Natural Gas Services Group Inc 10-Q for FY2026 Q1
Natural Gas Services Group Inc (NGS)
10-Q
2026-05-11
For: 2026-03-31
View Original
Added on
May 11, 2026
About this 10-Q
Natural Gas Services Group Inc filed this 10-Q on May 11, 2026, covering the quarter ended March 31, 2026 (FY2026 Q1).
Headline figures
Quarter ended March 31, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $48.47M
- up 17.1% from $41.38M a year earlier
- Net income
- $6.76M
- up 39.3% from net income of $4.85M a year earlier
- Diluted EPS
- $0.53
- up 39.5% from $0.38 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended March 31, 2026
OR
For the transition period from ______ to ______
Commission File Number 1-31398
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices)
(432 ) 262-2700
(Registrant’s telephone number, including area code)
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
No o | ||||||||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
No o | ||||||||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Non-accelerated filer ☐ | Smaller reporting company | Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes | No x | |||||||
As of May 8, 2026 there were 12,598,365 shares of the Registrant’s common stock, $0.01 par value, outstanding.
TABLE OF CONTENTS
| Page | ||||||||
| Part I - FINANCIAL INFORMATION | ||||||||
| Item 1. Financial Statements (unaudited) | ||||||||
4. Inventory | ||||||||
10. Income Taxes | ||||||||
| Part II - OTHER INFORMATION | ||||||||
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value) (unaudited) | |||||||||||
| March 31, | December 31, | ||||||||||
| 2026 | 2025 | ||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Trade accounts receivable, net of provision for credit losses | |||||||||||
| Inventory, net of allowance for obsolescence | |||||||||||
| Income taxes receivable and prepayments | |||||||||||
| Prepaid expenses and other | |||||||||||
| Assets held for sale | |||||||||||
| Total current assets | |||||||||||
| Long-term inventory, net of allowance for obsolescence | |||||||||||
| Rental equipment, net of accumulated depreciation | |||||||||||
| Property and equipment, net of accumulated depreciation | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred income taxes | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Stockholders’ Equity: | |||||||||||
Preferred stock, | |||||||||||
Common stock, | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
Treasury shares, at cost, | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
1
NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except earnings per share) (unaudited) | ||||||||||||||||||||
| Three months ended | ||||||||||||||||||||
| March 31, | ||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Rental | $ | $ | ||||||||||||||||||
| Sales | ||||||||||||||||||||
| Aftermarket services | ||||||||||||||||||||
| Total revenue | ||||||||||||||||||||
| Cost of revenue (excluding depreciation and amortization): | ||||||||||||||||||||
| Rental | ||||||||||||||||||||
| Sales | ||||||||||||||||||||
| Aftermarket services | ||||||||||||||||||||
| Total cost of revenues (excluding depreciation and amortization) | ||||||||||||||||||||
| Selling, general and administrative expense | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| Inventory allowance | ||||||||||||||||||||
| Retirement of rental equipment | ||||||||||||||||||||
| Gain on disposition of assets, net | ( | ( | ||||||||||||||||||
| Total operating costs and expenses | ||||||||||||||||||||
| Operating income | ||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||
| Interest expense | ( | ( | ||||||||||||||||||
| Other income (expense) | ( | ( | ||||||||||||||||||
| Total other income (expense), net | ( | ( | ||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||
| Provision for income taxes | ( | ( | ||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||
| Earnings per share: | ||||||||||||||||||||
| Basic | $ | $ | ||||||||||||||||||
| Diluted | $ | $ | ||||||||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||
| Basic | ||||||||||||||||||||
| Diluted | ||||||||||||||||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
2
NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) (unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||
| January 1, 2025 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock/units | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Taxes paid related to net shares settlement of equity awards | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2025 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||
| January 1, 2026 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock/units | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of common stock options | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Taxes paid related to net shares settlement of equity awards | — | — | ( | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2026 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
3
NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) | |||||||||||
| Three months ended | |||||||||||
| March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Inventory allowance | |||||||||||
| Retirement of rental equipment | |||||||||||
| Gain on disposition of assets, net | ( | ( | |||||||||
