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 our 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, 2026, and 2025 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, 2025. 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, 2026, or 2025, as applicable. Certain variances that represent results that are not meaningful are indicated as “NM.” Overview We rent, design, 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. 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. Our primary focus is on the rental of natural gas engine and electric motor drive compressors. Our rental contracts generally provide for initial terms of 12 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 79 percent of our rental revenue is generated from the Permian Basin and approximately 91 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: Three months ended March 31, 2026 2025 Rented horsepower (at period end) 574,969 492,679 Average rented horsepower 570,847 492,218 Fleet horsepower available (at period end): 661,872 603,391 Fleet horsepower available - average 667,682 601,116 Horsepower utilization (at period end) 86.9 % 81.7 % Average horsepower utilization 85.5 % 81.9 % Units utilized (at period end) 1,243 1,202 Fleet units (at period end): 1,801 1,916 Unit utilization (at period end) 69.0 % 62.7 % Rental revenues $ 47,115 $ 38,910 Total revenues $ 48,467 $ 41,383 Rental revenues as a percent of total revenues 97.2 % 94.0 % Of the total horsepower utilized as of March 31, 2026, 465,638 of horsepower was being rented under contracts expiring between 2026 and 2031 and 109,331 of horsepower was being rented on a month-to-month basis. Of the 1,243 compressors utilized as of March 31, 2026, 754 units were being rented under multi-year contracts and 489 units were being rented on a month-to-month basis. 16 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 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 is 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, the United Arab Emirates and Russia, and other factors. Regardless of current oil price volatility driven by geopolitical factors, we expect demand for compression overall, and specifically our fleet to remain strong. 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 geopolitical influences, weather 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 the Utica and Marcellus Shales. 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. 17 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, 2026 2025 Total revenue $ 48,467 $ 41,383 Cost of revenue, exclusive of depreciation and amortization (18,219) (17,127) Depreciation allocable to cost of revenues (10,165) (8,539) Gross margin 20,083 15,717 Depreciation allocable to cost of revenues 10,165 8,539 Adjusted gross margin $ 30,248 $ 24,256 Adjusted gross margin by revenue classification: Rental $ 30,025 $ 24,070 Sales (133) (89) Aftermarket services 356 275 Total adjusted gross margin $ 30,248 $ 24,256 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, 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 and a component for setting incentive compensation. 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. 18 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, 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, 2026 2025 Net income $ 6,763 $ 4,854 Interest expense 4,028 3,170 Income tax expense 2,156 1,482 Depreciation and amortization 10,325 8,636 Inventory allowance — 61 Retirement of rental equipment 412 728 Stock-based compensation 579 359 Adjusted EBITDA $ 24,263 $ 19,290 19 Results of Operations Three months ended March 31, 2026, compared to the three months ended March 31, 2025. Rentals We generate revenue from renting, maintaining and servicing compressors to our customers under contractual arrangements. The underlying rental service agreements, which all qualify as operating leases under GAAP, generally include a fee for servicing the compressor unit as well as surcharges for fluids during the rental term. Our rental agreement terms typically range from 12 to 60 months. Our revenue is recognized over time, with monthly payments over the term of the agreement. After the terms of the agreement have expired, a customer may renew its agreement 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, 2026 2025 Change % Rental revenue $ 47,115 $ 38,910 $ 8,205 21.1 % Cost of rentals (excluding depreciation and amortization) 17,090 14,840 2,250 15.2 % Rental adjusted gross margin $ 30,025 $ 24,070 $ 5,955 24.7 % Rental adjusted gross margin percentage 63.7 % 61.9 % 1.8 % Percent of total company revenues 97.2 % 94.0 % 3.2 % Rented horsepower (at period end) 574,969 492,679 82,290 16.7 % Horsepower utilization (at period end) 86.9 % 81.7 % 5.2 % Units utilized (at period end) 1,243 1,202 41 3.4 % Units utilization 69.0 % 62.7 % 6.3 % Rental revenue increased for the three months ended March 31, 2026, as compared to the corresponding period in 2025 due primarily to an increase in rented horsepower and units. The increase in revenue reflects a continuing trend of growing demand for our large horsepower units (400 horsepower and greater) which provide for higher rental rates and realized adjusted gross margins. Our utilized horsepower increased during the first quarter of 2026 as compared to the prior year period which reflects the continued addition of large horsepower units to our fleet consistent with our emphasis