NATURAL GAS SERVICES GROUP INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The discussion and analysis of the financial condition and results of operations of Natural Gas Services Group, Inc. (the “Company”, “NGS”, “Natural Gas Services Group”, “we,” “us” or “our”) for the periods ended March 31, 2025, and 2024 are based on, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the related notes included elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2024. The following discussion contains forward-looking statements that include risks and uncertainties. For a description of limitations inherent in forward-looking statements, see “ Special Note Regarding Forward-Looking Statements ” above. All dollar amounts presented in the tables that follow are in thousands unless otherwise indicated. References to “quarters” represent the three months ended March 31, 2025, or 2024, as applicable. Certain variances that represent results that are not meaningful are indicated as “NM.” Overview We rent, design, sell, install, service and maintain natural gas and electric compressors and related equipment for oil and gas production and processing facilities, generally using equipment from third-party fabricators and OEM suppliers along with limited in-house assembly. Substantially all of our compressor assembly is done by third-party contractors while a limited level of assembly work remains in-house at our Tulsa, Oklahoma facility. We also provide an exchange and rebuild program for compressors and maintain an inventory of new and used compressors to facilitate this business. Our primary focus is on the rental of natural gas and electric compressors. Our rental contracts generally provide for initial terms of six to 60 months, with our larger horsepower units having longer initial terms than our small and medium horsepower units. After the initial term of our rental contracts, most of our customers have continued to rent our compressors on a month-to-month basis. Rental amounts are billed monthly in advance and include maintenance of the rented compressor units. We conduct our operations in several oil and gas producing basins throughout the United States including the Permian, Barnett Shale, Anadarko, San Juan, Utica/Marcellus Shale, Eagle Ford Shale and Antrim Shale. We have operating facilities in five states including Texas, Oklahoma, New Mexico, Michigan and Ohio. A total of 77 percent of our rental revenue is generated from the Permian Basin and approximately 75 percent of our rental revenue supports oil production primarily in the form of gas lift operations. We operate in one reporting segment. Operating Highlights The following table summarizes our key operating statistics as of the dates or for the periods presented, as applicable: March 31, 2025 2024 Rented horsepower (at period end) 492,679 444,220 Average rented horsepower 492,218 432,326 Fleet horsepower available (at period end): 603,391 542,256 Fleet horsepower available - average 601,116 531,311 Horsepower utilization (at period end) 81.7 % 81.9 % Average horsepower utilization 81.9 % 81.4 % Units utilized (at period end) 1,202 1,245 Fleet units (at period end): 1,916 1,894 Unit utilization (at period end) 62.7 % 65.7 % Rental revenues $ 38,910 $ 33,734 Total revenues $ 41,383 $ 36,907 Rental revenues as a percent of total revenues 94.0 % 91.4 % Of the total horsepower utilized as of March 31, 2025, 382,192 of horsepower was being rented under contracts expiring between 2025 and 2030 and 110,487 of horsepower was being rented on a month-to-month basis. 15 Our Performance Trends and Outlook The oil and gas industry has historically been cyclical and production levels of oil and gas are dependent upon numerous factors. The market for compression equipment and services is highly dependent on the production levels of exploration and production companies and pricing of oil and gas. Crude Oil . The level of production for crude oil activity and capital expenditures has generally been dependent upon the prevailing view of future crude oil prices, which are influenced by numerous supply and demand factors, including availability and cost of capital, well productivity and development costs, global and domestic economic conditions, environmental regulations, policies of OPEC and Russia, and other factors. While crude oil prices have historically been volatile, we expect demand for our existing compressor fleet to remain positive assuming crude oil prices remain within reasonable bands with respect to current pricing levels. Natural Gas . We believe the market outlook for natural gas production in the U.S. remains steady while short term price volatility remains a factor due to weather, geopolitical influences and shifts in LNG exports. We believe opportunities for increased utilization of our small and medium horsepower units are supported by continued investment in shale gas development, particularly in the Permian basin and Marcellus Shale. Non-GAAP Financial Measures We utilize certain financial and operating metrics to analyze our performance and assess our operating results and overall profitably and liquidity. The most significant of these measures are “Adjusted Gross Margin” and “Adjusted EBITDA” both of which are