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Item 9A. Controls and Procedures

2025-03-17 compared with 2024-04-01 · 580 added, 531 removed, 383 unchanged (74% of the section changed)

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Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023.

Based upon the evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at a reasonable assurance level, due to the material weakness that was previously disclosed effective December 31, 2022 and discussed below.

Management’s Report on Internal Control Over Financial Reporting

Our management, including the Chief Executive Officer and our Interim Chief Accounting Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”), as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act.

Our internal control over financial reporting is designed to provide reasonable assurance

regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with GAAP.

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2024.

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Based upon the evaluation, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to management, and made known to our CEO and CFO, on a timely basis to ensure that it is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management, including the CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”), as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act.

Our management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024, based on the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, based on the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on the results of this evaluation, the Company’s management concluded that internal control over financial reporting was not effective as of December 31, 2023, due to the unremedied material weakness listed below.

A material weakness is a deficiency, or a combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

We have concluded that the following material weakness in our ICFR that was previously disclosed in our Annual Report on Form 10-K for the year ended December 31,2022 has not been fully remediated as of December 31, 2023.

Management identified a material weakness in its ICFR at December 31, 2023, over our inventory process.

Specifically, we have identified issues related to year-end physical inventory count procedures, and the process to review and approve inventory adjusting journal entries.

After giving full consideration to this material weakness, and the additional analyses and other procedures that we performed to ensure that our consolidated financial statements included in this Annual Report on Form 10-K were prepared in accordance with U.S.

generally accepted accounting principles (“US GAAP”), our management has concluded that our consolidated financial statements present fairly, in all material respects our financial position, results of operations and cash flows for the periods disclosed in conformity with US GAAP.

Remediation Plan for Previously Identified Material Weakness

Management, with the oversight of the Audit Committee and the Board of Directors, has been actively engaged in remediation efforts to address the material weakness throughout 2023, and these efforts will continue into 2024.

We made progress towards addressing our material weakness in inventory through the specific actions listed below:

• We have made and continue to make enhancements to our control environment by improving guidance, communication of expectations and importance of internal controls.

Specifically, in the second quarter of 2023, we engaged a third-party consulting firm, who specializes in internal controls over financial reporting, to assist with the design, implementation, and assessment of our controls and procedures.

• We have hired additional qualified operational and executive personnel during 2023, which has helped to provide additional capacity and expertise to enhance inventory procedures.

Specifically, in the third quarter of 2023, the Company hired a new Inventory Control Manager who assumed direct responsibility for inventory procedures and controls.

Additionally.

in the fourth quarter of 2023, the Company hired a new President and Chief Operating Officer, who is also deeply involved in the inventory process.

The Company is also currently assessing if additional accounting and financial personnel should be hired in the organization in order to perform control activities in support of preparation of the financial statements in accordance with U.S.

We expect that this assessment will be completed during the second quarter of 2024, with appropriate action taken during 2024, to ensure that the Company has a sufficient complement of qualified personnel at the right levels, based on any identified gaps in personnel requirements.

• We have evaluated and improved the inventory process and procedures.

Specifically, we have retrained all involved personnel in the inventory process, with emphasis on periodic count procedures and inventory adjustments.

• We have updated our inventory accounting policies and procedures to ensure completeness and accuracy of inventory accounts through proper cutoff, accruals, and analytic review procedures at period end.

While these actions and planned actions are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles, we are committed to the continuous improvement of our ICFR and will continue to diligently review our ICFR.

Based on the results of management’s evaluation described above, management concluded that our ICFR was effective as of December 31, 2024.

Remediation of Previously Identified Material Weakness

As previously reported in Part II, Item 9A.

“Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2023, we disclosed a material weakness related to inventory.

Specifically, control activities related to year-end inventory count procedures and the process to review and approve inventory adjusting journal entries.

We have completed the execution of our remediation plan for this material weakness and, as of December 31, 2024, successfully remediated the material weakness by implementing and successfully testing the following actions:

• We updated and implemented new policies and procedures related to work in process inventory.

• We hired additional management with a focus on inventory control and inventory best practices.

• We relocated certain inventory to centralized warehouses.

• We improved and enforced our formalized inventory count and inventory adjustment procedures which were applied to our end-of-year inventory counts.

• We added additional inventory safeguards in our warehouses limiting physical access to our inventory.

• We limited the number of employees authorized to record adjustments in our accounting software through additional IT controls with respect to inventory transfers.

• We have enhanced efforts to ensure our employees understand the importance of internal controls and compliance with corporate policies and procedures.

Attestation Report of the Registered Public Accounting Firm

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm on our ICFR because we are a Smaller Reporting Company and are not subject to auditor attestation requirements under applicable SEC rules.

The effectiveness of ICFR as of December 31, 2024 was audited by Ham, Langston & Brezina LLP, an independent registered public accounting firm, as stated in its report included in Part IV, Item 15 “ Exhibits and Financial Statement Schedules ” of this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

Other than the changes noted above there were no changes in our ICFR during the year ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

During the year ended December 31, 2024, except as discussed above, there were no other changes in our ICFR during the year ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, our ICFR.

OTHER INFORMATION

Taylor , our Chairman of the Board of Directors , adopted a Rule 10b5-1 trading agreement that is intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to an aggregate of 100,000 shares of the Company’s common stock , subject to various volume amounts and price thresholds.

The plan became effective on August 21, 2024 and the plan provided that it would terminate on August 19, 2025 , unless sooner terminated under its terms.

The 10b5-1 Plan was entered into during an open insider trading window and no sales commenced under the plan until completion of the required cooling off period under Rule 10b5-1.

The 10b5-1 Plan terminated pursuant to its terms on or about January 21, 2025, in connection with the final sale of shares covered by the plan.

No other director or officer of the Company adopted , modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K, during the three months ended December 31, 2024.

DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated herein by reference to the sections “Election of Directors,” “Executive Officers,” “Corporate Governance” and “The Board of Directors and its Committees” in our definitive proxy statement which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2023 or as such period may be extended by action of the Securities and Exchange Commission.

The information required by this item is incorporated herein by reference to the sections “Election of Directors,” “Executive Officers,” “Corporate Governance” and “The Board of Directors and its Committees” in our definitive proxy statement which will be filed with the SEC within 120 days after December 31, 2024 or as such period may be extended by action of the SEC.

We have adopted a Code of Business Conduct and Ethics that applies to our directors, officers and employees.

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EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the section “Executive Compensation” in our definitive proxy statement which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2023 or as such period may be extended by action of the Securities and Exchange Commission.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference to the section “Principal Shareholders and Security Ownership of Management” in our definitive proxy statement which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2023 or as such period may be extended by action of the Securities and Exchange Commission.

The information required by this item is incorporated herein by reference to the section “Executive Compensation” in our definitive proxy statement which will be filed with the SEC within 120 days after December 31, 2024 or as such period may be extended by action of the SEC.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference to the section “Principal Shareholders and Security Ownership of Management” in our definitive proxy statement which will be filed with the SEC within 120 days after December 31, 2024 or as such period may be extended by action of the SEC.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to the sections “Related Person Transactions” and “Corporate Governance” in our definitive proxy statement which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2023 or as such period may be extended by action of the Securities and Exchange Commission.

The information required by this item is incorporated herein by reference to the sections “Related Person Transactions” and “Corporate Governance” in our definitive proxy statement which will be filed with the SEC within 120 days after December 31, 2024 or as such period may be extended by action of the SEC.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference to the section “Principal Accountant Fees and Services” in our definitive proxy statement which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2023 or as such period may be extended by action of the Securities and Exchange Commission.

EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENTS

The following documents are filed as part of this Annual Report on Form 10-K:

(a)(1) and (a)(2) Consolidated Financial Statements

For a list of Consolidated Financial Statements, see “Index to Consolidated Financial Statements” incorporated herein by reference.

(a)(3) Exhibits

The information required by this item is incorporated herein by reference to the section “Principal Accountant Fees and Services” in our definitive proxy statement which will be filed with the SEC within 120 days after December 31, 2024 or as such period may be extended by action of the SEC.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this Annual Report on Form 10-K.

Consolidated Financial Statements .

The following financial statements are filed as a part of this Annual Report on Form 10-K:

Report s of Independent Registered Public Accounting F i rm (PCAOB ID 298)

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Stockholders ’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Financial Statement Schedules

All financial statement schedules have been omitted because they are not applicable or the information is set forth in the Consolidated Financial Statements or Notes thereto.

A list of exhibits to this Annual Report on Form 10-K is set forth below:

Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 of the 10-QSB filed and dated November 10, 2004).

Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 of the 10-QSB filed with the Securities and Exchange Commission and dated November 10, 2004).

Bylaws, as amended (Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 10, 2021).

Description of Securities (Incorporated by reference to the Registrant's Registration Statement on From 8-A, filed with the SEC on October 27, 2008.)

Form of Senior Indenture (Incorporated by reference to Exhibit 4.1 of the Registrant's Registration Statement on From S-3 (No.

333-261091) and filed on November 16, 2021)

Description of Securities (Incorporated by reference to the Registrant’s Registration Statement on From 8-A, filed with the Securities and Exchange Commission on October 27, 2008).

Form of Senior Indenture (Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-3 (No.

333-238794) and filed with the Securities and Exchange Commission on December 13, 2024).

Form of Subordinated Indenture (Incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form S-3 (No.

333-261091) and filed on November 16, 2021

333-238794) and filed with the Securities and Exchange Commission on December 13, 2024).

2019 Equity Incentive Plan, as amended (Incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 12, 2022).

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Amended and Restated Pledge and Security Agreement dated February 28, 2023, among Natural Gas Services Group, Inc., the Grantors thereto, Texas Capital Bank, in its capacity as Administrative Agent, for the Lenders and other Secured Parties (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 6, 2023).

First Amendment to Amended and Restated Credit Agreement dated November 14, 2023, among Natural Gas Services Group, Inc., the other Loan Parties thereto, Texas Capital Bank, in its capacity as Administrative Agent and the Lenders party thereto (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 15, 2023).

Second Amendment to Amended and Restated Credit Agreement dated June 6, 2024, among Natural Gas Services Group, Inc., the other Loan Parties thereto, Texas Capital Bank, in its capacity as Administrative Agent and the Lenders party thereto (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 10, 2024).

Third Amendment to Amended and Restated Credit Agreement dated June 25, 2024, among Natural Gas Services Group, Inc., the other Loan Parties thereto, Texas Capital Bank, in its capacity as Administrative Agent and the Lenders party thereto (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 28, 2024).

Retention Agreement dated September 19, 2023 between Natural Gas Services Group, Inc.

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Form of Restricted Stock Unit Award under the Natural Gas Services Group, Inc.

2019 Equity Incentive Plan, as amended.

2019 Equity Incentive Plan, as amended (Incorporated by reference to Exhibit 10.12 of the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2024).

Form of Performance Stock Unit Award under the Natural Gas Services Group, Inc.

2019 Equity Incentive Plan, as amended.

2019 Equity Incentive Plan, as amended (Incorporated by reference to Exhibit 10.13 of the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2024).

Employment Agreement between Ian M.

Eckert and Natural Gas Services Group, Inc.

dated November 1, 2024 (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 7, 2024).

Amended and Restated Insider Trading Policy.

Subsidiaries of the registrant.

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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Interim Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Certification of Interim Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Natural Gas Services Group, Inc.

Clawback Policy

Clawback Policy (Incorporated by reference to Exhibit 97.1 of the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2024).

101.INS XBRL Instance Document.

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101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

† Management contract or compensatory plan or arrangement.

* Filed herewith.

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NATURAL GAS SERVICES GROUP, INC.

April 1, 2024 By:

March 17, 2025 By:

/s/ Justin C.

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POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Justin Jacobs and John Bittner, jointly and severally, as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Justin C.

Jacobs and Ian M.

Eckert, jointly and severally, as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signature Title Date

/s/ Justin C.

Jacobs Chief Executive Officer (Principal Executive Officer) and Director

March 17, 2025

Eckert Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

March 17, 2025

/s/ Stephen C.