on larger units over the past several years, as well as the retirement of certain older medium and small horsepower units from the fleet. Through March 31, 2026, we placed into service a total of 98 newly set units, including 64 from our existing fleet and 34 new units. Of those unit sets, a total of 37 were large horsepower units and 34 of those were new units to the fleet. The cost of rentals increased on an absolute basis, consistent with revenues, due to the effects of supporting a larger quantity of utilized horsepower and inflationary pressures primarily in labor and parts costs. An expanding portion of our rented compressor units utilize our proprietary System Management and Recovery Technology (“SMART”) and telemetry software which reduces unplanned shutdowns and increases productivity. Despite inflationary pressure associated with our primary cost components, the SMART and telemetry technology allows us to streamline and manage our maintenance activities more efficiently and thereby mitigate the costs to a manageable extent. As a percentage of revenue, cost of rentals, specifically labor, replacement parts, and lubricants declined compared to the first and fourth quarters in 2025. We expect these costs will normalize over the coming quarters. 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, 2026, compared to the comparable period in 2025. 20 Sales We generate revenue primarily from the sale of compressor parts and to a lesser extent repair and overhaul services. Costs of sales primarily include purchases of component materials. In addition, our costs of sales include overhead and related support costs attributable to our storage, assembly facilities including 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 compressor parts and equipment and repair/overhaul services for the periods presented: Three months ended March 31, 2026 2025 Change % Sales revenue $ 491 $ 1,927 $ (1,436) (74.5) % Cost of sales (excluding depreciation and amortization) 624 2,016 (1,392) (69.0) % Sales adjusted gross margin $ (133) $ (89) $ (44) 49.4 % Sales adjusted gross margin percentage (27.1) % (4.6) % (22.5) % Percent of total company revenues 1.0 % 4.7 % (3.7) % Sales revenue declined for the three months ended March 31, 2026, compared to the corresponding period in 2025 due primarily to the phasing out of direct sales of compressors and repair/overhaul work which was the primary focus of the former Midland Facility. The costs to support our sales revenues declined on an absolute basis, primarily reflecting a substantially lower volume of business. Sales represented a negligible negative contribution to gross margin in the three months ended March 31, 2026, and 2025, respectively. 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, 2026 2025 Change % Aftermarket services revenue $ 861 $ 546 $ 315 57.7 % Cost of aftermarket services (excluding depreciation and amortization) 505 271 234 86.3 % Aftermarket services adjusted gross margin $ 356 $ 275 $ 81 29.5 % Aftermarket services adjusted gross margin percentage 41.3 % 50.4 % (9.1) % Percent of total company revenues 1.8 % 1.3 % 0.5 % Third party aftermarket services revenues, costs and absolute gross margin increased for the three months ended March 31, 2026, compared to the corresponding period during 2025; however, the gross margin percentage declined over the prior period in 2025. The increase in revenue and costs is primarily attributable to a marginally higher volume of unit commissioning work performed during the 2026 period compared to 2025. The margin decline is attributable to higher level of freight services passed on to customers during the 2025 period. Aftermarket services represented an insignificant portion of our gross margin in the three months ended March 31, 2026, and 2025, respectively. 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, procurement, logistics and supply chain, human resources, information technology (“IT”), health, safety and environmental and investor relations. In addition, SG&A includes non-personnel costs, such as rent and occupancy, IT support, professional fees and other supporting corporate expenses including public company compliance and related costs. 21 The following table summarizes the components of our SG&A expenses for the periods presents: Three months ended March 31, 2026 2025 Change % Primary selling, general and administrative expenses $ 5,929 $ 5,019 $ 910 18.1 % Stock-based compensation - equity classified 579 359 220 61.3 % Total $ 6,508 $ 5,378 $ 1,130 21.0 % SG&A expenses as a percent of total revenues 13.4 % 13.0 % 0.4 % SG&A expenses increased during the three months ended March 31, 2026, as compared to the corresponding period in 2025. In general, the increase in our total SG&A expenses reflects a higher level of cost to appropriately scale our administrative function. The increase in primary SG&A expenses during the three months ended March 31, 2026 as compared to 2025 was impacted by (i) higher professional fees and public company costs of $0.4 million, (ii) higher salaries and benefits, including short-term incentive compensation, of $0.2 million reflecting support staff growth and performance, (iii) higher IT support costs of $0.1 million in support of our growth initiatives and noncapitalizable costs associated with certain IT system conversion projects and (iv) higher occupancy and office costs of $0.1 million. Our equity classified stock-based compensation increased during the 2026 period over 2025 due primarily to a higher mix of performance-based share unit awards, or PSUs, for our executive officers in the 2026 period. PSUs generally have a higher grant-date fair value than traditional restricted stock and restricted stock units. 