measurements that are not explicitly defined in accordance with generally accepted accounting principles in the United States of America (“GAAP”), or non-GAAP financial measures, and may vary among different industries and the participants therein. Adjusted Gross Margin We define “Adjusted Gross Margin” as total revenue less costs of revenues (excluding depreciation and amortization expense). Adjusted gross margin is included as a supplemental disclosure because it is a primary measure used by our management as it represents the results of revenue and costs (excluding depreciation and amortization expense), which are key components of our operations. Adjusted Gross Margin differs from gross margin, in that gross margin includes depreciation and amortization expense. We believe Adjusted Gross Margin is important because it focuses on the current operating performance of our operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those operations. Depreciation and amortization expense does not accurately reflect the costs required to maintain and replenish the operational usage of our assets and therefore may not portray the costs from current operating activity. Rather, depreciation and amortization expense reflects the systematic allocation of historical property and equipment costs over their estimated useful lives. Adjusted Gross Margin has certain material limitations associated with its use as compared to gross margin. These limitations are primarily due to the exclusion of depreciation and amortization expense, which is material to our results of operations. Because we use capital assets, depreciation and amortization expense is a necessary element of our costs and our ability to generate revenue. In order to compensate for these limitations, management uses this non-GAAP measure as a supplemental measure to other GAAP results to provide a more complete understanding of our performance. As an indicator of our operating performance, Adjusted Gross Margin should not be considered an alternative to, or more meaningful than, gross margin as determined in accordance with GAAP. Our Adjusted Gross Margin may not be comparable to a similarly titled measure of another company because other entities may not calculate Adjusted Gross Margin in the same manner. 16 The following table calculates our gross margin, the most directly comparable GAAP financial measure, and reconciles it to Adjusted Gross Margin with further detail by revenue classification for the periods presented: Three months ended March 31, 2025 2024 Total revenue $ 41,383 $ 36,907 Cost of revenue, exclusive of depreciation and amortization (17,127) (15,794) Depreciation allocable to cost of revenues (8,539) (6,936) Gross margin 15,717 14,177 Depreciation allocable to cost of revenues 8,539 6,936 Adjusted gross margin $ 24,256 $ 21,113 Adjusted gross margin by revenue classification: Rental $ 24,070 $ 20,620 Sales (89) 323 Aftermarket services 275 170 Total adjusted gross margin $ 24,256 $ 21,113 Adjusted EBITDA “Adjusted EBITDA” is a non-GAAP financial measure that we define as net income (loss) before interest, taxes, depreciation and amortization, as well as an increase in inventory allowance, impairments, retirement of rental equipment, non-recurring restructuring charges including severance and non-cash equity-classified stock-based compensation expenses. This term, as used and defined by us, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with GAAP. Adjusted EBITDA should not be considered in isolation or as a substitute for operating income, net income or loss, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP. However, management believes Adjusted EBITDA is useful to an investor in evaluating our operating performance because: • it is widely used by investors in the energy industry to measure a company’s operating performance without regard to items excluded from the calculation of Adjusted EBITDA, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors; • it helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure and asset base from our operating structure; and • it is used by our management for various purposes, including as a measure of operating performance, in presentations to our Board of Directors, and as a basis for strategic planning and forecasting. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are as follows: • Adjusted EBITDA does not reflect all our cash expenditures, future requirements for capital expenditures, or contractual commitments; • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; • Adjusted EBITDA does not reflect the cash requirements necessary to service interest or principal payments on our debt and finance leases; and • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any capital expenditures for such replacements. 