Taylor Chairman of the Board of Directors April 1, 2024

/s/ John Bittner Interim Chief Financial Officer (Principal Accounting Officer)

April 1, 2024

/s/ Don Tringali Director April 1, 2024

Jenvey Director April 1, 2024

Bradshaw Director April 1, 2024

/s/ Georganne Hodges Director April 1, 2024

Taylor Chairman of the Board of Directors March 17, 2025

/s/ Donald Tringali Director March 17, 2025

Donald Tringali

Jenvey Director March 17, 2025

Holley Director March 17, 2025

/s/ Georganne Hodges Director March 17, 2025

Georganne Hodges

NATURAL GAS SERVICES GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm ( Ham, Langston & Brezina, LLP ;

Reports of Independent Registered Public Accounting Firm ( Ham, Langston & Brezina, LLP ;

Houston, Texas ;

Consolidated Balance Sheets as of December 31, 2024 and 2023

Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022

Notes to Consolidated Financial Statements F- 6

Consolidated Statements of Operations for the Year Ended December 31, 2024, 2023 and 2022

Consolidated Statements of Stockholders’ Equity for the Year Ended December 31, 2024, 2023 and 2022

Consolidated Statements of Cash Flows for the Year Ended December 31, 2024, 2023 and 2022

Notes to Consolidated Financial Statements:

Description of Business

Summary of Significant Accounting Policies

Trade Accounts Receivables

Rental Equipment

Property and Equipment

Intangible Assets

Supplemental Balance Sheet Disclosures

Long-Term Debt

Deferred Compensation Plan

Commitments and Contingencies

Stockholders’ Equity

Revenues from Customers

Stock-Based and Other L o ng-Term Incentive Compensation s

Restructuring Activities

Related Party Transactions

Earnings (Loss) per Share

Subsequent Events

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of Natural Gas Services Group, Inc.

(the “Company”) as of December 31, 2023 and 2022, and related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

(the “Company”) as of December 31, 2024 and 2023, and related consolidated statements of operations, stockholders ’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 17, 2025 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

We determined that there are no critical audit matters.

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Houston, Texas

April 1, 2024

March 17, 2025

We have served as the Company ’ s auditor since 2022.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Natural Gas Services Group, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Natural Gas Services Group, Inc.'s (the Company) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2024 and 2023, and related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”) of the Company and our report dated March 17, 2025 expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying “Item 9A, Management’s Report on Internal Control Over Financial Reporting”.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

/s/ Ham, Langston & Brezina LLP

Houston, Texas

March 17, 2025

We have served as the Company ’ s auditor since 2022.

NATURAL GAS SERVICES GROUP, INC.

CONSOLIDATED BALANCE SHEETS

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Cash and cash equivalents $ 2,142 $ 2,746

Trade accounts receivable, net of allowance for doubtful accounts of $ 823 and $ 338 , respectively

39,186 14,668

Inventory, net of allowance for obsolescence of $ 2,836 and $ 0 , respectively

21,639 23,414

Trade accounts receivable, net of provision for credit losses 15,626 39,186

Inventory, net of allowance for obsolescence 18,051 21,639

Federal income tax receivable 11,282 11,538

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Total current assets 48,176 76,271

Long-term inventory, net of allowance for obsolescence of $ 1,168 and $ 120 , respectively

Rental equipment, net of accumulated depreciation of $ 191,745 and $ 177,729 , respectively

373,649 246,450

Property and equipment, net of accumulated depreciation of $ 17,649 and $ 16,981 , respectively

20,550 22,176

Intangibles, net of accumulated amortization of $ 2,384 and $ 2,259 , respectively

Long-term inventory, net of allowance for obsolescence — 701

Rental equipment, net of accumulated depreciation 415,021 373,649

Property and equipment, net of accumulated depreciation 22,989 20,550

Intangible assets, net of accumulated amortization — 775

Other assets 6,342 6,783

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Credit facility 170,000 164,000

Deferred income tax liability 41,636 39,798

Deferred income taxes 45,873 41,636

Other long-term liabilities 4,240 4,486

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Common stock, 30,000 shares authorized, par value $ 0.01 ;

13,688 and 13,519 shares issued, respectively

13,762 and 13,688 shares issued, as of December 31, 2024 and 2023, respectively

Additional paid-in capital 118,415 116,480

Retained earnings 151,508 134,281

Treasury shares, at cost, 1,310 shares

Treasury shares, at cost, 1,310 shares for each of December 31, 2024 and 2023, respectively

( 15,004 ) ( 15,004 )

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Year Ended December 31,

Rental income $ 106,159 $ 74,465

2024 2023 2022

Rental $ 144,236 $ 106,159 $ 74,465

Sales 7,613 8,921 8,568

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Total revenue 156,742 121,167 84,825

Operating costs and expenses:

Cost of rentals, exclusive of depreciation stated separately below 48,877 37,750

Cost of sales, exclusive of depreciation stated separately below 8,919 7,650

Cost of aftermarket services, exclusive of depreciation stated separately below 4,658 957

Cost of revenues (excluding depreciation and amortization)

Rental 56,903 48,877 37,750

Sales 7,903 8,919 7,650

Aftermarket services 3,950 4,658 957

Total cost of revenues (excluding depreciation and amortization) 68,756 62,454 46,357

Selling, general and administrative expenses 21,012 16,938 13,892

Depreciation and amortization 31,347 26,550 24,116

Impairment expense 779 —

Impairments 841 779 —

Inventory allowance 1,863 3,965 83

Retirement of rental equipment 28 505 196

Gain on sale of property and equipment, net ( 430 ) ( 481 ) ( 250 )

Total operating costs and expenses 123,417 110,710 84,394

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Provision for income taxes ( 4,439 ) ( 1,873 ) ( 528 )

Current ( 35 ) ( 17 )

Deferred ( 1,838 ) ( 511 )

Total income tax expense ( 1,873 ) ( 528 )

Net income (loss) $ 17,227 $ 4,747 $ ( 569 )

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Shares Amount Shares Amount Shares Amount

BALANCES, December 31, 2021 — $ — 13,394 $ 134 $ 114,017 $ 130,103 775 $ ( 8,344 ) $ 235,910

Compensation expense on common stock options — — — — 255 — — — 255

Issuance of restricted stock — — 125 — — — — — —

Compensation expense on restricted common stock — — — 1 1,654 — — — 1,655

December 31, 2021 — $ — 13,394 $ 134 $ 114,017 $ 130,103 775 $ ( 8,344 ) $ 235,910

Stock-based compensation — — — 1 1,909 — — — 1,910

Vesting of restricted stock — — 125 — — — — — —

Taxes paid related to net shares settlement of equity awards — — — — ( 515 ) — — — ( 515 )

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Net loss — — — — — ( 569 ) — — ( 569 )

BALANCES, December 31, 2022 — — 13,519 135 115,411 129,534 1,310 ( 15,004 ) 230,076

Compensation expense on common stock options — — — — 97 — — — 97

Issuance of restricted stock — — 169 — — — — — —

Compensation expense on restricted common stock — — — 2 1,955 — — — 1,957

December 31, 2022 — $ — 13,519 $ 135 $ 115,411 $ 129,534 1,310 $ ( 15,004 ) $ 230,076

Stock-based compensation — — — 2 2,052 — — — 2,054

Vesting of restricted stock — — 169 — — — — — —

Taxes paid related to net shares settlement of equity awards — — — — ( 983 ) — — — ( 983 )

Net income — — — — — 4,747 — — 4,747

BALANCES, December 31, 2023 — $ — 13,688 $ 137 $ 116,480 $ 134,281 1,310 $ ( 15,004 ) $ 235,894

December 31, 2023 — $ — 13,688 $ 137 $ 116,480 $ 134,281 1,310 $ ( 15,004 ) $ 235,894

Stock-based compensation — — — — 1,821 — — — 1,821

Vesting of restricted stock — — 51 1 ( 1 ) — — — —

Exercise of common stock options — — 23 — 293 — — — 293

Taxes paid related to net shares settlement of equity awards — — — — ( 178 ) — — — ( 178 )

Purchase of treasury shares — — — — — — — — —

Net income — — — — — 17,227 — — 17,227

December 31, 2024 — $ — 13,762 $ 138 $ 118,415 $ 151,508 1,310 $ ( 15,004 ) $ 255,057

See accompanying notes to these consolidated financial statements.

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Year Ended December 31,

2024 2023 2022

CASH FLOWS FROM OPERATING ACTIVITIES:

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Depreciation and amortization 31,347 26,550 24,116

Amortization of debt issuance costs 425 48

Deferred taxes 1,838 511

Gain on disposal of assets ( 481 ) ( 250 )

Impairment expense 779 —

Retirement of rental equipment 505 196

Provision for credit losses 492 —

Impairments 841 779 —

Inventory allowance 1,863 3,965 83

Retirement of rental equipment 28 505 196

Gain on the sale of property and equipment, net ( 430 ) ( 481 ) ( 250 )

Amortization of debt issuance costs 746 425 48

Deferred income taxes 4,237 1,838 511

Stock-based compensation 1,821 2,054 1,910

Loss on company owned life insurance 235 389

Provision for credit losses 433 492 —

(Gain) loss on company owned life insurance ( 156 ) 235 389

Changes in operating assets and liabilities:

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Inventory 2,477 ( 669 ) ( 4,143 )

Prepaid income taxes and prepaid expenses ( 7 ) ( 250 )

Prepaid expenses and prepaid income taxes 152 ( 7 ) ( 250 )

Accounts payable and accrued liabilities ( 17,727 ) 2,436 10,033

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NET CASH PROVIDED BY OPERATING ACTIVITIES 66,463 18,033 27,764

CASH FLOWS USED IN INVESTING ACTIVITIES:

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of rental equipment, property and other equipment ( 71,894 ) ( 153,943 ) ( 65,122 )

Purchase of company owned life insurance ( 422 ) ( 329 )

Purchase of company owned life insurance, net ( 22 ) ( 422 ) ( 329 )

Proceeds from sale of property and equipment 476 477 372

NET CASH USED IN INVESTING ACTIVITIES ( 71,440 ) ( 153,888 ) ( 65,079 )

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:

Proceeds from line of credit 139,000 25,000

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from credit facility borrowings 28,000 139,000 25,000

Repayments of credit facility borrowings ( 22,000 ) — —

Payments of other long term liabilities ( 780 ) ( 95 ) ( 3 )

Payments of debt issuance costs ( 962 ) ( 2,693 ) ( 77 )

Proceeds from exercise of stock options 293 — —

Purchase of treasury shares — — ( 6,660 )

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Interest paid $ 18,394 $ 7,053 $ 276

Income taxes paid $ — — —

NON-CASH TRANSACTIONS:

Transfer of rental equipment to inventory $ 51 $ 665 $ —

Transfer of right of use assets to property and equipment $ 2,641 — —

Accrued purchases of property and equipment $ 2,687 — —

Right of use asset acquired through a finance lease $ 2,174 $ 1,146 $ —

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts or where otherwise indicated)

Description of Business

Natural Gas Services Group, Inc.

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

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

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

NGS is headquartered in Midland, Texas, with a fabrication facility located in Tulsa, Oklahoma, a rebuild shop in Midland, Texas, and service facilities located in major oil and natural gas producing basins in the U.S.

The Company was formed on December 17, 1998.

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

We rent, design, sell, install, service and maintain natural gas compressors and related equipment for our customers’ oil and gas production and processing facilities, generally using equipment from OEM suppliers along with limited in-house assembly.

We are headquartered in Midland, Texas, with an assembly facility located in Tulsa, Oklahoma, a repair and overhaul shop in Midland, Texas, and service facilities located in major oil and gas producing basins in the United States (“U.S.”).

Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, its subsidiary, NGSG Properties, LLC and the rabbi trust associated with the Company’s deferred compensation plan, see Note 10.

Principles of Consolidation and Basis of Presentation

The accompanying Consolidated Financial Statements were prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and include the accounts of the Company, its subsidiary, NGSG Properties, LLC, which owns our headquarters office building and the rabbi trust associated with our deferred compensation plan ( see Note 1 2 ).