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, 2026 2025 Change % Depreciation and amortization allocable to cost of revenues: Rental $ 10,034 $ 8,436 $ 1,598 18.9 % Sales 117 92 25 27.2 % Aftermarket services 14 11 3 27.3 % 10,165 8,539 1,626 19.0 % Corporate depreciation 160 97 63 64.9 % Total $ 10,325 $ 8,636 $ 1,689 19.6 % Depreciation and amortization as a percent of total revenues 21.3 % 20.9 % 0.4 % Depreciation and amortization expense increased for the three months ended March 31, 2026, as compared to the corresponding period in 2025, due primarily to depreciation expense associated with the large horsepower units placed in service during 2025 continuing through March 31, 2026. These higher horsepower unit additions are reflective of our strategic plans to concentrate our business development on these higher margin applications. Furthermore, our equipment additions, during the 2026 period, primarily compressor units and service vehicles, reflect higher overall costs due to broad inflationary pressures as compared to the 2025 period. 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, 2026 2025 Change % Inventory allowance $ — $ 61 $ (61) NM 22 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 remained useful from our former Midland, Texas facility, in connection with its closing in March 2025, to our other operating facilities. All of the 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, 2026 and December 31, 2025, we had an inventory obsolescence balance of $3.6 million. 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, 2026 2025 Change % Retirement of rental equipment $ 412 $ 728 $ (316) NM We retired 134 and 68 units representing 17,700 and 12,073 horsepower, with remaining carrying values of $0.4 million and $0.7 million during the three months ended March 31, 2026 and 2025, respectively . Gain on Disposition of Assets As circumstances warrant, we will market certain property and equipment, primarily trucks, 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, 2026 2025 Change % Gain on the disposition of assets, net $ 70 $ 54 $ 16 NM Gains recognized during the three months ended March 31, 2026 and 2024 are primarily attributable to the sales of trucks after the completion of their useful lives. Interest Expense Interest expense primarily reflects the costs of borrowing, including commitment fees and the amortization of debt issue costs, under our senior secured revolving credit agreement, as amended (the “Credit Facility”) , net of amounts capitalized attributable to certain capital projects. The following table presents the components of our interest expense for the periods presented: Three months ended March 31, 2026 2025 Change % Interest on borrowings, finance leases and related fees $ 3,882 $ 3,532 $ 350 9.9 % Amortization of debt issue costs 325 212 113 53.3 % Capitalized interest (179) (574) 395 (68.8) % Total $ 4,028 $ 3,170 $ 858 27.1 % Weighted-average interest rates on borrowings 6.62 % 7.97 % (1.35) % Weighted-average outstanding borrowings $ 225,539 $ 169,003 $ 56,536 Interest expense increased for the three months ended March 31, 2026, as compared to the corresponding period in 2025 , due primarily to (i) the effect of $0.4 million of lower capitalized interest, respectively, due primarily to the volume and timing of the completion of certain compressor assembly projects in the 2026 period as well as lower interest rates and (ii) higher interest costs of $0.4 million resulting from $56.5 million of higher average borrowings outstanding partially offset by the effect of lower average interest rates. In addition, amortization of debt issue costs increased during the three months ended March 31, 2026, as compared to the comparable period in 2025 due primarily to the amortization of costs associated with the Fourth Amendment to the Amended and Restated Credit Agreement (the “Fourth Amendment”) that was completed in April 23 2025. The lower average interest rates are consistent with the Federal Reserve interest rate reductions implemented in the second half of 2025 as well as the lower interest rates attributable to the Fourth Amendment. Other Income (Expense), net This component of our income 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 as well as other credits, charges and scrap asset sales. The following table indicates our other income (expense) for the periods presented: Three months ended March 31, 2026 2025 Change % Other income (expense), net $ (126) $ (1) $ (125) NM Other income (expense), net declined for the three months ended March 31, 2026 as compared to the corresponding period in 2025 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 income taxes under the Internal Revenue Code as well as to various states in which we operate, primarily Texas. Please see Note 10 ( “ 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, 2026 2025 Change % Income tax expense $ 2,156 $ 1,482 $ 674 45 % Effective income tax rate 24.2 % 23.4 % 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 a higher effective tax rate attributable to state and local income taxes including the impact of projected apportionment of taxable income between states with different tax rates. 