17 There are other material limitations to using Adjusted EBITDA as a measure of performance, including the inability to analyze the impact of certain recurring items that materially affect our net income or loss, and the lack of comparability of results of operations of different companies. Please read the table below to see how Adjusted EBITDA reconciles to our net income, for the three months ended March 31, 2025, and 2024, the most directly comparable GAAP financial measure. The following table reconciles our net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA for the periods presented: Three months ended March 31, 2025 2024 Net income $ 4,854 $ 5,098 Interest expense 3,170 2,935 Income tax expense 1,482 1,479 Depreciation and amortization 8,636 7,087 Inventory allowance 61 — Retirement of rental equipment 728 5 Stock-based compensation 359 274 Adjusted EBITDA $ 19,290 $ 16,878 18 Results of Operations Three months ended March 31, 2025, compared to the three months ended March 31, 2024. Rentals We generate revenue primarily from renting, maintaining and servicing compressors to our customers under contractual arrangements. These contracts, which all qualify as operating leases under GAAP, generally include a fee for servicing the compressor unit during the rental term. Our rental contract terms typically range from six to 60 months. Our revenue is recognized over time, with monthly payments over the term of the contract. After the terms of the contract have expired, a customer may renew its contract or continue renting on a monthly basis thereafter. The primary costs associated with providing our compressor fleet to our customers includes routine maintenance and repairs, fluids, primarily motor oils, and labor and related support costs for our field service facilities and service employees that are geographically dispersed throughout our operating regions. The following table summarizes the revenues, costs, adjusted gross margin and related operating statistics with respect to our rentals of compressors for the periods presented: Three months ended March 31, 2025 2024 Change % Change Rental revenue $ 38,910 $ 33,734 $ 5,176 15.3 % Cost of rentals (excluding depreciation and amortization) 14,840 13,114 1,726 13.2 % Rental adjusted gross margin $ 24,070 $ 20,620 $ 3,450 16.7 % Rental adjusted gross margin percentage 61.9 % 61.1 % 0.8 % Percent of total company revenues 94.0 % 91.4 % 2.6 % Rented horsepower 492,679 444,220 48,459 10.9 % Horsepower utilization 81.7 % 81.9 % (0.2) % Units utilized 1,202 1,245 (43) (3.5) % Units utilization 62.7 % 65.7 % (3.0) % Customers under contract 67 80 (13) (16.3) % Rental revenue increased for the three months ended March 31, 2025, as compared to the comparable period in 2024 due primarily to an increase in rented horsepower despite a decrease in the number of units rented and a decrease in total customers. The increase in revenue reflects a continuing trend of growing demand for our higher horsepower units (400 horsepower and greater) which provide for higher rental rates and realized adjusted gross margins. Our utilized horsepower was relatively flat which reflects the continued addition of high horsepower compressor units to our fleet consistent with our emphasis on larger units over the past few years, offset by the return of lower horsepower units. The decline in customers is primarily attributable to E&P industry consolidation as well as the acquisition of existing producing oil and gas properties among E&P companies; however, it has not resulted in any meaningful decrease in our level of business activity. The cost of rentals increased on an absolute basis due to the effects of supporting a larger quantity of utilized horsepower and inflationary pressures primarily in labor and parts costs. As a result of these factors, our adjusted gross margin increased on both an absolute basis as well as a percentage of revenues for the three months ended March 31, 2025, compared to the comparable period in 2024. 19 Sales We generate revenue from the sale of custom/assembled compressors and parts, as well as exchange/rebuilding customer owned compressors and sale of used rental equipment. Costs of sales include purchases of engines, compressors, coolers and other component materials as well as direct and indirect labor attributable to the assembly of equipment to meet the unique specifications of our customers. In addition, our costs of sales include overhead and related support costs attributable to our storage facilities, assembly, repair and overhaul facilities in Tulsa, Oklahoma as well as Midland, Texas through its closure at the end of March 2025. The following table summarizes the revenues, costs and adjusted gross margin with respect to our sales of compressors, parts and equipment and repair/overhaul services for the periods presented: Three months ended March 31, 2025 2024 Change % Change Sales revenue $ 1,927 $ 2,503 $ (576) (23.0) % Cost of sales (excluding depreciation and amortization) 2,016 2,180 (164) (7.5) % Sales adjusted gross margin $ (89) $ 323 $ (412) NM Sales adjusted gross margin percentage (4.6) % 12.9 % (17.5) % Percent of total company revenues 4.7 % 6.8 % (2.1) % Sales revenue declined for the three months ended March 31, 2025, compared to comparable period in 2024. Sales are subject to fluctuations in the timing of industry activity related to our customers’ capital projects and, as such, can vary substantially between periods. Due to these circumstances as well as the costs of maintaining support facilities relative to revenues, we continue to shift our business away from sales of new compressor packages to renting our owned units to our customers. While the costs