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Natural Gas Services Group Fourth Quarter, Full Year 2020 Results

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   |    Tuesday,March 30,2021

Natural Gas Services Group, Inc. reported its Q4 and full year 2020 results.

2020 Highlights

  • NGS generated strong cash flow and utilization in 2020 despite market turmoil    
    • The Company's cash balance as of December 31, 2020 was $28.9 million, an increase of approximately 150% from $11.6 million on December 31, 2019, a result of robust operating cash flow, reduced capital expenditures, and a $3.9 million federal income tax refund.
    • Full-year cash flow from operating activities was $32.6 million, an increase of approximately 11% when compared to $29.4 million in 2019.   
  • Rental fleet utilization declined modestly measured by both horsepower (65.6% at year-end 2020 vs. 69.8% at year-end 2019) and units (57.3% at year-end 2020 vs. 61.6% at year-end 2019).
  • 2020 rental revenue was $60.8 million, an increase of 7.3% when compared to 2019 rental revenue of $56.7 million.
  • GAAP net income for the year ended December 31, 2020 was $1.8 million or $0.14 per basic and diluted share.
  • Adjusted EBITDA for the year ended December 31, 2020 was $22.7 million. Please see Non-GAAP Financial Measures - Adjusted EBITDA, below. 

Financial and Operating Details

Revenue: Total revenue decreased by 13.2% to $68.1 million for the year ended December 31, 2020 compared to $78.4 million for year ended in December 31, 2019.  This decrease was primarily due to a 71% decline in sales revenue to $5.7 million from $19.8 million during the same periods. This decrease was partially offset by a 7.3% increase in rental revenue to $60.8 million in 2020 compared to $56.7 million in 2019. Total revenues decreased 13.8% to $17.0 million for the three months ended December 31, 2020 from $19.7 million for the three months ended December 31, 2019. This decrease was primarily related to a $2.3 million decrease in sales revenue. While the Company had sales of parts, rebuilds and flares during the period, the Company did not have any compressor sales in the three-month period ended December 31, 2020. Total revenues increased 7.8% to $17.0 million for the three months ended December 31, 2020 from $15.8 million for the three months ended September 30, 2020. This increase was primarily related to a $1.1 million increase in sales of parts, rebuilds and flares.

Operating Loss: The Company posted an operating loss for the year ended December 31, 2020 of $3.6 million, compared to an operating loss of $15.2 million for the year ended December 31, 2019. This decrease in operating loss is primarily due to the absence of goodwill impairment in 2020 (the Company recognized $10.0 million of goodwill impairment in 2019) as well as a decrease in inventory allowance charges and charges related to the retirement of rental equipment when compared to 2019 which were partially offset by reduced sales, service and maintenance margins due to the reduction in customer capital expenditures during 2020, a result of slower oilfield activity. The operating loss for the three months ended December 31, 2020 was $2.2 million compared to $1.3 million for the three months ended December 31, 2019. The increase in the fourth quarter operating loss was driven by reduced revenues and increased selling and general administrative ("SG&A") expenses. The SG&A increase was due to higher executive cash compensation which was partially offset by a reduction in restricted stock expense and other professional fees. The Company's operating loss was also reduced by lower costs of sales due to reduced sales activity. Sequentially, total operating losses for the three months ended December 31, 2020 increased to $1.3 million from $0.9 million for the three months ended September 30, 2020.

Gross Margins: Total gross margins decreased to $8.0 million for the year ended December 31, 2020 from $11.2 million for the year ended December 31, 2019.  Total adjusted gross margin, exclusive of depreciation, for the year ended December 31, 2020, decreased $1.5 million to $32.6 million from $34.1 million for the same period ended December 31, 2019. This decline is attributable to decreased sales revenue partially offset by increased rental revenue. Total gross margins decreased $0.4 million to $1.6 million for the three months ended December 31, 2020 from $2.0 million for the three months ended December 31, 2019. Total adjusted gross margin, exclusive of depreciation, for the three months ended December 31, 2020, decreased $0.1 million to $7.8 million from $7.9 million for the three months ended December 31, 2019. This decrease is attributable to decreased sales margins partially offset by increased rental margins. Sequentially, total gross margins decreased to $1.6 million for the three months ended December 31, 2020 from $1.7 million for the three months ended September 30, 2020. Total adjusted gross margins decreased marginally to $7.8 million from $7.9 million for the three months ended September 30, 2020. Please see discussions of Non-GAAP Financial Measures - Adjusted Gross Margin, below.