All significant intercompany accounts and transactions for the periods presented have been eliminated in consolidation.

Certain reclassification have been made to prior periods to conform to the current presentation.

In our Consolidated Statements of Operations, (gains) and losses on the sale of property equipment have been reclassified from selling, general and administrative expenses to a stand-alone caption included within total operating income.

Use of Estimates

The preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires our management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes.

The preparation of our Consolidated Financial Statements in conformity with GAAP requires our management to make estimates and assumptions that affect the amounts reported in these Consolidated Financial Statements and accompanying notes.

Actual results could differ from those estimates.

Significant estimates include fixed asset lives, provision for credit losses and the allowance for inventory obsolescence.

Additionally, NGS conducts a yearly review of impairment of long-lived assets.

Throughout the review, determining factors are based on estimates that can significantly impact the carrying value of these assets.

Additionally, we conduct an annual review of our long-lived assets for impairment.

In connection with the review, determining factors are based on estimates that can significantly impact the carrying value of these assets.

It is at least reasonably possible these estimates could be revised in the near term and the revisions could be material.

Cash Equivalents and Financial Instruments

Cash and Cash Equivalents

For purposes of reporting cash flows, we consider all short-term investments with an original maturity of three months or less to be cash equivalents.

At times, cash balances at banks and financial institutions may exceed federally insured amounts.

Accounts Receivable

Our trade receivables consist of customer obligations for the sale of compressors and flare systems due under normal trade terms, and operating leases for the use of our natural gas compressors.

The receivables are not collateralized except as provided for under lease agreements.

However, we typically require deposits of as much as 50 % or use of progress payments for large custom sales contracts.

We perform ongoing credit evaluations of our customers and adjust credit limits based on management's assessment of the customer's financial condition and payment history, as well as industry conditions and general economic conditions.

We continuously monitor collections and payments from our customers, and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified.

While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past.

The provision for credit losses was $ 0.8 million and $ 0.3 million at December 31, 2023 and 2022, respectively.

Management believes that the allowance is adequate;

however, actual write-offs may exceed the recorded allowance.

A summary of our allowance for credit losses is as follows:

Year Ended December 31,

(in thousands)

Beginning balance $ 338 $ 1,129

Accruals 492 —

Write-offs ( 7 ) ( 791 )

Ending balance $ 823 $ 338

Revenue Recognition Policy

Revenue is measured based on a consideration specified in a customer’s contract, excluding any sale incentives and taxes collected on behalf of third parties (i.e.

Accounts Receivable and Credit Losses

Our trade accounts receivables are not collateralized except as provided for under certain lease agreements.We perform ongoing credit evaluations of our customers and adjust credit limits based on management’s assessment of the customer’s financial condition and payment history, as well as industry and general economic conditions.

We continuously monitor collections and payments from our customers, and maintain an allowance for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified as well as forecasts of future economic conditions.

While such credit losses have historically been within our expectations and the allowance established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past.

Revenue Recognition

The following is a description of principal activities from which we generate our revenue and the accounting policies that we apply for the recognition thereof:

Rental Revenue .

We generate revenue from renting compressor equipment to our customers for the right to control the use of the equipment ratably over the term of the underlying agreement.

Our agreements for rental equipment qualify as operating leases under Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”) as we retain the primary exposure to changes in the underlying equipment’s value as the lessor unlike a sale or secured lending arrangement.

Our agreements may also include a fee for servicing the equipment during the term of the rental contract.

We have applied the practical expedient provided in ASC 842, which allows us to combine lease and non-lease components.

Our rental contracts typically range from six to 60 months.

As a lessor, we recognize operating lease revenue on a straight-line basis with equal monthly payments over the term of the underlying agreements.

After the terms of the agreement have expired, a customer may renew their contract or continue renting on a monthly basis thereafter.

The leased equipment is generally skid-mounted and can be moved to different locations at the direction of our customers.

The leased equipment assets remain on our Consolidated Balance Sheets consistent with other property and equipment.

Cash receipts associated with our lease agreements are classified within cash flows from operating activities in our Consolidated Statements of Cash Flows.

Sales and Aftermarket Services Revenue.

We generate revenue from the sale of custom/assembled compressors, flare systems and parts, as well as exchange/rebuilding customer owned compressors and sale of used rental equipment.

We also provide routine aftermarket or call-out services on customer owned equipment.

Consistent with ASC Topic 606, Revenues from Contracts with Customers (“ASC 606”), revenue is measured and recognized based on a consideration specified in a customer’s contract, excluding any sale incentives and taxes collected on behalf of third parties (i.e.

sales and property taxes).

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and (v) recognize revenue when, or as, we satisfy the performance obligation(s).

Transaction prices are not subject to variable consideration constraints.

Shipping and handling costs incurred are accounted for as fulfillment costs and are included in cost of revenues in our Consolidated Statements of Operations.

Nature of Goods and Services

The following is a description of principal activities from which the Company generates its revenue:

Rental Revenue.

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

These contracts, which all qualify as operating leases under ASC Topic 842, Leases (ASC 842), may also include a fee for servicing the compressor or flare during the rental contract.

Our rental contracts typically range from six to 60 months.

Our revenue is recognized over time, with equal monthly payments over the term of the contract.

After the terms of the contract have expired, a customer may renew their contract or continue renting on a monthly basis thereafter.

In accordance with ASC 842 – Leases, we have applied the practical expedient ASC 842-10-15-42A, which allows the Company to combine lease and non-lease components.

Sales Revenue .

The Company generates revenue by the sale of custom/fabricated compressors, flare systems and parts, as well as exchange/rebuilding customer owned compressors and sale of used rental equipment.

Our sales revenue is recognized in accordance with ASC 606.

Custom/fabricated compressors - The Company designs and fabricates compressors based on the customer’s specifications outlined in their contract.

Though the equipment being built is customized by the customer, control under these contracts does not pass to the customer until the compressor is completed and shipped, or in accordance with a bill and hold arrangements the customer accepts title and assumes the risk and rewards of ownership.

For sales, revenue is recognized when control has passed to the customer generally when the equipment is completed and shipped.

We request some of our customers to make progressive payments as the product is being built;

these payments are recorded as a contract liability on the Deferred Income line on the consolidated balance sheet until control has been transferred.

these payments are recorded as deferred revenue within Accrued liabilities on the Consolidated Balance Sheet until control has been transferred.

These contracts also may include an assurance warranty clause to guarantee the product is free from defects in material and workmanship for a set duration of time;

this is a standard industry practice and is not considered a performance obligation.

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

Control is passed either by the customer taking physical possession or the parts being shipped.

The amount of revenue recognized is not adjusted for expected returns, as our historical part returns have been de minimis.

Exchange or rebuild customer owned compressors - Based on the contract, the Company will either exchange a new/rebuilt compressor for the customer’s malfunctioning compressor or rebuild the customer’s compressor.

Revenue is recognized after control of the replacement compressor has transferred to the customer based on the terms of the contract, i.e., by physical delivery, delivery and installment, or shipment of the compressor.

Used compressors or flares - From time to time, a customer may request to purchase a used compressor out of our rental fleet.

Revenue from the sale of rental equipment is recognized when the control has passed to the customer based on the terms of the contract, i.e.

when the customer has taken physical possession or the equipment has been shipped.

Aftermarket Service Revenue .

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

Revenue is recognized after services in the contract are rendered.

Payment terms for sales revenue and aftermarket services revenue discussed above are generally 30 to 60 days although terms for specific customers can vary.

Also, the 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 years ended:

Year Ended December 31,

(in thousands)

Compressors - sales

$ 1,800 $ 3,601

Flares - sales

Other (Parts/Rebuilds) - sales

Aftermarket services 6,087 1,792

Total revenue from contracts with customers

15,008 10,360

ASC 842 rental revenue 106,159 74,465

Total revenue

$ 121,167 $ 84,825

Contract Balances

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

(in thousands)

Accounts Receivable

Accounts receivable - contracts with customers $ 7,138 $ 4,353

Accounts receivable - ASC 842 32,871 10,653

Total Accounts Receivable 40,009 15,006

Allowance for doubtful accounts ( 823 ) ( 338 )

Total Accounts Receivable, net $ 39,186 $ 14,668

Deferred income $ 418 $ 37

The Company recognized less than $ 0.1 million in revenue for the year ended December 31, 2023, that was included in accrued liabilities at the beginning of 2023.

For the period ended December 31, 2022, the Company recognized revenue of $ 1.3 million from amounts related to sales that were included in deferred income at the beginning of 2022.

The increases (decreases) in accounts receivable and deferred income were primarily due to normal timing differences between our performance and the customers’ payments.

T ransaction Price Allocated to the Remaining Performance Obligations

As of December 31, 2023, the Company had $ 0.4 million of revenue related to unsatisfied performance obligations.

Contract Costs

The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less.

These costs are included in selling, general and administrative expense on our Consolidated Statements of Operations.

Accounting Standards Codification ("ASC") 842 requires all leases to be reported on the balance sheet as right-of-use ("ROU") assets and lease obligations.

We determine if an arrangement is a lease at inception and determine lease classification and recognize ROU assets and liabilities on the lease commencement date based on the present value of lease payments over the lease term.

As the discount rate implicit in the lease is rarely readily determinable, we estimate our incremental borrowing rate using information available at the commencement date in determining the present value of the lease payments.

We, as a lessee, apply the practical expedient to not separate non-lease components from lease components, therefore, accounting for each separate lease component and its associated non-lease component, as a single lease component.

For each lease that 1) contains the same timing and pattern of transfer for lease and non-lease components and 2) if the lease component, if accounted for separately, would be classified as an operating lease, the Company has elected to not separate non-lease components from lease components.

Major Customers and Concentration of Credit Risk

Sales and rental income from Occidental Permian, LTD.

("Oxy") in 2023 and 2022 amounted to 50 % and 42 % of revenue, respectively.

No other single customer accounted for more than 10% of our revenues in 2023 and 2022.

Oxy's accounts receivable balances amounted to 64 % and 55 % of our accounts receivable as of December 31, 2023 and 2022, respectively.

No other customers amounted to more than 10% of our accounts receivable as of December 31, 2023 and 2022.

Inventory (current and long-term) is valued at the lower of cost and net realizable value.

Revenue for aftermarket and other services is recognized after the services in the contract are rendered.

Inventory Valuation

Inventory (current and long-term) is valued at the lower of cost or net realizable value.

The cost of inventories is determined by the weighted average method.

We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on current and anticipated customer demand and production requirements.

The Company assesses anticipated customer demand based on current and upcoming capital expenditure budgets of its major customers as well as other significant companies in the industry, along with oil and natural gas price forecasts and other factors affecting the industry.

In addition, our long-term inventory consists of raw materials and replacement parts that remain useable but which the Company does not expect to sell or use within the next year.

Rental Equipment and Property and Equipment

Rental equipment and property and equipment are recorded at cost less accumulated depreciation, except for work-in-progress on new rental equipment which is recorded at cost until it’s complete and added to the fleet.

We routinely review our inventory allowance balance to account for slow moving or obsolete inventory costs that may not be recoverable in the future.

We assess anticipated customer demand based on current and upcoming capital expenditure budgets of our major customers as well as other significant companies in the industry, along with oil and gas price forecasts and other factors affecting the industry.

Our long-term inventory consisted of raw materials and replacement parts that remain useable but that we do not expect to sell or use within the next year.

Long-Lived Assets

Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

Our rental equipment has estimated useful lives between 15 and 25 years, while our property and equipment has estimated useful lives which ranges from 3 to 39 years.

Our rental equipment has estimated useful lives between 15 and 25 years, while our property and equipment has estimated useful lives which range from 3 to 39 years.

The majority of our property and equipment, including rental equipment, is a direct cost to generating revenue.

We assess the impairment of rental equipment and property and equipment whenever events or changes in circumstances indicate that the net recorded amount may not be recoverable.