to support our sales revenues declined on an absolute basis, primarily reflecting a lower volume of business, the gross margin declined to a negative value due primarily to indirect labor and fixed overhead costs that are not otherwise subject to capitalization at our assembly, repair and overhaul facilities, primarily at the location in Midland, Texas which we closed at the end of March 2025. Aftermarket Service We provide routine or call-out services on customer-owned equipment as well as commissioning of new units for customers. Revenue is recognized after services in the contract are rendered. The primary costs associated with our aftermarket services are labor, support costs, materials and supplies. The following table summarizes the revenues, costs and adjusted gross margin with respect to our aftermarket services for the periods presented: Three months ended March 31, 2025 2024 Change % Change Aftermarket services revenue $ 546 $ 670 $ (124) (18.5) % Cost of aftermarket services (excluding depreciation and amortization) 271 500 (229) (45.8) % Aftermarket services adjusted gross margin $ 275 $ 170 $ 105 61.8 % Aftermarket services adjusted gross margin percentage 50.4 % 25.4 % 25.0 % Percent of total company revenues 1.3 % 1.8 % (0.5) % Third party aftermarket services revenues and costs declined for the three months ended March 31, 2025, compared to comparable period during 2024. The decline is primarily attributable to a lower volume of service call-out work performed during the 2025 period compared to 2024. Aftermarket services only represented 1.3 percent and 1.8 percent of our revenue in the three months ended March 31, 2025, and 2024, respectively, providing minimal impact on our overall adjusted gross margin. 20 Selling, General and Administrative Expenses Our selling, general and administrative (“SG&A”) expenses include compensation and benefits, including stock-based compensation, commissions and other support costs of departments serving administrative and corporate governance functions, such as executive management, finance and accounting, sales and marketing, human resources, information technology, health, safety and environmental and investor relations. In addition, SG&A includes non-personnel costs, such as occupancy costs, IT support costs, professional fees and other supporting corporate expenses including public company compliance costs. When applicable, SG&A expenses also includes severance benefits and related costs associated with exit activities and restructuring actions. Three months ended March 31, 2025 2024 Change % Change Primary selling, general and administrative expenses $ 5,019 $ 4,428 $ 591 13.3 % Stock-based compensation 359 274 85 31.0 % Total $ 5,378 $ 4,702 $ 676 14.4 % SG&A expenses as a percent of total revenues 13.0 % 12.7 % 0.3 % SG&A expenses increased during the three months ended March 31, 2025, as compared to the comparable period in 2024. In general, the increase in our total SG&A expenses reflects a higher level of cost to appropriately scale our administrative function. The absolute dollar increase was primarily impacted by (i) higher salaries, benefits and commissions of $0.4 million reflecting support staff growth, (ii) higher stock-based compensation expense of $0.1 million primarily attributable grants made in the latter part of 2024, (iii) higher information technology support costs of $0.2 million in support of our growth initiatives. Depreciation and Amortization Depreciation and amortization expenses reflect the depreciation of our rental compressor fleet as well as the depreciation and amortization of our operating and corporate facilities, vehicles and other equipment, and the amortization of finance leases and intangible assets. The following table summarizes the components of our depreciation and amortization expenses for the periods presented: Three months ended March 31, 2025 2024 Change % Change Depreciation and amortization allocable to cost of revenues: Rental $ 8,436 $ 6,859 $ 1,577 23.0 % Sales 92 70 22 31.4 % Aftermarket services 11 7 4 57.1 % 8,539 6,936 1,603 23.1 % Corporate depreciation 97 120 (23) (19.2) % Intangible asset amortization — 31 (31) NM Total $ 8,636 $ 7,087 $ 1,549 21.9 % Depreciation and amortization as a percent of total revenues 20.9 % 19.2 % 1.7 % Depreciation and amortization expense increased for the three months ended March 31, 2025, as compared to the comparable period in 2024, due primarily to depreciation expense associated with the high horsepower units placed in service during 2024. The three months ended March 31, 2025 reflects the continuing expansion of the high horsepower fleet while the comparable period in 2024 reflects fewer high horsepower units in our fleet as the expansion was in its earlier stages. These higher horsepower unit additions, which began in earnest during 2023, are reflective of our strategic plans to concentrate our business development on these higher margin applications. 