| Amortization of debt issuance costs | |||||||||||
| Deferred income taxes | |||||||||||
| Stock-based compensation | |||||||||||
| Provision for credit losses | |||||||||||
| Loss on company owned life insurance | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Trade accounts receivables | ( | ||||||||||
| Inventory | ( | ||||||||||
| Prepaid expenses, income taxes receivable and prepayments | |||||||||||
| Accounts payable and accrued liabilities | ( | ||||||||||
| Other | ( | ( | |||||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchase of rental equipment, property and other equipment | ( | ( | |||||||||
| Proceeds from disposition of assets, net | |||||||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Proceeds from credit facility borrowings | |||||||||||
| Repayments of credit facility borrowings | ( | ( | |||||||||
| Payments of debt issuance costs | ( | ||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Payment of dividends | ( | ||||||||||
| Taxes paid related to net share settlement of equity awards | ( | ( | |||||||||
| NET CASH USED IN FINANCING ACTIVITIES | ( | ( | |||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | |||||||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |||||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||||
| Interest paid, net of amounts capitalized | $ | $ | |||||||||
| Income taxes paid, net of refunds received | $ | ( | $ | ||||||||
| NON-CASH TRANSACTIONS: | |||||||||||
| Transfer of property and equipment to assets held for sale | $ | $ | |||||||||
| Accrued purchases of property and equipment | $ | $ | |||||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
4
NATURAL GAS SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts or where otherwise indicated)
(unaudited)
1. Description of Business
Natural Gas Services Group, Inc. (the “Company,” “NGS,” “Natural Gas Services Group,” “we,” “us” or “our”) (a Colorado corporation), is a leading provider of natural gas and electric compression equipment, technology and services to the energy industry. We rent, design, install, service and maintain compressors and related equipment and parts 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 Southlake, Texas, with administrative offices in Midland, Texas, an assembly facility located in Tulsa, Oklahoma and service facilities located in major oil and gas producing basins in the continental United States (“U.S.”).
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements were prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) and include the accounts of the Company, its subsidiary, NGSG Properties, LLC and the rabbi trust associated with our deferred compensation plan. All significant intercompany accounts and transactions for the periods presented have been eliminated in consolidation.
These financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary for the fair presentation of our financial position as of March 31, 2026, and the results of our operations for the three months ended March 31, 2026, and 2025, respectively. As permitted by the rules and regulations of the SEC, the accompanying Condensed Consolidated Financial Statements do not include all disclosures normally required by GAAP. These financial statements should be read in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC. In our opinion, the Condensed Consolidated Financial Statements provide a fair representation of our financial position, results of operations, changes in stockholders’ equity and cash flows for the periods presented.
Although we review our service and product offerings (rentals, sales and aftermarket services) to analyze the nature of our revenue, costs and expenses, the net income and non-GAAP financial measures including Adjusted EBITDA and Adjusted gross margin are not captured or analyzed by these categories. Our chief executive officer (“CEO”) serves as the chief operating decision maker and does not make resource allocation decisions or assess the performance of the business based on these service and product offerings, 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 Condensed Consolidated Financial Statements. Based on these facts and circumstances, we have concluded that we operate in one business segment.
The results of operations for the three months ended March 31, 2026 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2026.
Recently Issued Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board 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 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 our 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.
5
3. Trade Accounts Receivable
The following table summarizes our trade accounts receivable from customers as of the dates presented:
| March 31, | December 31, | ||||||||||
| 2026 | 2025 | ||||||||||
| Trade accounts receivable | |||||||||||
| Rentals | $ | $ | |||||||||
| Sales and aftermarket services | |||||||||||
Less: Provision for credit losses | ( | ( | |||||||||
| Total trade accounts receivable, net | $ | $ | |||||||||
Our trade accounts receivable consist of customer obligations due under normal trade terms for (i) operating leases for the use of our compressor equipment, (ii) the sale of compressor parts, other equipment and rebuild services and (iii) the performance of aftermarket services.