We assess our rental equipment and property and equipment for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

The following factors could trigger an impairment review:

significant underperformance relative to historical or projected future cash flows;

significant adverse changes in the extent or manner in which asset (or asset group) is being used or its condition, including a meaningful drop in fleet utilization over the prior four quarters;

significant negative industry or company-specific trends or actions, including meaningful capital expenditure budget reductions by our major customers or other sizable exploration and production or midstream companies, as well as significant declines in oil and natural gas prices;

legislative changes prohibiting us from leasing our units or flares;

significant adverse changes in the

extent or manner in which the asset (or asset group) is being used or its condition, including a meaningful drop in fleet utilization over the prior four quarters;

legislative changes prohibiting us from leasing our compressor units;

or poor general economic conditions.

An impairment loss is recognized if the future undiscounted cash flows associated with the asset (or asset group) and the estimated fair value of the asset are less than the asset’s carrying value.

Sales of equipment out of the rental fleet are included with sales revenue and cost of sales, while retirements of units are shown a separate operating expense.

Gains and losses resulting from sales and dispositions of other property and equipment are included within selling, general, and administrative expenses.

Sales of equipment out of the rental fleet are included with sales revenue and cost of sales, while retirements of units are presented as a separate operating expense.

Maintenance and repairs are charged to cost of rentals as incurred.

At December 31, 2023 and 2022, NGS had intangible assets, which relate to developed technology and a trade name.

Developed technology is amortized on a straight-line basis with a useful life of 20 years, with a weighted average remaining life of approximately four years as of December 31, 2023.

NGS has an intangible asset related to the trade name of SCS which was acquired in our acquisition of Screw Compression Systems in January 2005.

This asset is not being amortized as it has been deemed to have an indefinite life.

Our policy is to review intangibles that are being amortized for impairment when indicators of impairment are present.

In addition, it is our policy to review indefinite-lived intangible assets for impairment annually or when indicators of impairment are present.

Intangible Assets

We amortize intangible assets with definite lives over their useful lives and review for impairment when indicators of impairment are present.

We review indefinite-lived intangible assets for impairment annually or when indicators of impairment are present.

We review intangibles through an assessment of the estimated future cash flows related to such assets.

In the event that assets are found to be carried at amounts in excess of estimated undiscounted future cash flows, then the assets will be adjusted for impairment to a level commensurate with a discounted cash flow analysis of the underlying assets.

When warranted, we accrue amounts for estimated warranty claims based upon current and historical product warranty costs and any other related information known.

There was no warranty reserve as of December 31, 2023 and 2022.

As of December 31, 2024, we no longer have any intangible assets ( see Note 8 ).

We determine if an arrangement is a lease at inception by assessing whether it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

GAAP requires all leases to be reported on the balance sheet as right-of-use (“ROU”) assets and lease obligations.

For each lease that (i) contains the same timing and pattern of transfer for lease and non-lease components and (ii) if the lease component, if accounted for separately, would be classified as an operating lease, we have elected to not separate non-lease components from lease components.

Right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

As substantially all of our leases do not provide an implicit rate, we use our incremental borrowing rate, which is based on a fully collateralized loan over the lease term, to determine the present value of lease payments.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, and net operating losses and tax credit carry-forwards.

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Valuation allowances are established to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

ASC Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

With respect to uncertain tax positions, GAAP prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

In order to record any financial statement benefit, we are required to determine, based on technical merits of the position, whether it is more likely than not (a likelihood of more than 50 percent) that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes.

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The tax position is measured at the largest amount of the benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

We have no uncertain tax positions as of December 31, 2023.

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

We had no liabilities for uncertain tax positions as of December 31, 2024 and 2023.

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

Capitalized Interest

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.

We capitalize interest from external borrowings on significant expenditures for the assembly of our 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 year ended December 31, 2023, the Company capitalized interest totaling approximately $ 5.5 million.

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions.

ASC Topic 820 established a fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value.

GAAP provides for a fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value.

These inputs are categorized as follows:

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Level 3 - valuation methodology with unobservable inputs that are significant to the fair value measurement.

Management believes that the fair value of our cash and cash equivalents, trade receivables, and accounts payable at December 31, 2023 and 2022 approximate their carrying values due to the short-term nature of the instruments or the use of prevailing market interest rates.

The company considered the borrowings under the credit facility to approximate fair value based upon borrowing rates currently available to us for loans with similar terms (level 2).

We believe that the fair value of our cash and cash equivalents, trade accounts receivables, and accounts payable as of December 31, 2024 and 2023 approximate their carrying values due to the short-term nature of the instruments or the use of prevailing market interest rates.

We considered the borrowings under our credit facility to approximate fair value based upon variable interest rates currently available to us for loans with similar terms (level 2).

Segments and Related Information

ASC 280-10-50, “Operating Segments”, define the characteristics of an operating segment as a) being engaged in business activity from which it may earn revenue and incur expenses, b) being reviewed by the company's chief operating decision maker (CODM) for decisions about resources to be allocated and assess its performance and c) having discrete financial information.

Although we look at our products to analyze the nature of our revenue, other financial information, such as certain costs and expenses, net income and EBITDA are not captured or analyzed by these categories.

Our CODM does not make resource allocation decisions or assess the performance of the business based on these categories, but rather in the aggregate.

Based on this, management believes that it operates in one business segment.

We are engaged in the business of designing and fabricating compressors.

Our compressors are sold and rented to our customers.

In addition, we provide aftermarket services on compressors in our fleet and to third parties.

These business activities are similar in all geographic areas.

Historically, our manufacturing process has been essentially the same for the entire Company and has been performed in-house at our facilities in Midland, Texas and Tulsa, Oklahoma.

Increasingly, however, we have contracted with third party fabricators to assemble our larger horsepower natural gas compressors.

Our customers primarily consist of entities in the business of producing oil and natural gas.

The maintenance and service of our products is consistent across the entire Company and is performed via an internal fleet of vehicles.

GAAP defines the characteristics of an operating segment as (i) being engaged in business activity from which it may earn revenue and incur expenses, (ii) being reviewed by the Company’s chief operating decision maker (“CODM”) for decisions about resources to be allocated and assess its performance and (iii) having discrete financial information.

Although we review our products to analyze the nature of our revenue, costs and expenses, the net income and non-GAAP financial measures including EBITDA and Adjusted gross margin are not captured or analyzed by these categories.

Our chief executive officer (“CEO”) serves as the CODM and does not make resource allocation decisions or assess the performance of the business based on these categories, but rather on the entire entity in the aggregate.

Accordingly, the measures of profit and loss and total assets are effectively those of the Company as a whole as reflected in these Consolidated Financial Statements.

Based on these facts and underlying circumstances described further below, we have concluded that we operate in one business segment.

We are primarily engaged in the business of leasing natural gas compressors to our customers.

In addition, we design, assemble and sell natural gas compressors and provide aftermarket services on compressors in our fleet and to third parties.

These business activities are similar in all geographic areas in which we operate.

Our customers primarily consist of entities in the business of producing oil and gas.

The maintenance and service of our products is consistent across the entire Company and is performed by a dedicated group of employees via an internal fleet of vehicles.

The regulatory environment is similar in every jurisdiction in that the most impacting regulations and practices are the result of federal energy policy.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (ASC Topic 326):

Measurement of Credit Losses on Financial Instruments.

The amendments to ASC Topic 326 require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including trade receivables.

For companies that qualify as smaller reporting companies, the amendments in this update are effective for interim and annual periods beginning after January 1, 2023.

As of January 1, 2023 we adopted ASU 2016-13.

The standard did not materially affect our consolidated financial statements and note disclosures.

In December 2023, the Financial Standards Accounting Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023- 09 “Income Taxes (Topics 740):

Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid.

ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted.

The Company is currently evaluating the potential effect that the updated standard will have on the financial statement disclosures.

Recently Adopted Accounting Pronouncements

In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-09 “ Income Taxes (Topics 740):

Improvements to Income Tax Disclosures ” (“ASU 2023-09”) to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid.

We elected to early adopt ASU 2023-09 effective with our financial reporting for the year ended December 31, 2024 and have applied the provisions on a retrospective basis for all periods presented in these Consolidated Financial Statements.

Accordingly, the enhanced disclosures required of ASU 2023-09 are provided in Note 1 1 .

In November 2023, the FASB issued ASU 2023-07 “ Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures” which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.

ASU 2023-07 is effective for our annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted.

The adoption is not expected to have a material impact on the Company’s Consolidated Financial Statements or disclosures.

Our inventory, net of allowance for obsolescence of $ 4.0 million and $ 0.1 million at December 31, 2023 and 2022, respectively, consisted of the following:

(in thousands)

Inventory, net of allowance for obsolescence of $ 2,836 and $ 0 , respectively

Improvements to Reportable Segment Disclosures ” (“ASU 2023-07”) which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.

We adopted ASU 2023-07 effective January 1, 2024 and the required disclosures are referenced above in our discussion of Segments and Related Information.

Recently Issued Accounting Pronouncements Pending Adoption

In November 2024, the FASB issued ASU 2024-03 “ Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expense ” (“ASU 2024-03”) which expands annual and interim disclosures expenses for certain types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, selling, general & administrative expenses, and research and development).

ASU 2024-03 is effective for annual periods beginning January 1, 2027, and for interim periods beginning January 1, 2028, with early adoption permitted.

The adoption of ASU 2024-03 is not expected to have a material impact on our Consolidated Financial Statements or disclosures.

Trade Accounts Receivable

The following table summarizes our trade accounts receivable from customers as of the dates presented:

Trade accounts receivable

Rentals $ 14,218 $ 32,871

Sales and aftermarket services 2,657 7,138

16,875 40,009

Allowance for credit losses ( 1,249 ) ( 823 )

Total trade accounts receivable, net $ 15,626 $ 39,186

Our trade accounts receivable consist of customer obligations due under normal trade terms for (i) operating leases for the use of our natural gas compressors, (ii) the sale of compressors and flare systems and (iii) the performance of aftermarket services.

Major Customers and Concentration of Credit Risk

Rental revenue and sales from Occidental Permian, LTD.

(“Oxy”) in 2024, 2023 and 2022 amounted to 54 percent, 50 percent and 42 percent of revenue, respectively.

No other single customer accounted for more than 10 percent of our revenues in 2024, 2023 and 2022.

Oxy’s accounts receivable balances amounted to 52 percent and 64 percent of our accounts receivable as of December 31, 2024 and 2023, respectively.

No other customers amounted to more than 10 percent of our accounts receivable as of December 31, 2024 and 2023.

Allowance for Credit Losses

The following table summarizes the changes in our allowance for credit losses for the periods presented:

Year Ended December 31,

2024 2023 2022

Beginning balance $ 823 $ 338 $ 1,129

Provision for credit losses 433 492 —

Write-offs ( 7 ) ( 7 ) ( 791 )

Ending balance $ 1,249 $ 823 $ 338

Management believes that the allowance is adequate;

however, actual write-offs may exceed the recorded allowance.

The following table summarizes our inventory, net of allowances for obsolescence as of the dates presented:

Raw materials, net of allowance of $ 4,379 and $ 2,836 , respectively

$ 17,706 $ 20,227

Work-in-process 345 1,412

Inventory - current 18,051 21,639

Raw materials - long term (net of allowances of $ 1,168 and $ 120 , respectively)

Inventory total $ 22,340 $ 24,971

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

Inventory Allowance

We routinely review our inventory allowance balance to account for slow moving or obsolete inventory costs that may not be recoverable in the future.

For the year ended December 31, 2023, our provision for excess and obsolete inventory totaled $ 4.0 million.

The majority of this amount was due to a 2023 charge related to the company's decision to cease future compressor fabrication at our Midland facility, which reduced the expected future demand of certain inventory items held at this facility.

A summary of our inventory allowance is as follows:

Raw materials - long term, net of allowance of $ 1,488 and $ 1,168 , respectively

Total inventory $ 18,051 $ 22,340

Our long-term inventory, which is fully reserved as of December 31, 2024, consists of excess raw materials that remain viable but with limited market opportunities.