21 Inventory Allowance We routinely review our stock of inventory for obsolescence and realizability. When the carrying value exceeds the net realizable value, a charge is recorded to operating income. The following table indicates the charges incurred for inventory allowance for the periods presented: Three months ended March 31, 2025 2024 Change % Change Inventory allowance $ 61 $ — $ 61 NM During three months ended March 31, 2025 , we recorded a nominal increase to the allowance for obsolescence primarily attributable to the transfer of inventory that remains useful from our former Midland, Texas facility, in connection with its closing in March 2025, to our other operating facilities. All of remaining inventory from the Midland, Texas facility that was subject to the allowance for obsolescence was written off during the three months ended March 31, 2025. As of March 31, 2025, we had an inventory obsolescence balance of $2.5 million as compared to $5.9 million as of December 31, 2024. Please see Note 4 ( “ Inventory ” ) to our Condensed Consolidated Financial Statements for additional information regarding the inventory allowance. Retirement of Rental Equipment We routinely review the rental fleet to determine which units are no longer of the type, configuration, make or model that our customers are demanding or that are not cost efficient to refurbish, maintain and/or operate. When appropriate, we retire such units from the fleet and write-off any remaining carrying value. The following table indicates the charges incurred for the retirement of rental equipment for the periods presented: Three months ended March 31, 2025 2024 Change % Change Retirement of rental equipment $ 728 $ 5 $ 723 NM We retired certain small and medium horsepower compressor units during the three months ended March 31, 2025 . Such retirements were minimal during the comparable period during 2024. Gain on the Sale of Assets As circumstances warrant, we will market certain property and equipment, primarily trucks, and other assets when we have determined that there is no longer a productive use for such assets or favorable opportunities arise to monetize otherwise idle assets. Gains and losses are recognized accordingly upon the completion of such transactions. The following table presents the gains recognized upon the sale of assets for the periods presented: Three months ended March 31, 2025 2024 Change % Change Gain on the sale of assets, net $ 54 $ — $ 54 NM Gains recognized during the three months ended March 31, 2025 are primarily attributable to the sales of trucks after the completion of their useful lives. 22 Interest Expense Interest expense primarily reflects the costs of borrowing, including commitment fees and the amortization of debt issue costs, under our Credit Facility, net of amounts capitalized attributable to certain capital projects. Also included is interest expense on our financing leases. Three months ended March 31, 2025 2024 Change % Change Interest on borrowings, finance leases and related fees $ 3,532 $ 3,943 $ (411) (10.4) % Amortization of debt issue costs 212 150 62 41.3 % Capitalized interest (574) (1,158) 584 (50.4) % Total $ 3,170 $ 2,935 $ 235 8.0 % Weighted-average interest rates on borrowings 7.97 % 9.05 % (1.08) % Weighted-average outstanding borrowings $ 169,003 $ 168,552 $ 451 Interest expense increased for the three months ended March 31, 2025, as compared to the comparable period in 2024, due primarily to the effect of $0.6 million of lower capitalized interest due primarily to the timing of completion of certain projects in the 2025 period. Amortization of debt issue costs increased marginally during the three months ended March 31, 2025, as compared to the comparable period in 2024 due primarily to the amortization of costs associated with certain amendments to the Credit Facility that took place in June of 2024. While average borrowings outstanding under our Credit Facility were relatively flat during the three months ended March 31, 2025, as compared to the comparable period in 2024, we experienced lower average interest rates consistent with the Federal Reserve interest rate reductions implemented in the second half of 2024. Other Income (Expense), net This caption primarily reflects non-operating items of income and loss including non-cash gains and losses attributable to our corporate-owned life insurance (“COLI”) policies related to our deferred compensation plan. The following table indicates our other income (expense) for the periods presented: Three months ended March 31, 2025 2024 Change % Change Other income (expense), net $ (1) $ 193 $ (194) NM Other income (expense), net declined for the three months ended March 31, 2025, as compared to the comparable period in 2024, due primarily to higher unrealized losses attributable to our COLI policies associated with our deferred compensation plan . Provision for Income Taxes Provision for income taxes represents our income taxes as determined in accordance with GAAP. It considers taxes attributable to our obligations for federal taxes under the Internal Revenue Code as well as to various states in which we operate, primarily Texas. Please see Note 9 ( “ Income Taxes ” ) to our Condensed Consolidated Financial Statements for additional information. The following table summarizes our income tax provision for the periods presented: Three months ended March 31, 2024 2023 Change % Change Income tax expense $ 1,482 $ 1,479 $ 3 — % Effective income tax rate 23.3 % 22.5 % 0.8 % For interim periods, our income tax expense is computed based upon our estimated annual effective tax rate and any discrete items that impact the interim periods. Our estimated annual effective tax rate differs from the U.S. federal statutory rate of 21% primarily as a result of certain expenses not being deductible for income tax purposes. 