Major Customers and Concentration of Credit Risk
Rental revenue and sales from Occidental Permian, LTD. (“Oxy”) and Devon Energy Corporation (“Devon”) in the three months ended March 31, 2026 and 2025 amounted to 64 percent and 55 percent of revenue on a combined basis, respectively. No other single customer accounted for more than 10 percent of our revenues during these periods. Likewise, Oxy’s and Devon’s accounts receivable balances amounted to 63 percent and 62 percent of our accounts receivable on a combined basis as of March 31, 2026, and December 31, 2025, respectively. No other customers amounted to more than 10 percent of our accounts receivable as of these dates.
Provision for Credit Losses
The following table summarizes the changes in our provision for credit losses for the periods presented:
| Three months ended | Year ended | ||||||||||
| March 31, | December 31, | ||||||||||
| 2026 | 2025 | ||||||||||
| Beginning balance | $ | $ | |||||||||
| Provision for credit losses | |||||||||||
| Write-offs | ( | ( | |||||||||
| Ending balance | $ | $ | |||||||||
4. Inventory
The following table summarizes the components of our inventory, net of allowance for obsolescence, as of the dates presented:
| March 31, | December 31, | ||||||||||
| 2026 | 2025 | ||||||||||
Parts and supplies, net of allowance of $ | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Inventory - current | |||||||||||
Parts and supplies - long term, net of allowance of $ | |||||||||||
| Total inventory | $ | $ | |||||||||
Our long-term inventory, which is fully reserved for obsolescence, consists of excess materials and supplies that remain viable but with limited market opportunities.
6
The following table summarizes the changes in our allowance for obsolescence for the periods presented:
| March 31, | December 31, | ||||||||||
| 2026 | 2025 | ||||||||||
| Beginning balance | $ | $ | |||||||||
| Allowance for obsolescence | |||||||||||
| Write-offs | ( | ||||||||||
| Ending balance | $ | $ | |||||||||
5. Assets Held for Sale and Restructuring Activities
As part of our broader efforts to monetize certain noncash assets, we began a process during 2025 to explore and ultimately pursue transactions to sell certain non-core real estate assets. These properties and the related restructuring actions are described below. The carrying value of these properties are reflected as assets held for sale and are included as a component of current assets on our Condensed Consolidated Balance Sheet.
Former Headquarters Property
In connection with our efforts to plan for an eventual sale of our former corporate headquarters facility including a building and land in Midland, Texas (the “Former Headquarters Property”), we undertook certain actions in the fourth quarter of 2025 to begin building-out a new leased office facility in Midland, Texas. We recorded an impairment during the fourth quarter of 2025 to reduce the carrying value of the Former Headquarters Property to its fair value, less costs to sell, or $8.8 million. In February 2026, we entered into an exclusive listing agreement to sell the Former Headquarters Property.
Midland Facility
During the second quarter of 2025, we completed all activities necessary to terminate operations at the Midland Facility and to begin marketing the facility for sale. The closure of the Midland Facility was part of our strategy to streamline and outsource our assembly operations and monetize company-owned real estate as disclosed previously. We are party to an exclusive listing agreement and are currently marketing the Midland Facility, which has a carrying value of $2.2 million.
In connection with the complete closure of the Midland Facility, we terminated eight employees and incurred $0.1 million of severance and termination benefits all of which were paid and settled during April 2025. In addition, we disposed of all inventory items, including engines, frames and coolers, among other items that were fully reserved (see Note 4).
6. Rental Equipment
The following table summarizes our rental equipment and accumulated depreciation as of the dates presented:
| March 31, | December 31, | ||||||||||
| 2026 | 2025 | ||||||||||
| Compressor units | $ | $ | |||||||||
| Work-in-progress | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Rental equipment, net of accumulated depreciation | $ | $ | |||||||||
7
7. Property and Equipment
The following table summarizes our property and non-rental equipment as of the dates presented:
| March 31, | December 31, | ||||||||||
| 2026 | 2025 | ||||||||||
| Land | $ | $ | |||||||||
| Building | |||||||||||
| Leasehold improvements | |||||||||||
| Office equipment and furniture | |||||||||||
| Software | |||||||||||
| Machinery and equipment | |||||||||||
| Vehicles | |||||||||||
| Work-in-progress | |||||||||||
| Less accumulated depreciation | ( | ( | |||||||||
| Total | $ | $ | |||||||||
Depreciation expense for property and equipment was $1.1 million and $0.9 million for the three months ended March 31, 2026, and 2025, respectively.