Net Income (Loss): The Company reported net income of $1.8 million for the year ended December 31, 2020 compared to a net loss of $13.9 million for the year ended December 31, 2019. The increase in 2020 annual net income, when compared to the full year 2019 results, is primarily due to the absence of goodwill impairment in and an increased income tax benefit of $4.8 million. These increases were partially offset by lower gross margins primarily attributable to lower sales revenue. For the three months ended December 31, 2020, the Company reported a net loss of $1.9 million compared to a net loss of $1.7 million for the three months ended December 31, 2019. The increased net loss was primarily attributable to reduced sales revenues partially offset by lower costs of sales. Sequentially, the Company's net loss increased $1.3 million primarily due to increased SG&A expenses as well as non-cash charges of $291,000 and $184,000 for retirement of rental equipment and inventory allowance write-downs, respectively.

Earnings per share: For the year ended December 31, 2020, the Company reported income per basic and diluted share of $0.14, compared to a loss per basic and diluted share of $1.06 for the year ended December 31, 2019. For the three months ended December 31, 2020, the Company reported net loss per basic and diluted share of $0.14 compared to a net loss per basic and diluted share of $0.13 for the three months ended December 31, 2019 and $0.04 for the three months ended September 30, 2020.

Adjusted EBITDA: Adjusted EBITDA decreased 5.5% or $1.3 million to $22.7 million for the year ended December 31, 2020 compared to $24.0 million for the year ended December 31, 2019.  This reduction was primarily attributed to decreased sales revenue and associated gross margin. Adjusted EBITDA decreased to $4.8 million for the three months ended December 31, 2020, as compared to $5.2 million for the three months ended December 31, 2019 due to a decrease in compressor sales and lower sales margins. Sequentially, Adjusted EBITDA decreased $792,000 from $5.6 million for the three months ended September 30, 2020 due primarily to increased SG&A. Please see discussion of Non-GAAP Financial Measures - Adjusted EBITDA, below.

Cash flow: At December 31, 2020, cash and cash equivalents were approximately $28.9 million, while working capital was $61.9 million and total bank debt was $417,000. Cash flow from operating activities was $32.6 million for the year ended December 31, 2020, while cash flow used in investing activities was $15.2 million during 2020.  Our cash flow used in investing activities included our $15.3 million in capital expenditures.

Commenting on fourth quarter and year-end 2020 results, Stephen C. Taylor, President and CEO, said: “Given a year defined by the debilitating pandemic, global economic shutdown and the worst contraction in oilfield activity in my 40-year career, Natural Gas Services Group posted solid results and continued to differentiate itself with its strong balance sheet and growing cash position. Our cash balance increased from just under $12 million at year-end 2019 to nearly $29 million at the end of 2020, an almost 150% increase. On a year-over-year basis our operating cash flow increased nearly 11% to $32.6 million over the past twelve months. This means that for every $2 of revenue we generated approximately $1 of operating cash flow. We accomplished both in spite of lower overall revenues. While sales were impacted by the pandemic and customer decisions to defer purchases, our rental revenues were robust, increasing nearly 7% compared to 2019 even with the slide in oilfield activity.  

"Our financial and operating results over the past year, especially given the myriad of challenges, were satisfying and are an indication of the importance of a strong balance sheet in the oilfield. As commodity prices and oilfield activity are slowly recovering, we believe 2021 should provide opportunities for growth, although we expect such opportunities to be more prevalent as the year progresses. We continue to see new opportunities in the larger horsepower market with both existing and prospective customers with execution of those opportunities likely to occur later in the year. Our industry-leading liquidity position provides us with the flexibility to swiftly respond to prospects to grow our company both intrinsically and through other strategic opportunities.”


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