The following table summarizes the changes in our allowance for obsolescence for the periods presented:

Year Ended December 31,

(in thousands)

2024 2023 2022

Beginning balance $ 4,004 $ 120 $ 64

Additions 3,965 83

Allowance for obsolescence 1,863 3,965 83

Write-offs — ( 81 ) ( 27 )

Ending balance $ 5,867 $ 4,004 $ 120

Rental Equipment, Property and Equipment

The allowance for 2023 was primarily related to our decision to cease future compressor assembly at our Midland, Texas facility, which reduced the expected future demand of certain inventory items held at this facility.

In 2024, we continued actions in support of our strategy to further outsource assembly activities to third parties resulting in an additional allowance charge.

Rental Equipment

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

(in thousands)

The following table summarizes our rental equipment and accumulated depreciation as of the dates presented:

Compressor units $ 579,373 $ 514,527

Work-in-progress 51,662 50,867

Rental equipment 565,394 424,179

631,035 565,394

Accumulated depreciation ( 216,014 ) ( 191,745 )

Rental equipment, net of accumulated depreciation $ 415,021 $ 373,649

Our rental equipment has an estimated useful life between 15 and 25 years.

Depreciation expense for rental equipment was $ 24.0 million and $ 21.9 million for the years ended December 31, 2023 and 2022, respectively.

We capitalized interest totaling approximately $ 4.7 million and $ 5.5 million in connection with the acquisition and assembly of compressor units for the years ended December 31, 2024 and 2023, respectively.

No interest was capitalized during 2022.

Depreciation expense for rental equipment was $ 28.2 million, $ 24.0 million and $ 21.9 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Retirement of Rental Equipment

Management routinely reviews the Company's inventory of rental equipment for retirement or obsolescence.

During 2023, management reviewed the rental fleet to determine which units were not of the type, configuration, make or model that our customers are demanding or that were not cost efficient to refurbish, maintain and/or operate.

As a result of this review, we recorded a $ 0.5 million loss on retirement of rental equipment during the year ended December 31, 2023.

During our review of our rental compressor units in 2022, we recorded a $ 0.2 million loss on retirement of rental equipment.

Property and Equipment

Property and equipment consists of the following at December 31, 2023 and 2022:

We routinely review our rental fleet for retirement or obsolescence as well as an assessment to determine which units are not of the type, configuration, make or model that our customers are demanding or that are not cost efficient to refurbish, maintain and/or operate.

As a result of these reviews, we recorded charges for the retirement of rental equipment of less than $ 0.1 million, $ 0.5 million and $ 0.2 million during the years ended December 31, 2024, 2023 and 2022, respectively.

Rental Activity

Future minimum rent payments from our customers for contractual arrangements not on a month-to-month basis at December 31, 2024, are as follows:

Year Ending December 31,

2025 $ 105,603

Total $ 302,239

Property and Equipment, net

The following table summarizes our property and equipment as of the dates presented:

Useful Lives (Years) 2024 2023

(in thousands)

Land — $ 1,680 $ 1,680

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Work-in-progress 168 589

Total 38,199 39,157

Less accumulated depreciation ( 17,649 ) ( 16,981 )

Total $ 20,550 $ 22,176

Depreciation expense for property and equipment was $ 2.4 million and $ 2.1 million for the year ended December 31, 2023 and 2022, respectively.

Depreciation Expense by Product Line

The following table depicts annual depreciation expense associated with each product line as well as our corporate activities at December 31, 2023 and 2022:

(in thousands)

Rentals $ 25,507 $ 23,243

Sales 260 275

Service & Maintenance 89 33

Corporate 569 440

Total $ 26,425 $ 23,991

Rental Activity

We rent natural gas compressor packages to entities in the petroleum industry.

These rental arrangements are classified as operating leases and generally have original terms of six months to sixty months and continue on a month-to-month basis thereafter.

Future minimum rent payments for arrangements not on a month-to-month basis at December 31, 2023, are as follows:

Years Ending December 31, (in thousands)

42,149 38,199

Less accumulated depreciation ( 19,160 ) ( 17,649 )

Total $ 22,989 $ 20,550

The Company determines if an arrangement is a lease at inception by assessing whether it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company’s operating leases are primarily related to property leases for its field offices.

The Company's operating leases have remaining lease terms of one to eight years .

Renewal and termination options are included in the lease term when it is reasonably certain that the Company will exercise the option.

The company's finance leases are primarily related to vehicles used in our rental business.

The company's finance leases have lease terms of 3 years.

The Company's lease agreements do not contain any contingent rental payments, material residual guarantees or material restrictive covenants.

Right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

As substantially all of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is based on a fully collateralized loan over the lease term, to determine the present value of lease payments.

The following table reflects the amounts related to leases that are recorded on our consolidated balance sheets as of December 31, 2023 and 2022:

Depreciation expense for property and equipment was $ 2.4 million, $ 2.4 million and $ 2.1 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Our operating leases are primarily related to property leases for field offices and office equipment.

Our operating leases have remaining lease terms of one to five years .

Renewal and termination options are included in the lease term when it is reasonably certain that we will exercise the option.

Our finance leases were primarily related to vehicles used in our rental business;

however, we terminated all such leases during 2024 and purchased the vehicles and recorded them in property and equipment.

Prior to their termination, our finance leases generally had lease terms of three years .

Our lease agreements do not contain any contingent rental payments, material residual guarantees or material restrictive covenants.

The following table reflects the amounts related to leases that are recorded on our Consolidated Balance Sheets as of the dates presented:

Classification on Consolidated December 31,

Balance Sheets 2023 2022

($ in thousands)

Description Balance Sheets 2024 2023

Operating lease assets Other assets $ 607 $ 210

Finance lease assets Other assets — 1,045

Current lease liabilities Accrued liabilities $ 58 $ 155

Current lease liabilities Accrued liabilities 307 —

Non-current lease liabilities Other long-term liabilities 173 194

Non-current lease liabilities Other long-term liabilities 723 —

Total right of use assets $ 607 $ 1,255

Current lease liabilities - operating Accrued liabilities $ 153 $ 58

Current lease liabilities - financing Accrued liabilities — 307

Total current lease liabilities 153 365

Noncurrent lease liabilities - operating Other long-term liabilities 454 173

Noncurrent lease liabilities - financing Other long-term liabilities — 723

Total noncurrent lease liabilities 454 896

Total lease liabilities $ 607 $ 1,261

Weighted average remaining lease term (in years) 3.8 3.1

Implicit Rate 9.1 % 5.2 %

Weighted average discount rate 8.3 % 9.1 %

Operating lease costs are recognized on a straight-line basis over the lease term.

Total operating lease costs for the years ended December 31, 2023 and December 31, 2022 were approximately $ 0.5 million and $ 0.4 million respectively.

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities

Total operating lease costs for the years ended December 31, 2024, 2023 and 2022 were approximately $ 0.7 million, $ 0.5 million and $ 0.4 million, respectively.

The following table summarizes the cash paid for amounts included in the measurement of liabilities included in our Consolidated Statements of Cash Flows for the periods presented:

Year Ended December 31,

2024 2023 2022

Operating lease cost (1) (2)

$ 712 $ 485 $ 384

Finance lease cost $ 622 $ 95 $ 3

(1) Lease costs are classified on the Consolidated Statements of Operations in cost of sales, cost of compressors and selling, general and administrative expenses.

(2) Includes costs of $ 0.3 million for leases with terms of 12 months or less and $ 0.2 million for leases with terms greater than 12 months for the year ended December 31, 2023.

Includes costs of $ 0.2 million for leases with terms of 12 months or less and $ 0.2 million for leases with terms greater than 12 months for the year ended December 31, 2022.

The following table shows the future maturities of lease liabilities:

Year Ending December 31, Lease Liabilities

(in thousands)

Thereafter 16

(1) Lease costs are classified in the Consolidated Statements of Operations within cost of revenues and selling, general and administrative expenses.

(2) Includes costs of $ 0.1 million, $ 0.3 million and $ 0.2 million for leases with terms of 12 months or less and $ 0.6 million, $ 0.2 million and $ 0.2 million for leases with terms greater than 12 months for the years ended December 31, 2024, 2023 and 2022, respectively.

The following summarizes the future maturities of our lease liabilities for the periods presented:

Year Ending December 31,

Total lease payments 751

Imputed interest ( 144 )

Total $ 1,261

Rent expense under such leases was $ 0.2 million and $ 0.2 million for the years ended December 31, 2023 and 2022, respectively.

At December 31, 2023 and 2022, the Company had intangible assets, which relate to developed technology and a trade name.

Amortization expense recognized in each of the years ending December 31, 2023 and 2022 was $ 0.1 million.

Estimated amortization expense for 2024 is approximately $ 0.1 million.

The Company has an intangible asset with a gross carrying value of $ 0.7 million at December 31, 2023, related to the trade name of SCS which was acquired in our acquisition of Screw Compression Systems in January 2005.

This asset is not being amortized as it has been deemed to have an indefinite life.

The following table represents the identified intangible assets by major asset class (in thousands):

Rent expense under such leases was $ 0.6 million, $ 0.2 million and $ 0.2 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Intangible Assets

In connection with our acquisition of Screw Compression Systems (“SCS”) in January 2005, we acquired certain intangible assets attributable to developed technology and the SCS trade name.

Amortization expense attributable to the developed technology recognized in each of the years ending December 31, 2024, 2023 and 2022 was $ 0.1 million and the asset is fully amortized as of December 31, 2024.

During 2024, we fully impaired the trade name intangible asset as we are no longer marketing the associated technology.

There were no impairments of these intangible assets during the years ended December 31, 2023 or 2022.

The following table summarizes our intangible assets by major asset class as of the dates presented:

December 31, 2024 December 31, 2023

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Total $ — $ — $ — $ 3,159 $ 2,384 $ 775

Our policy is to review intangibles that are being amortized for impairment when indicators of impairment are present.

In addition, it is our policy to review indefinite-lived intangible assets for impairment annually or when indicators of

impairment are present.

We review intangibles through an assessment of the estimated future cash flows related to such assets.

Based upon our analysis, we experienced no impairment of intangible assets during the years ended December 31, 2023 or 2022.

Supplemental Balance Sheet Disclosures

The following table summarizes the components of accrued liabilities as of the dates presented:

Accrued purchases $ 2,085 $ 8,629

Compensation 3,483 2,274

Right of use obligations 153 365

Interest 269 2,665

Deferred revenue — 418

Sales taxes 355 313

Other 1,343 421

$ 7,688 $ 15,085

Long-Term Debt

Our outstanding long-term debt consists of the following as of the dates presented:

Credit facility $ 170,000 $ 164,000

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.

On December 12, 2022, we entered into a First Amendment to the Credit Agreement (the "First Amendment") to increase the maximum commitment to $ 30 million.

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 was May 11, 2026.

The obligations under the Credit Agreement were 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.

At December 31, 2022, we had $ 25.0 million outstanding under the Credit Agreement with a weighted average interest rate of 7.32 %.

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;

We have a five-year senior secured revolving credit agreement, as amended (the “Credit Facility”) with Texas Capital Bank, National Association (the “Lender”) as administrative agent, TCBI Securities, Inc., as joint lead arranger and sole book runner and Bank of America, N.A., as joint lead arranger, with a total commitment of $ 300.0 million.

We also have a right to request from the Lender, an increase to the potential aggregate commitment of up to $ 50.0 million;

provided, however, the aggregate commitment amount is not permitted to exceed $ 350.0 million.

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

In connection with the amendment we agreed to pay fees of $ 2.0 million (representing fees equal to 1.39 % of the $ 145 million increase in the commitment) and reimburse the lenders for their expenses.

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.

On November 14, 2023, the Company entered into a First Amendment to the Amended and Restated Credit Agreement (the "Amendment") with the Lender and certain other lenders to (i) increase the lender commitment from $ 175 million to $ 225 million, and (ii) to add First-Citizens Bank & Trust Company as a new lender to the facility.