During the quarter ended March 31, 2026, we reclassified certain items of property and equipment attributable to our Former Headquarters Property with a carrying value of $8.8 million to assets held for sale (see Note 5).
8. Supplemental Balance Sheet Disclosures
The following table summarizes the components of accrued liabilities as of the dates presented:
| March 31, | December 31, | ||||||||||
| 2026 | 2025 | ||||||||||
| Accrued purchases | $ | $ | |||||||||
| Compensation | |||||||||||
| Right of use obligations | |||||||||||
| Interest | |||||||||||
| Sales taxes | |||||||||||
| Professional fees | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
9. Long-Term Debt
Our outstanding long-term debt consists of the following, as of the dates presented:
| March 31, | December 31, | ||||||||||
| 2026 | 2025 | ||||||||||
| Credit facility | $ | $ | |||||||||
We have a senior secured revolving credit agreement, as amended (the “Credit Facility”) with Texas Capital Bank, National Association as administrative agent (the “Administrative Agent”), 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”).
8
The Credit Facility provides for 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 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. 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 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.
Borrowing Base. 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 Administrative Agent 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 Administrative Agent 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 Administrative Agent in its sole discretion. The Administrative Agent 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 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; (b) the sum of the federal funds rate for such day plus 0.50 %; 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 Administrative Agent for each fiscal quarter from time to time pursuant to the Credit Facility. Depending on the leverage ratio, the Applicable Margin can be 1.50 % to 2.25 % for Base Rate Loans (as defined in the Credit Facility) and 2.50 % to 3.25 % 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 0.375 % 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.
Covenants. 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; make acquisitions in excess of certain amounts; pay dividends; redeem or repurchase capital stock or senior notes; make investments or loans; make negative pledges; consolidate, merge or effect asset sales; or change the nature of our business. In addition, we are subject to certain financial covenants in the Credit Facility that require us to maintain (i) a leverage ratio, as defined, less than or equal to 3.50 to 1.00 for each fiscal quarter 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 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; certain defaults, termination events or similar events; certain defaults with respect to any other Company indebtedness in excess of $1.0 million; certain bankruptcy or insolvency events; the rendering of certain judgments in excess of $1.0 million; certain ERISA events; certain change in control events and the defectiveness of any liens. Obligations outstanding under the Credit Facility may be accelerated upon the occurrence of an event of default.
9
10. Income Taxes
Income Taxes Receivable
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. The CARES Act, among other things, permits federal income tax net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. 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. 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 certain related adjustments to our deferred tax liability. We subsequently received federal income tax refunds corresponding to the 2018 NOL carryback during 2020 leaving approximately $11.5 million remaining to be refunded in connection with the 2019 NOL carryback. In conjunction with the remaining 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 was required to review the refund claim and provide a report to the Joint Committee on Taxation of the U.S. Congress (“JCT”). As a result of the submission of the refund claim to the JCT, the IRS completed their review of the income tax returns for 2015, 2016 and 2017. Our request for refund was reviewed and concluded favorably with the JCT concurring with the IRS’s conclusions. Subsequent to a delay due to the federal government shutdown in October 2025, we received a total of $12.3 million in the first quarter of 2026. This amount includes tax refunds of $10.2 million and related interest of $2.1 million for the years 2015, 2016 and 2017. After receipt of these refunds, a total of $1.8 million attributable solely to 2019 remains open including an income tax refund of $1.5 million plus interest of $0.3 million.
11. Commitments and Contingencies
12. Stockholders’ Equity
Dividends and Comprehensive Income
Cash dividends are considered restricted payments as defined in the Credit Facility (see Note 9) and may be made provided that certain conditions are satisfied as reflected in the Credit Facility, including the absence of any defaults, among others. With respect to the dividends presented in the table below, all of the necessary conditions have been satisfied.