23 Financial Condition Liquidity and Capital Resources Our primary sources of liquidity include cash provided by operating activities and borrowings under our Credit Facility. On April 18, 2025, we entered into the Fourth Amendment to the Amended and Restated Credit Agreement (the “Fourth Amendment”). The Fourth Amendment provides us with up to $400.0 million in borrowing commitments with an additional $100 million at our request through an accordion feature. Prior to the Fourth Amendment and as of March 31, 2025, the borrowing base under the Credit Facility was $300.0 million with $168.0 million of borrowings outstanding leaving $132.0 million of availability under the Credit Facility. Our cash flows from operating and investing activities are subject to a degree of volatility due primarily to (i) the consistency of our customers in remitting amounts owed to us for our services in full and on a timely basis and (ii) the timing of payments to our vendors and suppliers for capital projects which are often made well in advance of placing new compressor equipment into service. In order to mitigate such volatility we employ disciplined efforts to monitor customer credit and maintain communications to support collection efforts when necessary. Furthermore, and in certain circumstances, we require deposits in advance of transactions that require substantial investment on our part. To the extent necessary, we rely on the availability of our Credit Facility to fund capital expenditures beyond that provided by our cash flows from operating activities. Our forecasted capital expenditures for 2025 will continue to be directly dependent upon our customers’ compression requirements and our capital availability, while maintaining prudent levels of debt. The level of our capital expenditures will vary in future periods depending on energy market conditions and other related economic factors. Based upon existing economic and market conditions, we believe that cash on hand, cash flows from operating activities and borrowings under the Credit Facility will be sufficient to satisfy our capital and liquidity requirements for at least the twelve months subsequent to the date that this Quarterly Report on Form 10-Q was filed. We also believe we have flexibility with respect to our financing alternatives and can make adjustments to our capital expenditure plans if circumstances warrant. We do not have any material continuing commitments related to our current operations that cannot be met with our cash on hand, cash from operating activities and borrowings under our Credit Facility. If we require additional capital to fund any significant unanticipated expenditures, including any material acquisitions of other businesses, joint ventures or other opportunities, this additional capital could exceed our current resources and might not be available to us when we need it, or might not be on acceptable terms. In addition, our financing capacity could be negatively impacted by other economic factors. For a detailed analysis of our historical capital expenditures, see the “Cash Flows” discussion that follows. Cash From Operating Activitie s. As of March 31, 2025, we had $2.1 million of cash on hand. For additional information and an analysis of our historical cash flows from operating activities, see the “Cash Flows” discussion that follows. Credit Facility Borrowings . During the three months ended March 31, 2025, we repaid $2.0 million, net of borrowings, under the Credit Facility. The following table summarizes our borrowing activity under the Credit facility for the period presented: Borrowings Outstanding End of Period Weighted-average Maximum Weighted-average Rate Three months ended March 31, 2025 $ 168,000 $ 169,003 $ 170,000 7.97 % For additional information regarding the terms and covenants under the Credit Facility, see the “Capitalization” discussion that follows. Proceeds from Sales and Monetization of Assets . We continually evaluate the potential sale of assets, including underutilized or retired compressor units, obsolete and slow-moving inventory and non-strategic real estate assets, among others. For additional information and an analysis of or historical proceeds from sales of assets, see the “Cash Flows” discussion that follows. Capital Markets Transactions . From time-to-time and under market conditions that we believe are favorable to us, we may consider capital markets transactions, including the offering of debt and equity securities. We maintain an effective shelf registration statement with the SEC for up to $200 million for a variety of securities to provide financing optionality. 