In connection with the Amendment, we agreed to pay fees of $ 0.6 million (representing fees equal to 1.125 % of the $ 50 million increase in the commitment) and reimburse the lenders for their expenses.

As of December 31, 2023, we were in compliance with all financial covenants in our credit agreement.

At December 31, 2023, we had $ 164.0 million outstanding under our Amended and Restated Credit Agreement at a weighted average interest rate of 9.40 %.

At December 31, 2023, we had approximately $ 56.0 million of availability under the Amended and Restated Credit Agreement.

The obligations under the Credit Facility are secured by a first priority lien on most of our assets, including inventory and certain accounts receivable as well as a variable number of our leased compressor units.

The maturity date of the Credit Facility is February 28, 2028.

As of December 31, 2024, we had $ 170.0 million outstanding under our Credit Facility with a weighted average interest rate of 8.12 %.

As of December 31, 2024, we had approximately $ 130.0 million available for borrowing under the Credit Facility, subject to borrowing base determination.

As of December 31, 2024, we were in compliance with all financial covenants in our Credit Facility.

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.

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 this 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 of cost (excluding any costs for capitalized interest or other noncash capitalized costs) or market of the eligible new compressor fleet, minus (e) any required availability reserves determined by the Lender in its sole discretion.

At any time before the maturity of the Credit Facility, we may draw, repay and re-borrow amounts available under the borrowing base up to the maximum aggregate availability discussed above.

Generally, the borrowing base equals the sum of (a) 85 % of eligible accounts receivable owed to us, plus (b) 50 % of the eligible inventory, valued at the lower of cost or market value at such time, subject to a cap of this component not to exceed $ 2.5 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 of cost (excluding any costs for capitalized interest or other noncash 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 material deviations in the collateral are discovered in future audits of the collateral.

Interest and Fees.

Under the terms of the Amended and Restated Credit Agreement, we have the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) the Base Rate (as defined below) plus the Applicable Margin, or (b) in the case of a Term SOFR (“Secured Overnight Financing Rate”) Loan, the Adjusted Term SOFR rate plus the Applicable Margin.

Under the terms of the Credit Facility, we have the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) the Base Rate (as defined below) plus the Applicable Margin, or (b) in the case of a Term Secured Overnight Financing Rate (“SOFR”) Loan, the Adjusted Term SOFR rate plus the Applicable Margin.

“Base Rate” means, for any day, a rate of interest per annum equal to the highest of (a) the prime rate for such day;

1 unchanged sentence

and (c) the Adjusted Term SOFR for such day plus 1.00 %.

The Applicable Margin is determined based upon the leverage ratio as set forth in the most recent compliance certificate received by the Lender for each fiscal quarter from time to time pursuant to the Amended and Restated Credit Agreement.

Depending on the leverage ratio, the Applicable Margin can be 2.00 % to 2.75 % for Base Rate Loans (as

defined in the Amended and Restated Credit Agreement) and 3 % to 3.75 % for Term SOFR Loans and for requested letters of credit.

In addition, we are required to pay a monthly commitment fee on the daily average unused amount of the commitment while the Amended and Restated Credit Agreement is in effect at an annual rate equal to 0.50 % of the unused commitment amount.

Depending on the leverage ratio, the Applicable Margin can be 2.00 % to 2.75 % for Base Rate Loans (as defined in the Credit Facility) and 3.00 % to 3.75 % for Term SOFR Loans and for requested letters of credit.

In addition, we are required to pay a monthly commitment fee on the daily average unused amount of the commitment while the Credit Facility is in effect at an annual rate equal to 0.50 % of the unused commitment amount.

Accrued interest is payable monthly on outstanding principal amounts and unused commitment fee, provided that accrued interest on Term SOFR Loans is payable at the end of each interest period, but in no event less frequently than quarterly.

The Amended and Restated Credit Agreement contains customary representations and warranties, as well as covenants which, among other things, condition or limit our ability to incur additional indebtedness and liens;

The Credit Facility contains customary representations and warranties, as well as covenants which, among other things, condition or limit our ability to incur additional indebtedness and liens;

enter into transactions with affiliates;

6 unchanged sentences

or change the nature of our business.

In addition, we are subject to certain financial covenants in the Amended and Restated Credit Agreement that require us to maintain (i) a leverage ratio, as defined, lesser than or equal to 3.50 to 1.00 as of the last day of each fiscal quarter ending on or prior to December 31, 2024 and 3.25 to 1.00 for the fiscal quarter ending March 31, 2025 and for each fiscal quarter thereafter and (ii) a fixed charge coverage ratio greater than or equal to 1.25 to 1.00 as of the last day of each fiscal quarter.

In addition, we are subject to certain financial covenants in the Credit Facility that require us to maintain (i) a leverage ratio, as defined, lesser than or equal to (a) 3.50 to 1.00 as of the last day of each fiscal quarter ending on or prior to December 31, 2024, (b) 3.75 to 1.00 for fiscal quarters ending on March 31, 2025 and June 30, 2025, (c) and 3.50 to 1.00 for the fiscal quarters ending September, 30, 2025, December 31, 2025 and March 31, 2026 and (d) 3.25 to 1.00 the fiscal quarter ended June 30, 2026 and for each fiscal quarter thereafter and (ii) a fixed charge coverage ratio greater than or equal to 1.25 to 1.00 as of the last day of each fiscal quarter.

Events of Default and Acceleration .

The Amended and Restated Credit Agreement contains customary events of default for credit facilities of this size and type, and includes, without limitation, payment defaults;

defaults in performance of covenants or other agreements contained in the Amended and Restated Credit Agreement and the other transaction documents;

The Credit Facility contains customary events of default for credit facilities of this size and type, and includes, without limitation, payment defaults;

defaults in performance of covenants or other agreements contained in the Credit Facility and the other transaction documents;

inaccuracies in representations and warranties;

5 unchanged sentences

certain change in control events and the defectiveness of any liens.

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

The provision for income taxes for the years ended December 31, 2023 and 2022, consists of the following (in thousands):

Current expense

State expense $ ( 35 ) $ ( 17 )

Total current expense ( 35 ) ( 17 )

Deferred (expense) benefit:

Federal expense ( 1,940 ) ( 857 )

State benefit 102 346

Total deferred expense ( 1,838 ) ( 511 )

Total expense $ ( 1,873 ) $ ( 528 )

The effective tax rate for the years ended December 31, 2023 and 2022, differs from the statutory rate as follows:

Obligations outstanding under the Credit Facility may be accelerated upon the occurrence of an event of default.

The following table summarizes our provision for income taxes for the presented:

Year Ended December 31,

2024 2023 2022

Current income tax expense:

Federal $ ( 88 ) $ — $ —

State ( 114 ) ( 35 ) ( 17 )

Total current income tax expense ( 202 ) ( 35 ) ( 17 )

Deferred income tax (expense) benefit:

Federal ( 4,456 ) ( 1,940 ) ( 857 )

State 219 102 346

Total deferred income tax (expense) benefit ( 4,237 ) ( 1,838 ) ( 511 )

Provision for income taxes $ ( 4,439 ) $ ( 1,873 ) $ ( 528 )

The following table summarizes the effective tax rates for the periods presented:

Year Ended December 31,

2024 2023 2022

Statutory rate $ ( 4,550 ) 21.0 % $ ( 1,390 ) 21.0 % $ 9 21.0 %

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Effective rate $ ( 4,439 ) 20.5 % $ ( 1,873 ) 28.3 % $ ( 528 ) ( 1,288.7 ) %

We file income tax returns in the U.S.

federal jurisdiction and various state jurisdictions.

With few exceptions, we are no longer subject to U.S.

federal or state income tax examination by tax authorities for years before 2015.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the economic impact caused by the COVID-19 pandemic.

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In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid federal income taxes.

The Company generated significant NOLs

during 2018 and 2019 and filed carryback claims for these losses to the preceding five years.

Accordingly, as of March 31, 2020, the Company recorded a federal income tax receivable of $ 15.0 million and an increase to its deferred tax liability of $ 10.1 million on its balance sheet.

During the third quarter of 2020, the Company received refunds corresponding to the 2018 NOL carryback, leaving a balance in the federal income tax receivable of $ 11.5 million at December 31, 2023.

In conjunction with the $ 11.5 million income tax refund claim, on March 8, 2023, the Company received a notice from the Internal Revenue Service that its 2015, 2016, 2017 and 2019 income tax returns were selected for examination.

The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and (liabilities) as of December 31, 2023 and 2022, are as follows (in thousands):

We generated significant NOLs during 2018 and 2019 and filed carryback claims for these losses to the preceding five years.

In connection with the filing of these claims, we initially recorded a federal income tax receivable of approximately $ 15.0 million and an increase of approximately $ 10.1 million to our deferred tax liability as of March 31, 2020.

During 2020, we received federal income tax refunds corresponding to the 2018 NOL carryback leaving approximately $ 11.3 million remaining to be refunded.

In conjunction with the remaining $ 11.3 million income tax refund claim, we received a notice from the Internal Revenue Service (“IRS”) on March 8, 2023, stating that our income tax returns for 2015, 2016, 2017 and 2019 were selected for examination.

Furthermore and as is customary for income tax refunds of this magnitude, the IRS is required to review the refund claim and provide a report to the Joint Committee on Taxation of the U.S.

Congress (“JCT”).

The following table summarizes the income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and (liabilities) as of the periods presented :

Deferred income tax assets:

Net operating loss $ 22,190 $ 6,391

Net operating loss carryforward $ 20,600 $ 22,190

Research and development credits 1,011 1,313

Stock compensation 153 121

Stock-based compensation 269 153

Interest expense 2,756 991

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Property and equipment ( 73,198 ) ( 68,110 )

Goodwill and other intangible assets ( 143 ) ( 192 )

Intangible assets — ( 143 )

Total deferred income tax liabilities ( 73,198 ) ( 68,253 )

Net deferred income tax liabilities $ ( 45,873 ) $ ( 41,636 )

As of December 31, 2023, the Company had NOL carryforwards for federal income tax purposes of $ 96.0 million, which may be carried forward indefinitely and can offset up to 80% of future taxable income in any given year.

Future changes in ownership, as defined by Section 382 of the Internal Revenue Code ("IRC"), could limit the amount of NOL carryforwards used in any one year.

As of December 31, 2024, we had NOL carryforwards for federal income tax purposes of $ 89.5 million, which may be carried forward indefinitely and can offset up to 80% of future taxable income in any given year.

Future changes in ownership, as defined by Section 382 of the Internal Revenue Code of 1986, as amended (“IRC”), could limit the amount of NOL carryforwards used in any one year.

In general, under Section 382 and 383 of the IRC, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs and certain tax credits, to offset future taxable income and tax.

In general, an ownership change occurs if the aggregate stock ownership of certain stockholders changes by more than 50 percentage points over such stockholders’ lowest percentage of ownership during the testing period (generally three years).

We account for uncertain tax positions in accordance with guidance in FASB ASC 740, which prescribes the minimum recognition threshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the financial statements.

The Company assessed whether it had any uncertain tax positions related to open tax years and concluded there were none.

Accordingly, no reserve for uncertain tax positions has been recorded as of December 31, 2023 and 2022.

Our policy regarding income tax interest and penalties is to expense those items as incurred.

During the years ended December 31, 2023 and 2022, there were no significant income tax interest or penalty items in the statement of operations.

We file income tax returns in the U.S.

federal jurisdiction and various state jurisdictions.

With few exceptions, we are no longer subject to U.S.

federal or state income tax examination by tax authorities for years before 2015.

Deferred Compensation Plans

Effective January 1, 2016, the Company established a non-qualified deferred compensation plan for executive officers, directors and certain eligible employees.

We also had state NOL carryforwards of $ 46.6 million with carryforward periods similar to those of our federal NOLs.

We have no reserves for uncertain tax positions as of December 31, 2024 and 2023.

Deferred Compensation Plan

Effective January 1, 2016, we established a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for executive officers, directors and certain eligible employees.

The assets of the Deferred Compensation Plan are held in a rabbi trust and are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company.