The following table summarizes our dividends declared and paid in cash for the periods presented:
| Quarterly Period Ended | Dividends Declared per Share | Dividends Paid | ||||||||||||
| March 31, 2026 | $ | $ | ||||||||||||
Our comprehensive income is comprised only of our net income as there are no components that would be considered as other comprehensive income.
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13. Revenues from Customers
Disaggregation of Revenue
The following table summarizes our revenue disaggregated by product or service type for the periods presented:
| Three months ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Rental | $ | $ | |||||||||||||||||||||
| Sales | |||||||||||||||||||||||
| Parts | |||||||||||||||||||||||
| Other (Compressors/Rebuilds) | |||||||||||||||||||||||
| Aftermarket services | |||||||||||||||||||||||
| Total revenue | $ | $ | |||||||||||||||||||||
Transaction Price Allocated to the Remaining Performance Obligations
As of March 31, 2026, and December 31, 2025, we had no
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 expenses in our Condensed Consolidated Statements of Operations.
14. Stock-Based and Other Long-Term Incentive Compensation
We maintain the stockholder-approved 2019 Equity Incentive Plan, as amended (the “Equity Incentive Plan”) for the issuance of stock-based compensation awards to our employees, certain consultants and Board of Director members. The Equity Incentive Plan provides for a total of 1,650,000 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 units (“PSUs”) and (v) other equity-based awards. After consideration of the activity described in detail below, a total of 530,393 shares remained available for grant under the Equity Incentive Plan as of March 31, 2026. The Equity Incentive Plan expires on June 20, 2034. Until its expiration on February 28, 2026, we also maintained the 1998 Stock Option Plan, as amended (the “Stock Option Plan”) through which we issued stock options for all years prior to 2026.
The following table summarizes the total stock-based compensation expense recognized during the periods presented:
| Three months ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Equity-classified | $ | $ | |||||||||||||||||||||
Liability-classified (1) | |||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||
(1) Represents compensation expense associated with awards that may be settled in cash at the option of the grantee.
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Stock Options
While the Stock Option Plan has expired, all stock options that were outstanding as of December 31, 2025 will remain subject to their vesting rights through their contractual lives. All options granted after 2025, including those indicated below, were granted under the Equity Incentive Plan. A summary of all option activity during the three months ended March 31, 2026 is presented below:
Number of Shares Underlying Stock Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding, December 31, 2025 | $ | $ | |||||||||||||||||||||
| Granted | $ | $ | |||||||||||||||||||||
| Exercised | ( | $ | $ | ||||||||||||||||||||
| Canceled/Forfeited | ( | $ | $ | ||||||||||||||||||||
| Expired | $ | $ | |||||||||||||||||||||
| Outstanding, March 31, 2026 | $ | $ | |||||||||||||||||||||
| Exercisable, March 31, 2026 | $ | $ | |||||||||||||||||||||
The following table summarizes information about our stock options outstanding as of March 31, 2026:
Range of Exercise Prices: | Options Outstanding | Options Exercisable | |||||||||||||||||||||||||||
Shares | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||||||||||||||
$ | $ | $ | |||||||||||||||||||||||||||
$ | $ | $ | |||||||||||||||||||||||||||
$ | $ | $ | |||||||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||||||||
The following table summarizes changes in our unvested stock options during the three months ended March 31, 2026:
| Shares | Weighted Average Grant Date Fair Value Per Share | ||||||||||
Unvested, December 31, 2025 | $ | ||||||||||
| Granted | $ | ||||||||||
Vested | ( | $ | |||||||||
| Canceled/Forfeited | ( | $ | |||||||||
Unvested, March 31, 2026 | $ | ||||||||||
As of March 31, 2026, there was a total of approximately $0.5 million of unrecognized compensation cost related to unvested options which is expected to be recognized over the next 2.09 years.
