.

Our investment in rental equipment, property and other equipment also includes any changes to work-in-process related to our rental fleet jobs at the beginning of the period compared to the end of the period.

Our rental work-in-process increased by $17.9 million during the nine months ended September 30, 2023.

We financed our investment in

rental equipment, property and other equipment with cash flow from operations, and borrowings under our Amended and Restated Credit Facility.

For the three months ended March 31, 2024, we invested $10.9 million in rental equipment and other equipment by adding approximately $10.9 million in new equipment to our rental fleet and less than $0.1 million primarily in other machinery and equipment.

Our investment in rental equipment and other equipment also includes any changes to work-in-process related to our rental fleet jobs at the beginning of the period compared to the end of the period.

Our rental work-in-process increased by $7.6 million during the three months ended March 31, 2024.

We financed our investment in rental equipment, property and other equipment with cash flow from operations, and borrowings under our Amended and Restated Credit Facility.

We anticipate that our cash flows from operations as well as our borrowing capacity under our Amended and Restated Credit Agreement will provide adequate liquidity for our planned capital expenditures during the remainder of 2024.

For any new capital expenditures in 2023 and beyond that exceeds our cash flow from operations and our borrowing base under our Amended and Restated Credit Agreement, we anticipate that we would need to negotiate an expansion of our borrowing capacity under our Amended and Restated Credit Agreement or raise money in the capital markets through sales of equity or debt securities.

For any new capital expenditures in 2024 and beyond that exceeds our cash flow from operations and our borrowing base under our Amended and Restated Credit Agreement, we anticipate that we would need to negotiate an expansion of our borrowing capacity under our Amended and Restated Credit Agreement or raise money in the capital markets through sales of equity or

debt securities.

While we control the timing and extent of our capital expenditures, there is no assurance that any such borrowing expansion would be granted.

At September 30, 2023 we had approximately $47 million available for borrowing under the Amended and Restated Credit Agreement, subject to borrowing base determination.

At September 30, 2023, we had cash and cash equivalents of $0.2 million compared to $3.4 million at December 31, 2022.

Our cash flows from operating activities of $25.7 million were offset by capital expenditures of $128.6 million during the nine months ended September 30, 2023.

We had working capital of $22.1 million at September 30, 2023 compared to $23.7 million at December 31, 2022.

We generated cash flows from operating activities of $25.7 million during the first nine months of 2023 compared to cash flows provided by operating activities of $20.2 million for the first nine months of 2022.

For the remainder of 2023, our overall plan is to continue monitoring and holding expenses in line with the anticipated level of activity, fabricate rental fleet equipment either in-house or through third-party contractors only in direct response to market requirements, emphasize marketing of our idle gas compressor units and utilize bank borrowing in line with market conditions.

For the remainder of 2023, our forecasted capital expenditures are not anticipated to exceed our internally generated cash flows, cash on hand and borrowing availability under our Amended and Restated Credit Agreement.

The majority of required capital will be for contracted, premium-priced additions to our compressor rental fleet and/or required service vehicles.

We believe market conditions indicate significant demand growth for large horsepower compression in 2023 and beyond.

While we believe that cash flows from operations, our current cash position and borrowing capacity under our Amended and Restated Credit Agreement will be sufficient to satisfy a portion of our capital activity, we may need to negotiate an expansion of our borrowing capacity under our Amended and Restated Credit Agreement to meet the capital expenditure requirements of any additional demand.

At March 31, 2024 we had approximately $46.1 million available for borrowing under the Amended and Restated Credit Agreement, subject to borrowing base determination.

At March 31, 2024, we had cash and cash equivalents of $5.2 million compared to $2.7 million at December 31, 2023.

Our cash flows from operating activities of $5.6 million were offset by capital expenditures of $10.9 million during the three months ended March 31, 2024.

We had working capital of $54.4 million at March 31, 2024 compared to $43.6 million at December 31, 2023.

We generated cash flows from operating activities of $5.6 million during the first three months of 2024 compared to cash flows provided by operating activities of $18.2 million for the first three months of 2023.

Business Strategy

Our long-term intentions to grow our revenue and profitability are based on the following business strategies;

• Optimize existing utilized fleet.

We believe there are opportunities to modestly improve the profitability of our existing utilized rental fleet through targeted price increases, particularly in geographic areas that have experienced high rates of cost inflation, along with operational efficiencies by using improved data collection and analysis to optimize our costs in labor, parts, and maintenance costs.

• Improve asset utilization.

We believe we can improve the overall cash flow of the business by increasing utilization of the existing fleet as well as creating investable cash from non-cash assets.

We have a significant number of unutilized units—we will review these assets to determine where relatively low-cost capital expenditures can improve the marketability and cash flow potential of the units.

We also have a significant amount of capital tied up in non-cash assets (including working capital and fixed assets) that we believe can be monetized and invested back in the fleet at or above target levels of return on invested capital.

• Expand rental fleet .

We intend to prudently increase the size of our rental fleet mainly through pre-contracted agreements with our customers.

We believe our future growth in this part of our strategy will be primarily driven through our placement of larger horsepower, centralized wellhead natural gas compressors for unconventional oil production, with select increases in medium horsepower units to meet customer demand beyond our inventory.

• Execute accretive mergers and acquisitions.

We believe there are opportunities in mergers with or acquisitions of competitive rental compression companies or related businesses providing similar services.

While there is no certainty as to the probability of any particular deal, we will continue to evaluate potential acquisitions, joint ventures and other opportunities that could enhance value for our shareholders.

Critical Accounting Policies and Practices

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From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to off-balance sheet obligations.

As of September 30, 2023, the off-balance sheet arrangements and transactions that we have entered into include purchase agreements.

As of March 31, 2024, the off-balance sheet arrangements and transactions that we have entered into include purchase agreements.

We do not believe that these arrangements are reasonably likely to materially affect our liquidity or availability of capital resources.

11 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-Q

Item 2. Management’s Discussion and Analysis