The plan allows for deferral of up to 90 % of a participant’s base salary, bonus, commissions, director fees and restricted stock awards.

A Company owned life insurance policy held in a rabbi trust is utilized as a source of funding for the plan.

The cash surrender value of the life insurance policy is $ 3.0 million and $ 2.4 million as of December 31, 2023 and 2022, respectively, with a loss related to the policy of $( 0.2 ) million

and $( 0.4 ) million reported in other income in our consolidated statement of operations for the year ended December 31, 2023 and 2022, respectively.

The Deferred Compensation Plan allows for deferral of up to 90 percent of a participant’s base salary, bonus, commissions, director fees and restricted stock awards.

Company owned life insurance (“COLI”) policies are held in the rabbi trust are utilized as a source of funding for the Deferred Compensation Plan.

The cash surrender value of the COLI policies was $ 3.0 million and $ 3.0 million as of December 31, 2024 and 2023, respectively, with unrealized gains and (losses) related to the policies of $ 0.2 million, $( 0.2 ) million and $( 0.4 ) million recorded as a component of Other income (expense) in our Consolidated Statements of Operations for the years ended December 31, 2024, 2023 and 2022, respectively.

For deferrals of base salary, bonus, commissions and director fees, settlement payments are made to participants in cash, either in a lump sum or in periodic installments.

The deferred obligation to pay the deferred compensation and the deferred director fees is adjusted to reflect the positive or negative performance of investment measurement options selected by each participant and was $ 3.6 million and $ 2.8 million as of December 31, 2023 and 2022, respectively.

The deferred obligation is included in other long-term liabilities in the consolidated balance sheets.

For deferrals of restricted stock units, the plan does not allow for diversification, therefore, distributions are paid in shares of our common stock and the obligation is carried at grant value.

As of December 31, 2023 and 2022, respectively, we have none and 3,138 unvested restricted stock units being deferred.

The obligations to pay the deferred compensation and the deferred director fees are adjusted to reflect the positive or negative performance of investment measurement options selected by each participant and was $ 3.8 million and $ 3.6 million as of December 31, 2024 and 2023, respectively.

The deferred obligations are included as a component of Other long-term liabilities on our Consolidated Balance Sheets.

For deferrals of restricted stock awards, the Deferred Compensation Plan does not allow for diversification, therefore, distributions are paid in shares of our common stock and the obligations are carried at their grant date fair values.

As of December 31, 2024 and 2023, respectively, there were no unvested RSUs being deferred.

As of December 31, 2024 and 2023, respectively we have released and issued 191,700 and 191,700 shares to the Deferred Compensation Plan with a value of $ 4.8 million and $ 2.7 million, respectively.

Commitments and Contingencies

Legal Proceedings

From time to time, we are a party to various claims and legal proceedings arising from our operations in the ordinary course of our business.

We are not currently a party to any material legal proceedings, and we are not aware of any threatened material litigation.

While the outcome of any potential claims and legal proceedings against us cannot be predicted with certainty, we have concluded that it is mot considered reasonably possible that a loss resulting from any such claims or proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse effect on our financial position, results of operations or cash flows.

Furthermore, we believe that we maintain adequate insurance coverage against any potential litigation loss relating to insurable risks.

Stockholders’ Equity

Preferred Stock

We have a total of 5.0 million authorized preferred shares which may be issued in series with rights and preferences as designated by the Board of Directors.

As of December 31, 2024 and 2023, we had a total of 5.0 million authorized preferred shares which may be issued in series with rights and preferences as designated by the Board of Directors.

As of December 31, 2024 and 2023, there were no issued or outstanding preferred shares.

As of December 31, 2024 and 2023, we had a total of 30.0 million authorized common shares with a par value of $ 0.01 per share.

As of December 31, 2024 and 2023, there were 13.8 million and 13.7 million shares issued and 12.5 million and 12.4 million shares outstanding, respectively.

Additional Paid-In Capital

Additional paid-in capital includes the cumulative amounts received in excess of the par value with respect to the public offerings of our common stock and the issuance of shares in connection with our stock-based compensation plans.

In addition, additional paid-in capital is increased by the periodic cost of equity-classified stock-based compensation awards, net of any forfeitures and the cost of shares used to settle income tax obligations upon vesting.

Retained Earnings and Comprehensive Income

We have not paid any cash dividends on our common stock.

While not explicitly prohibited, cash dividends are considered restricted payments as defined in the Credit Facility and may be made provided that certain conditions are satisfied as provided for in the Credit Facility, including the absence of any defaults, among others.

Our comprehensive income is comprised only of our net income (loss) as there are no components that would be considered as other comprehensive income.

Treasury Stock

From October 23, 2020 through its expiration on September 30, 2022, we maintained an authorized share repurchase program.

During that period, we repurchased a total of 1.3 million shares of common stock for a total of $ 15.0 million, or an average of approximately $ 11.45 per share.

The reacquired shares have been recorded at cost and are reflected in Treasury stock on our Consolidated Balance Sheets.

Revenues from Customers

Disaggregation of Revenue

The following table summarizes our revenue disaggregated by product or service type for the periods presented:

Year Ended December 31,

2024 2023 2022

Rental $ 144,236 $ 106,159 $ 74,465

Compressors 1,746 1,800 3,601

Flares 4 87 239

Other (Parts/Rebuilds) 5,863 7,034 4,728

7,613 8,921 8,568

Aftermarket services 4,893 6,087 1,792

Total revenue $ 156,742 $ 121,167 $ 84,825

We recognized $ 0.4 million in revenue for the year ended December 31, 2024, that was included in accrued liabilities at the beginning of 2024.

For the periods ended December 31, 2023 and 2022, we recognized revenue of less than $ 0.1 million and $ 1.3 million from amounts related to sales that were included in deferred revenue at the beginning of 2023 and 2022, respectively.

T ransaction Price Allocated to the Remaining Performance Obligations

As of December 31, 2024, we had no unsatisfied performance obligations and as of December 31, 2023, there was $ 0.4 million of deferred revenue related to unsatisfied performance obligations.

Contract Costs

We recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less.

These costs are included within Selling, general and administrative expense in our Consolidated Statements of Operations.

Stock-Based and Other Long-Term Incentive Compensation

Restricted Stock

On June 20, 2019, at our annual meeting of shareholders, our shareholders approved the 2019 Equity Incentive Plan for restricted shares/units, stock options and other equity awards which reserved for issuance up to 500,000 shares of common stock in connection with awards.

On June 16, 2022, at our annual meeting of shareholders, our shareholders approved an amendment to the Equity Incentive Plan to increase the number of shares available for issuance under the plan by 650,000 shares of common stock.

As of December 31, 2023, we had outstanding awards of 133,898 shares under the Equity Incentive Plan that may vest over the next three years .

As of December 31, 2023, 405,833 shares were still available for issuance under the Equity Incentive Plan.

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

The restricted stock issued to our 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.

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

Stephen Taylor, our Interim Chief Executive Officer.

The restricted shares granted to Mr.

Taylor 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 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.

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 C.

Taylor was granted restricted stock units for 10,101 and 10,101 shares of common stock that will vest immediately and one year from the date of grant, respectively.

On October 8, 2023, the Compensation Committee awarded 6,361 restricted stock units to Brian Tucker, our Chief Operating Officer.

These units will vest ratably over three years beginning on October 9, 2024.

On October 26, 2023, the compensation committee awarded 4,623 restricted stock units to an independent director.

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

Compensation expense related to the restricted shares was approximately $ 2.0 million and $ 1.7 million for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, there was a total of approximately $ 0.7 million of unrecognized compensation expense related to the unvested portion of these restricted shares/units.

This expense is expected to be recognized over the next three years .

A summary of all restricted stock/unit activity as of December 31, 2022 and 2023 and changes during the years then ended are presented below.

Shares Grant Date Fair Value Weighted

Contractual Life (years) Aggregate

(in thousands)

Outstanding, December 31, 2021 276,319 $ 9.67 1.77 $ 2,893

We maintain two stockholder approved plans for the issuance of stock-based compensation awards to our employees and Board of Director members:

(i) the 2019 Equity Incentive Plan, as amended (the “Equity Incentive Plan”), and (ii) the 1998 Stock Option Plan, as amended (the “Stock Option Plan”).

The following table summarizes the total stock-based compensation expense recognized during the periods presented:

Year Ended December 31,

2024 2023 2022

Equity-classified $ 1,821 $ 2,054 $ 1,910

Liability-classified (1)

$ 2,069 $ 2,054 $ 1,910

(1) Represents compensation expense associated with awards that may be settled in cash at the option of the grantee.

Equity Incentive Plan

The Equity Incentive Plan provides for up to 1,150,000 shares of common stock for issuance in the form of awards for:

(i) stock options, (ii) stock appreciation rights, (iii) restricted awards in the form of restricted stock and restricted stock units (“RSUs ”) , (iv) performance share awards, including performance share unit (“PSUs ” ) and (v) other equity-based awards.

After consideration of the activity described in detail below, a total of 262,268 shares remained available for grant as of December 31, 2024.

Time-Vested Restricted Shares and RSUs

The following table summarizes all restricted stock and RSU (fully vested and time-vested) activity during the year ended December 31, 2024:

Shares Weighted Average

Grant Date Fair Value Weighted

Contractual Life (years) Aggregate

Outstanding, December 31, 2023 133,898 $ 10.66 1.57 $ 1,813

164,640 $ 10.65 — $ 1,754

Granted 97,941 $ 18.44 $ 1,806

Vested ( 74,447 ) $ 10.46 $ 1,636

Canceled/Forfeited ( 26,209 ) $ 11.98 $ 214

( 14,357 ) $ 10.04 — $ 158

Outstanding, December 31, 2024 131,183 $ 16.39 5.15 $ 3,516

Other Long-Term Incentive Compensation

On April 28, 2020, the Compensation Committee issued a long-term incentive award of $ 1.1 million to an executive officer that vests in equal, annual tranches over three years .

At the time of vesting, each tranche was paid in cash.

On March 18, 2021, the Compensation Committee issued a long-term incentive award of $ 1.0 million to an executive officer that vests in equal, annual tranches over three years .

On March 18, 2021, we issued a $ 50,000 award to each of our three independent Board members.

On April 1, 2021, we issued a $ 50,000 award to a newly appointed independent Board member.

These awards vest one year from the date of grant and were paid in cash upon vesting.

On April 26, 2022, we issued a $ 50,000 award to each of our four independent Board members.

These awards vest one year from the date of grant and were paid in cash upon vesting.

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

The vesting of these awards is subject to acceleration upon certain events, such as (i) death or disability of the recipient, (ii) certain circumstances in connection with a change of control of the Company, (iii) for executive officers, termination without cause (as defined in the agreement), and (iv) for executive officers, resignation for good reason (as defined).

Total compensation expense related to these other long-term incentive awards was approximately $ 0.4 million and $ 1.0 million respectively for the years ended December 31, 2023 and 2022.

As of December 31, 2023 and 2022 respectively there was a total of $ 0.0 million and $ 0.7 million of unrecognized compensation expense related to these other long-term incentive awards which is expected to be recognized over the next year.

As of December 31, 2024, there was a total of approximately $ 1.0 million of unrecognized compensation expense related to the unvested portion of the restricted stock and RSUs.

This expense is expected to be recognized over the next 2.1 years.

Cash-Settled RSUs

The 2024 grant of RSUs to the independent Board members and Mr.

Taylor that can be settled in cash represent liability-classified awards.

Accordingly, compensation expense associated with these awards accumulates as a component of Accrued liabilities on our Consolidated Balance Sheet until the awards vest and are settled.

Compensation expense associated with these awards is based upon the fair value of NGS common stock at each reporting period relative to that portion of the service period that has passed.

Accordingly, the compensation expense is variable in nature.