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Time-Vested Restricted Stock and Restricted Stock Units
The following table summarizes all restricted stock and RSU activity during the three months ended March 31, 2026 is presented below:
| Number of Shares | Weighted Average Grant Date Fair Value | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding, December 31, 2025 | $ | $ | |||||||||||||||||||||
| Granted | $ | $ | |||||||||||||||||||||
| Vested | ( | $ | $ | ||||||||||||||||||||
| Canceled/Forfeited | $ | $ | |||||||||||||||||||||
| Outstanding, March 31, 2026 | $ | $ | |||||||||||||||||||||
As of March 31, 2026, there was a total of approximately $2.9 million of unrecognized compensation cost related to unvested restricted stock and RSUs which is expected to be recognized over the next 2.45 years.
Cash Settled Restricted Stock Units
The 2025 and 2024 grants of RSUs to the independent Board members that can be settled in cash represent liability-classified awards. 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.
| Number of Shares | Weighted Average Grant Date Fair Value | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding, December 31, 2025 | $ | $ | |||||||||||||||||||||
| Granted | $ | $ | |||||||||||||||||||||
| Vested | $ | $ | |||||||||||||||||||||
| Canceled/Forfeited | $ | $ | |||||||||||||||||||||
| Outstanding, March 31, 2026 | $ | $ | |||||||||||||||||||||
Performance Share Units
The potential payout for the PSU awards is based upon performance for a three-year period ending December 31, 2026 for the 2024 grants, December 31, 2027 for the 2025 grants and December 31, 2028 for the 2026 grants 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 31.25th percentile for the 2024 and 2025 grants and below the 30th percentile for the 2026 grant) 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 granted during the three months ended March 31, 2026:
| Weighted-average grant date fair value of PSUs granted | $ | ||||
| Risk free rate | % | ||||
| Expected volatility | % | ||||
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The following table summarizes all PSU activity during the three months ended March 31, 2026:
| Number of Shares | Weighted Average Grant Date Fair Value | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding, December 31, 2025 | $ | $ | |||||||||||||||||||||
| Granted | $ | $ | |||||||||||||||||||||
| Vested | $ | ||||||||||||||||||||||
| Canceled/Forfeited | $ | ||||||||||||||||||||||
| Outstanding, March 31, 2026 | $ | $ | |||||||||||||||||||||
As of March 31, 2026, there was a total of approximately $2.8 million of unrecognized compensation cost related to the unvested portion of the PSUs which is expected to be recognized over the next 1.93 years.
15. Earnings per Share
The following table reconciles the numerators and denominators of the basic and diluted earnings per share computation for the periods presented:
| Three months ended March 31, | ||||||||||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||||||||||
| Numerator for basic and diluted earnings per share: | ||||||||||||||||||||||||||||||||
Net income | $ | $ | ||||||||||||||||||||||||||||||
| Denominator for basic earnings per common share: | ||||||||||||||||||||||||||||||||
| Weighted average common shares outstanding - Basic | ||||||||||||||||||||||||||||||||
| Denominator for diluted earnings per common share: | ||||||||||||||||||||||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||||||||||||||||||
| Dilutive effect of stock-based compensation awards | ||||||||||||||||||||||||||||||||
| Weighted average common shares outstanding - Diluted | ||||||||||||||||||||||||||||||||
Earnings per common share: | ||||||||||||||||||||||||||||||||
| Basic | $ | $ | ||||||||||||||||||||||||||||||
| Diluted | $ | $ | ||||||||||||||||||||||||||||||
The following table summarizes the actual number of stock-based compensation awards that were excluded from the determination of diluted earnings per share due to their anti-dilutive effect for the periods presented:
| Three months ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Stock options | |||||||||||||||||||||||
| Restricted stock and RSUs | |||||||||||||||||||||||
| PSUs | |||||||||||||||||||||||
16. Subsequent Events
On May 11, 2026, we announced that our Board of Directors declared a cash dividend of $0.15 per share to stockholders of record as of May 20, 2026 expected to be paid on June 3, 2026.