24 Financial Condition Liquidity and Capital Resources Our primary sources of liquidity include cash provided by operating activities and borrowings under our Credit Facility which provides us with up to $400.0 million in borrowing commitments with an additional $100.0 million at our request through an accordion feature. The accordion feature is subject to certain conditions, including the absence of a default, the consent of new or existing lenders willing to provide additional commitments, and our pro forma compliance with the Credit Facility ’ s financial covenants. As of March 31, 2026, the borrowing base under the Credit Facility was $400.0 million with $226.0 million of borrowings outstanding leaving $174.0 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. 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 the remainder of 2026 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, dividend 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. Our cash provided by operating activities was $23.0 million for the three months ended March 31, 2026. 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, 2026, we repaid $4.0 million, net of borrowings, under the Credit Facility. The following table summarizes our borrowing activity under the Credit facility for the periods presented: Borrowings Outstanding End of Period Weighted-average Maximum Weighted-average Rate Three months ended March 31, 2026 $ 226,000 $ 225,539 $ 230,000 6.62 % 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. 25 Cash flows The following table summarizes our cash flows for the periods presented: Three months ended March 31, 2026 2025 Net cash provided by operating activities $ 23,035 $ 21,267 Net cash used in investing activities (15,210) (19,256) Net cash (used in) provided by financing activities (5,514) (2,006) Net decrease in cash and cash equivalents $ 2,311 $ 5 Cash Flows from Operating Activities. Our cash flows from operating activities increased by $1.8 million during the three months ended March 31, 2026, as compared to the comparable period in 2025. The net increase is primarily attributable to the receipt in January 2026 of $12.3 million of income tax refunds and related interest as well as the favorable effects of higher realized margins attributable to growth in our high horsepower unit rentals. These increases were substantially offset by higher working capital uses including (i) the paydown of higher year-end accounts payable, (ii) growth in accounts receivable, (iii) increases in our maintenance parts inventory in support of our growing fleet and (iv) higher interest payments attributable to higher outstanding borrowings during the 2026 period as compared to the 2025 period. Cash Flows from Investing Activities. For the three months ended March 31, 2026, and 2025, we invested approximately $15.2 million and $19.3 million, respectively, in rental equipment, property and other equipment. Included in these totals for 2026 and 2025 were $12.2 million and $16.7 million for growth capital expenditures to expand our rental fleet and $3.0 million and $2.6 million for capital maintenance projects, 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 period. Cash Flows from Financing Activities. During the three months ended March 31, 2026, we had net repayments of $4.0 million and for the three months ended March 31, 2025 we had net repayments of $2.0 million under the Credit Facility. The 2026 period includes a payment of $1.4 million for a common stock dividend. The 2026 period also includes the payments of taxes attributable to the net share settlement of equity awards partially offset by the receipt of proceeds from the exercise of stock options. There were no comparable cash flows for these items during the 2025 period. Capitalization The following table summarizes our total capitalization as of the dates presented: March 31, December 31, 2026 2025 Credit facility borrowings $ 226,000 $ 230,000 Total stockholders’ equity 280,534 274,716 Total capitalization $ 506,534 $ 504,716 Debt as a percent of total capitalization 44.6 % 45.6 % Credit Facility . We have a senior secured revolving credit agreement, as amended, or the Credit Facility, with Texas Capital Bank, National Association as administrative agent (the “Administrative Agent”), and TCBI Securities, Inc., Bank of America, N.A., and the Huntington National Bank as joint lead arrangers and joint book runners, and the lenders party thereto (the “Lenders”) with a total commitment of $400.0 million. We also have a right to request from the Lenders, 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 9 ( “ Long-Term Debt ” ) to our Condensed Consolidated Financial Statements for a thorough discussion of these matters regarding our Credit Facility. 26 As of March 31, 2026 we had $226.0 million outstanding under our Credit Facility with a weighted average interest rate of 6.79%. As of March 31, 2026, we had approximately $174.0 million available for borrowing under the Credit Facility, subject to a borrowing base determination. As of March 31, 2026, we were in compliance with all financial covenants in our Credit Facility. 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, 2025. 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, 2026, 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. 27