24 Cash flows The following table summarizes our cash flows for the periods presented: Three months ended March 31, 2025 2024 Net cash provided by operating activities $ 21,267 $ 5,609 Net cash used in investing activities (19,256) (10,941) Net cash (used in) provided by financing activities (2,006) 7,825 Net increase in cash and cash equivalents $ 5 $ 2,493 Cash Flows from Operating Activities. Our cash flows from operating activities increased by $15.7 million during the three months ended March 31, 2025, as compared to the comparable period in 2024. From a broad perspective, cash flows improved due to: (i) growth in accounts payable, (ii) substantial progress in improving our processes for billings and collections from certain customers and lowering our “days sales outstanding” statistics for accounts receivable and (iii) higher realized margins attributable to growth in our high horsepower unit rentals. Our accounts receivable efforts arose from the negative impact on working capital during 2023 and into 2024 as our rental activities began to grow significantly. We anticipate a continued focus on these efforts throughout 2025 as we concentrate on further improvements to our working capital performance statistics. Cash Flows from Investing Activities. For the three months ended March 31, 2025, and 2024, we invested approximately $19.3 million and $10.9 million, respectively, in rental equipment, property and other equipment. Included in these totals for 2025 and 2024 were $18.7 million and $10.9 million in new equipment to our rental fleet and $0.6 million and less than $0.1 million in other property and equipment, respectively. Our investment in rental equipment includes any changes to work-in-progress related to our rental fleet projects at the beginning of the year compared to the end of the year. Cash Flows from Financing Activities. During 2025, we had net repayments of $2.0 million under the Credit Facility while the 2024 period included net borrowings of $8.0 million. Capitalization The following table summarizes our total capitalization as of the dates presented: March 31, December 31, 2025 2024 Credit facility borrowings $ 168,000 $ 170,000 Total stockholders’ equity 260,264 255,097 Total capitalization $ 428,264 $ 425,097 Debt as a percent of total capitalization 39.2 % 40.0 % Credit Facility . We have a senior secured revolving credit agreement, as amended, or the Credit Facility, with Texas Capital Bank, National Association (the “Lender”) as administrative agent, and TCBI Securities, Inc., Bank of America, N.A., and the Huntington National Bank as joint lead arrangers and joint book runners, with a total commitment of $400.0 million. We also have a right to request from the Lender, an increase to the potential aggregate commitment of up to $100.0 million; provided, however, the aggregate commitment amount is not permitted to exceed $500.0 million. 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. Our Credit Facility is subject to: (i) a borrowing base calculation, (ii) variable rates of interest on borrowings that are determined, in part, upon our actual leverage ratio, as defined in the Credit Facility, (iii) commitment fees, (iv) certain financial and other covenants and (v) events of default and acceleration, among other terms and conditions that are customary for such credit instruments. Please see Note 8 ( “ Long-Term Debt ” ) to our Condensed Consolidated Financial Statements for a thorough discussion of these matters regarding our Credit Facility. As of March 31, 2025 we had $168.0 million outstanding under our Credit Facility with a weighted average interest rate of 7.93%. As of March 31, 2025, prior to the effective date of the Fourth Amendment, we had approximately $132.0 million available for borrowing under the Credit Facility, subject to a borrowing base determination. As of March 31, 2025, we were in compliance with all financial covenants in our Credit Facility. 25 Critical Accounting Estimates The preparation of our Condensed Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our Condensed Consolidated Financial Statements. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are generally based on historical experience and various other assumptions that we believe to be reasonable in consideration of our circumstances and expectations for the future based on available information. Our actual results could differ significantly from those estimates under different assumptions and conditions. We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There have been no changes to the critical accounting estimates disclosed in our Form 10-K for the year ended December 31, 2024. Recently Issued Accounting Pronouncements Please see Note 2, (“ Summary of Significant Accounting Policies ”) to our Condensed Consolidated Financial Statements for a discussion of recently issued accounting pronouncements. Off-Balance Sheet Arrangements From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to off-balance sheet obligations. As of March 31, 2025, the off-balance sheet arrangements and transactions that we have entered into include purchase agreements for certain compressor unit components that are fully anticipated consistent with our capital expenditure plans. We do not believe that these arrangements are reasonably likely to materially affect our liquidity or availability of capital resources. 26 Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no changes in the market risks disclosed in our Form 10-K for the year ended December 31, 2024.