We have evaluated all events subsequent to the balance sheet date as of March 31, 2026, and through the date this report was issued and determined that there have been no other events that would require adjustments or additional disclosures to our Condensed Consolidated Financial Statements.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and information pertaining to us, our industry and the oil and gas industry that is based on the beliefs of our management, as well as assumptions made by and information currently available to our management. All statements, other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future financial position, growth strategy, budgets, projected costs, plans and objectives of management for future operations, are forward-looking statements. We use the words “may,” “will,” “expect,” “anticipate,” “estimate,” “guidance,” “believe,” “continue,” “intend,” “plan,” “budget” and other similar words to identify forward-looking statements. You should read statements that contain these words carefully and should not place undue reliance on these statements because they discuss future expectations, contain projections of results of operations or of our financial condition and/or state other “forward-looking” information. We do not undertake any obligation to update or revise publicly any forward-looking statements. Although we believe our expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations or assumptions will prove to have been correct. These risks, contingencies and uncertainties, include, but are not limited to, the following:
•conditions in the oil and gas industry, including the supply and demand for oil and gas and volatility in the prices of oil and gas;
•changes in general economic and financial conditions, inflationary pressures, the potential for economic recession in the U.S., tariffs and trade restrictions, including the imposition of new and higher tariffs on imported goods and retaliatory tariffs implemented by other countries on U.S. goods, and the potential effects on our financial condition, results of operations and cash flows;
•our reliance on major customers;
•failure of projected organic growth due to adverse changes in the oil and gas industry, including depressed oil and gas prices, oppressive environmental regulations and competition;
•our inability to achieve increased utilization of assets, including rental fleet utilization and monetizing other non-cash balance sheet assets;
•failure of our customers to continue to rent equipment after expiration of the primary rental term;
•our ability to economically develop and deploy new technologies and services, including technology to comply with health and environmental laws and regulations;
•failure to achieve accretive financial results in connection with any acquisitions we may make;
•fluctuations in interest rates;
•our ability to make dividends, distributions and share repurchases;
•changes in regulation or prohibition of new or current well completion techniques;
•competition among the various providers of compression services and products;
•changes in safety, health and environmental regulations;
•changes in economic or political conditions in the markets in which we operate;
•the inherent risks associated with our operations, such as equipment defects, malfunctions, natural disasters and adverse changes in customer, employee and supplier relationships;
•our inability to comply with covenants in our debt agreements and the decreased financial flexibility associated with our debt;
•inability to finance our future capital requirements and availability of financing;
•cybersecurity threats, including increased use of artificial intelligence and other emerging technologies;
•capacity availability, costs and performance of our outsourced compressor fabrication providers and overall inflationary pressures;
•impacts of world events, such as acts of terrorism, the conflicts in Iran, Ukraine, Venezuela and in the greater Middle East, and significant economic disruptions and adverse consequences resulting from possible long-term effects of potential pandemics and other public health crises; and
•general economic conditions.
We believe that it is important to communicate our expectations of future performance to our investors. However, events may occur in the future that we are unable to accurately predict or that we are unable to control. When considering our forward-looking statements, you should keep in mind the risk factors and other cautionary statements including Item 1A, Risk Factors, in our 2025 Annual Report, as it contains important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements.
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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.
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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.
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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.
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There are other material limitations to using Adjusted EBITDA as a measure of performance, including the inability to analyze the impact of certain recurring items that materially affect our net income or loss, and the lack of comparability of results of operations of different companies. Please read the table below 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 | |||||||||||||||||||
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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.
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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.
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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 | ||||||||||||||||||||||||||||||||||||||||
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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
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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.
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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 Activities. 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.
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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.
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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.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
Commodity risk is the risk of loss arising from adverse changes in market rates and prices of commodities, such as oil and gas. Since we do not own or distribute any oil or natural gas in connection with our compressor services, we do not have any direct exposure to fluctuating oil or natural gas commodity prices. However, the demand for our compression products and services depends upon the continued demand for, and production of, oil and natural gas. Thus, declining demand and/or sustained low oil and natural gas prices over the long-term could result in a decline in the production of these natural resources, which could result in reduced demand for our compression products and services.