The following table summarizes all cash settled RSU activity during the year ended December 31, 2024:

Shares Weighted Average

Grant Date Fair Value Weighted

Contractual Life (years) Aggregate

Outstanding, December 31, 2023 — $ — — $ —

Granted 15,069 $ 19.51 $ 294

Vested — $ — $ —

Canceled/Forfeited — $ — $ —

Outstanding, December 31, 2024 15,069 $ 19.51 0.50 $ 294

Cumulative compensation expense attributable to the cash-settled RSUs can range from zero to a maximum based on the total number of units vesting multiplied by closing price of our common stock on the vesting date.

Performance Share Units

In connection with the PSUs granted to our CEO, Chief Operating Officer (“COO”) and Chief Financial Officer (“CFO”) potential payout for the PSU awards is based upon performance for a three-year period ending December 31, 2026 for the CEO and COO and December 31, 2027 for the CFO measured against relative total shareholder return (“TSR”) compared to a peer group of companies as established by the Compensation Committee.

The PSU award payout ranges from zero (if the Company ranks below the 31.25 percentile) and up to 200 % (if the Company ranks first) based upon our relative TSR performance ranking (subject to certain caps based on absolute TSR as defined in the PSU agreements).

With respect to vesting, the PSUs have both a service condition and a market condition.

Due to the presence of the TSR measurement for the common equity of the peer companies, including NGS common stock, which is deemed a “market condition,” the grant-date fair values of the PSUs have been determined using a binomial pricing model, or a Monte Carlo simulation model.

The following table summarizes the weighted average grant date fair values of PSUs granted and the assumptions used in the Monte Carlo simulation model for the determination of the grant date fair values of our PSUs for the year ended December 31, 2024:

Weighted-average grant date fair value of PSUs granted $ 22.47

Risk free rate 4.09 % to 4.39 %

Expected volatility 43.4 % to 44.2 %

Expected dividend yield — %

The following table summarizes all PSU activity during the year ended December 31, 2024:

Shares Weighted Average

Grant Date Fair Value Weighted

Contractual Life (years) Aggregate

Outstanding, December 31, 2023 — $ — — $ —

Granted 56,764 $ 22.47 $ —

Vested — $ — $ —

Canceled/Forfeited — $ — $ —

Outstanding, December 31, 2024 56,764 $ 22.47 2.22 $ —

As of December 31, 2024, there was a total of approximately $ 1.0 million of unrecognized compensation expense related to the unvested portion of the PSUs.

This expense is expected to be recognized over the next 2.2 years.

Stock Option Plan

Our 1998 Stock Option Plan as amended, which is stockholder approved, permits the granting of stock options to its employees for up to 1.0 million shares of common stock.

We believe that such awards align the interests of our employees with our stockholders.

The Stock Option Plan provides for the granting of incentive and non-qualified stock options to our employees for up to 1,000,000 shares of common stock.

After consideration of the activity described in detail below, a total of, 407,419 shares remained available for grant as of December 31, 2024.

The last date that grants can be made under the Stock Option Plan is February 28, 2026.

Option awards are generally granted with an exercise price equal to the market price of our stock at the date of grant;

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Certain option and share awards provide for accelerated vesting if there is a change in control of the Company (as defined in the Stock Option Plan).

The last date that grants can be made under the Stock Option Plan is February 28, 2026.

As of December 31, 2023, 415,085 shares were still available to be granted under the Stock Option Plan.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that applies the assumptions noted in the following table.

The risk-free rate for periods within the contractual life of the option is based on the U.S.

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separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes.

Weighted average Black -Scholes fair value assumption during the year ended December 31, are as follows:

The following table summarizes the weighted average grant date fair values of options granted and the assumptions used in the Black-Scholes option valuation model for their determination for the periods presented:

Year Ended December 31,

2024 2023 2022

Weighted-average grant date fair value of options granted $ 12.25 $ 5.11 $ 4.24

Risk free rate 4.36 % 3.99 % 2.99 %

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Expected dividend yield — % — % — %

During the year ended December 31, 2023, and 2022, we made 6,000 and 215,000 stock option grants, respectively.

A summary of all option activity as of December 31, 2022 and 2023 and changes during the years then ended are presented below:

Shares Weighted Average

Exercise Price Weighted

The following table summarizes all option activity during the year ended December 31, 2024:

of Shares Underlying

Stock Options Weighted Average

Price Weighted

Contractual Life (years) Aggregate

(in thousands)

Outstanding, December 31, 2023 129,751 $ 20.59 4.10 $ 274

215,000 $ 16.07 — $ —

Canceled/Forfeited

( 200,750 ) $ ( 18.09 ) — $ —

( 13,500 ) $ 13.29 — $ —

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

6,000 $ 9.80 — $ 1

Granted 49,000 $ 22.73 $ —

Vested ( 23,666 ) $ 12.40 $ 286

Canceled/Forfeited ( 11,667 ) $ 21.99 $ 11

( 39,833 ) $ 16.33 — $ 11

( 38,000 ) $ 16.28 — $ —

Expired ( 29,667 ) $ 30.41 $ —

Outstanding, December 31, 2024 113,751 $ 20.44 5.84 $ 747

Exercisable, December 31, 2023 105,416 $ 22.85 3.08 $ 146

The weighted average grant date fair value of options granted during 2023 and 2022 was $ 5.11 and $ 4.24 per option respectively.

There were no option exercises in either 2023 or 2022.

Outstanding, Exercisable, December 31, 2024 64,753 $ 19.93 3.30 $ 469

The following table summarizes information about our stock options outstanding at December 31, 2024:

Range of Exercise Prices

Options Outstanding Options Exercisable

Shares Weighted

Range of Exercise Prices Options Outstanding Options Exercisable

Shares Weighted

$ 0.01 -$ 18.00

51,667 8.25 $ 10.77 27,332 $ 10.76

Life (years) Weighted

Price Shares Weighted

$ 0.01 -$ 18.00

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113,751 5.84 $ 20.44 64,753 $ 19.93

The summary of the status of our unvested stock options as of December 31, 2023, and changes during the year then ended is presented below.

Unvested stock options:

The following table summarizes changes in our unvested stock options during the year December 31, 2024:

Shares Weighted Average

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Unvested at December 31, 2024 48,998 $ 11.35

We recognized stock compensation expense from stock options of $ 0.1 million and $ 0.3 million for the years ended December 31, 2023 and 2022, respectively.

We recognized stock compensation expense from stock options of $ 0.2 million, $ 0.1 million and $ 0.3 million for the years ended December 31, 2024, 2023 and 2022, respectively.

As of December 31, 2024, there was $ 0.3 million of unamortized compensation cost related to unvested stock options.

Other Long-Term Incentive Compensation

From time to time and under certain circumstances, the Compensation Committee of our Board of Directors may grant cash-based incentive compensation awards that vest over periods greater than one year as a supplement to stock-based awards and in addition to customary annual incentive cash bonuses.

Total compensation expense related to these long-term incentive awards was approximately $ 0.4 million and $ 1.0 million, respectively, for the years ended December 31, 2023 and 2022.

The awards associated with these compensation charges were fully vested and settled in cash prior to December 31, 2023.

Accordingly, there were no amounts remaining as unrecognized compensation and no outstanding obligations as of December 31, 2024 for these and any similar awards.

Restructuring Activities

During the years ended December 31, 2023 and 2022, we incurred certain restructuring charges in the form of severance and related compensation benefits in connection with a transition in executive leadership.

Accordingly, we incurred $ 2.3 million in severance and related compensation charges in connection with our former CEO as well as $ 0.2 million of severance charges attributable to the resignation of the interim CEO during 2022.

We incurred an additional $ 1.2 million of severance and related compensation charges attributable to this transition during 2023.

As of December 31, 2023, there were no amounts outstanding with respect to this action.

During the year ended December 31, 2024, we incurred an amount less than $ 0.1 million associated with certain restructuring activities at our assembly facilities for which there were no amounts outstanding as of December 31, 2024.

Related Party Transactions

During the years ended December 31, 2024, 2023 and 2022 we sold $ 0.7 million, $ 0.9 million, and $ 0.6 million, respectively, of compressor components to N-G Joint Venture, LLC (“N-G”) our 14 % joint venture.

As of December 31, 2024 and 2023, we had accounts receivable of $ 0.1 million and $ 0.2 million with N-G, respectively.

During the years ended December 31, 2024 and 2023, we paid less than $ 0.1 million and $ 0.3 million, respectively, to Mill Road Capital, a large shareholder, for expense reimbursements primarily related to our cooperation agreement.

No amounts were paid during 2022.

Earnings (Loss) per Share

Basic earnings (loss) per common share is computed using the weighted average number of common shares outstanding during the period.

Diluted earnings (loss) per common share is computed using the weighted average number of common stock and common stock equivalent shares outstanding during the period.

The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share amounts):

The following table reconciles the numerators and denominators of the basic and diluted earnings (loss) per share computation for the periods presented:

Year Ended December 31,

2024 2023 2022

Numerator for basic and diluted earnings (loss) per share:

Net income (loss) $ 17,227 $ 4,747 $ ( 569 )

Denominator for basic net earnings (loss) per common share:

Weighted average common shares outstanding 12,316 12,305

Denominator for diluted net income (loss) per share:

Denominator for basic earnings (loss) per common share:

Weighted average common shares outstanding - Basic 12,412 12,316 12,305

Denominator for diluted earnings (loss) per share:

Weighted average common shares outstanding 12,412 12,316 12,305

Dilutive effect of stock options and restricted shares 67 —

Diluted weighted average shares 12,383 12,305

Earnings (loss) per common share:

Dilutive effect of stock-based compensation awards 142 67 —

Weighted average common shares outstanding - Diluted 12,554 12,383 12,305

Earnings (loss) per share:

Basic $ 1.39 $ 0.39 $ ( 0.05 )

Diluted $ 1.37 $ 0.38 $ ( 0.05 )

In the year ended December 31, 2022, 250,847 restricted stock/units and 201,584 stock options were not included in the computation of diluted loss per share due to their antidilutive effect.

In the year ended December 31, 2023, 10,984 restricted stock/units and 129,751 stock options were not included in the computation of diluted earnings per share due to their antidilutive effect.

Accrued Liabilities

Accrued liabilities consisted of the following as of December 31, 2023 and 2022 (in thousands):

Accrued purchases

$ 8,629 $ 17,763

Accrued compensation

Accrued other

$ 15,085 $ 23,918

Commitments and Contingencies

Legal Proceedings

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 effect on our financial position, results of operations or cash flow.

We are not currently a party to any bankruptcy, receivership, reorganization, adjustment or similar proceeding, and we are not aware of any other threatened litigation.

Related Party

During the year ended December 31, 2023, we sold $ 0.9 million of compressor components to N-G Joint Venture, LLC our 14 % joint venture.

As of December 31, 2023, we had accounts receivable of $ 0.2 million with N-G.

During the year ended December 31, 2023, we paid $ 0.3 million to Mill Road Capital, a large shareholder, for expense reimbursements related to our cooperation agreement.

During the year ended December 31, 2024, 13,345 shares of restricted stock and RSUs and 83,917 stock options were not included in the computation of diluted earnings per share due to their antidilutive effect.

During the year ended December 31, 2023, 10,984 shares of restricted stock and RSUs and 129,751 stock options were not included in the computation of diluted loss per share due to their antidilutive effect.

During the year ended December 31, 2022, 250,847 shares of restricted stock and RSUs and 201,584 stock options were not included in the computation of diluted earnings per share due to their antidilutive effect.

Subsequent Events

On February 1, 2024, the Company announced that it had appointed Justin Jacobs as Chief Executive Officer, effective February 12, 2024.

Jacobs is a member of our board of directors .

On January 28, 2025, we announced our intent to close our repair and overhaul facility in Midland, Texas and cease operations by April 1, 2025.

In addition, we have initiated efforts to market the facility and the underlying real property.

We anticipate terminating approximately 13 employees that work at this facility and will be offering customary termination and severance benefits.We have evaluated all events subsequent to the balance sheet date as of December 31, 2024 and through the date this report was issued and determined that, other than the action noted above, there have been no other events that would require adjustments or additional disclosure to our Consolidated Financial Statements.

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 9A. Controls and Procedures