Customer Concentration Risk
For the three months ended March 31, 2026, our two largest customers accounted for approximately 64%, on a combined basis, of our recurring revenues. If either of these significant customers were to discontinue their relationship with us, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, these two customers accounted for 63% of our accounts receivable balance on a combined basis as of March 31, 2026. Thus, we are subject to credit risk due to the concentration of our accounts receivables with these two significant customers. We do not require our customers to post collateral, and the inability of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results.
Interest Rate Risk
We are exposed to market risks associated with changes in the variable interest rate of our Credit Facility. As of March 31, 2026, we had $226.0 million of variable interest rate indebtedness outstanding at a weighted average interest rate of 6.79%. Assuming a constant borrowing level under the Credit Facility and excluding any changes in other financial metrics that would impact the applicable margin applied to Credit Facility borrowings, an increase (decrease) in the interest rate of one percent would result in an increase (decrease) in interest expense of $2.3 million on an annual basis.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosures.
As of March 31, 2026, our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act), which are designed to provide reasonable assurance that we are able to record, process, summarize and report the information required to be disclosed in our reports under the Exchange Act within the time periods specified in the rules and forms of the SEC. Based on the evaluation, as of March 31, 2026 our principal executive officer and principal financial officer concluded that 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 principal executive officer and principal financial officer, 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.
Changes in Internal Control over Financial Reporting
During the three months ended March 31, 2026, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
28
PART II – OTHER INFORMATION
Item 1. 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 material threatened litigation.
Item 1A. Risk Factors
Please refer to and read Item 1A, Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 for a discussion of the risks associated with our Company and the industry in which we operate. We may experience additional risks and uncertainties not currently known to us. Further, as a result of developments occurring in the future, conditions that we currently deem to be immaterial may also materially and adversely affect us. Any such risks may materially and adversely affect our business, financial condition, cash flows, and results of operations
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
29
Item 6. Exhibits
The following exhibits are filed herewith or incorporated herein by reference, as indicated:
| Exhibit No. | Description | ||||
31.1* | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||
31.2* | Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||
32.1** | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||
32.2** | Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||
| 101.INS | XBRL Instance Document | ||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | ||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | ||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||||
* Filed herewith. | |||||
** Furnished herewith. | |||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NATURAL GAS SERVICES GROUP, INC.
/s/ Justin C. Jacobs | /s/ Ian M. Eckert | ||||||||||
Justin C. Jacobs | Ian M. Eckert | ||||||||||
Chief Executive Officer and Director | Chief Financial Officer | ||||||||||
| (Principal Executive Officer) | (Principal Accounting Officer) | ||||||||||
| May 11, 2026 | May 11, 2026 | ||||||||||
Exhibit 31.1
Certifications
I, Justin C. Jacobs, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Natural Gas Services Group, Inc;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: | May 11, 2026 | Natural Gas Services Group, Inc. | ||||||||||||
By: | /s/ Justin C. Jacobs | |||||||||||||
| Justin C. Jacobs | ||||||||||||||
| Chief Executive Officer and Director | ||||||||||||||
| (Principal Executive Officer) | ||||||||||||||
Exhibit 31.2
Certifications
I, Ian M. Eckert, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Natural Gas Services Group, Inc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: | May 11, 2026 | Natural Gas Services Group, Inc. | ||||||||||||
By: | /s/ Ian M. Eckert | |||||||||||||
Ian M. Eckert | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
(Principal Accounting Officer) | ||||||||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Natural Gas Services Group, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2026 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Justin C. Jacobs, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: | May 11, 2026 | Natural Gas Services Group, Inc. | ||||||||||||
By: | /s/ Justin C. Jacobs | |||||||||||||
| Justin C. Jacobs | ||||||||||||||
| Chief Executive Officer and Director | ||||||||||||||
(Principal Executive Officer) | ||||||||||||||
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Natural Gas Services Group, Inc. (the “Company”) on Form 10-Q for the period ended May 11, 2026 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ian M. Eckert, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: | May 11, 2026 | Natural Gas Services Group, Inc. | ||||||||||||
By: | /s/ Ian M. Eckert | |||||||||||||
Ian M. Eckert | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
| (Principal Accounting Officer) | ||||||||||||||
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.