Natural Gas Services Group Q1 2025 Earnings Report

Natural Gas Services Group EPS Results

• Actual EPS: $0.38
• Consensus EPS: $0.27
• Beat/Miss: Beat by +$0.11
• One Year Ago EPS: N/A

Natural Gas Services Group Revenue Results

• Actual Revenue: $41.38 million
• Expected Revenue: $40.52 million
• Beat/Miss: Beat by +$863.00 thousand
• YoY Revenue Growth: N/A

Natural Gas Services Group Announcement Details

• Quarter: Q1 2025
• Date: 5/12/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, May 13, 2025
• Conference Call Time: 8:30AM ET

Natural Gas Services Group (NYSE:NGS) provides natural gas compression equipment and services to the energy industry in the United States. It engineers and fabricates, operates, rents, and maintains natural gas compressors for oil and natural gas production and plant facilities. It also designs, fabricates, and assembles compressor units for rental or sale; and designs, manufactures, and sells a line of reciprocating natural gas compressor frames, cylinders, and parts. In addition, the company offers flare stacks and related ignition and control devices for the onshore and offshore incineration of gas compounds, such as hydrogen sulfide, carbon dioxide, natural gas, and liquefied petroleum gases. Further, it provides aftermarket services for its compressor and flare sales business; and exchange and rebuild program for small horsepower screw compressors. It markets its products to exploration and production companies that utilize compressor units for artificial lift applications; and oil and natural gas exploration and production companies. Natural Gas Services Group, Inc. was incorporated in 1998 and is headquartered in Midland, Texas.

Natural Gas Services Group Q1 2025 Earnings Call Transcript

Key Takeaways

• Recorded quarterly rental revenue of $38.9M (up 15% year-over-year) and adjusted EBITDA of $19.3M, both all-time records, with an adjusted rental gross margin of 61.9%.
• Finished Q1 with leverage at 2.18× and $132M available credit (plus a $100M accordion feature), providing flexibility for organic growth and M&A.
• All 2025 unit deliveries are locked in under long-term contracts, and significant 2026 large-horsepower and electric-drive expansions remain on track with ongoing customer discussions.
• Progress on asset monetization includes an $11M tax receivable submitted for final approval and plans to sell owned real estate and inventory to generate over $25M in cash proceeds.
• Raised the high end of 2025 adjusted EBITDA guidance to $79M after Q1 outperformance, while maintaining caution due to macroeconomic and commodity price volatility.

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group Incorporated quarter one earnings call. At this time, all participants are in listen only mode. Operator assistance is available at any time during this conference by pressing zero pound. I would now like to turn the call over to miss Anna Delgado. Please begin.

[Anna Delgado, Executive & Investor Relations Assistant at Natural Gas Services Group]

Thank you, Luke, and good morning, everyone. Before we begin, I would like to remind you that during the course of this conference call, the company will be making forward looking statements within the meaning of federal security laws. Investors are cautioned that forward looking statements are not guarantees of future performance and those actual results or developments may differ materially from those projected in the forward looking statements. Finally, the company can give no assurance that such forward looking statements will prove to be correct. Natural Gas Services Group disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events, or otherwise.

[Anna Delgado, Executive & Investor Relations Assistant at Natural Gas Services Group]

Accordingly, you should not place undue reliance on forward looking statements. These and other risks are described in yesterday's earnings press release and our filings with the SEC, including our Form 10 Q for the period ended 03/31/2025, annual report on form 10 k for 2024, and our form eight k's. These documents can be found in the investors section of our website located at www.ngsgi.com. Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may vary materially. In addition, our discussion today will reference certain non GAAP financial measures, including EBITDA, adjusted EBITDA, and adjusted gross margin, among others.

[Anna Delgado, Executive & Investor Relations Assistant at Natural Gas Services Group]

For reconciliation of these non GAAP financial measures to the most directly comparable measures under GAAP, please see yesterday's earnings release. I will now turn the call over to Justin Jacob, our Chief Executive Officer. Justin?

[Justin Jacobs, CEO at Natural Gas Services Group]

Thank you, Anna, and good morning, everyone. I'd like to welcome all participants to our first quarter twenty twenty five earnings call. Let me first introduce the team. Joining me today, we have Ian Eckert, our chief financial officer, and Brian Tucker, our president and chief operating officer. I'd also like to extend special thanks to the entire NGS team for their dedication, passion, and unwavering commitment to servicing our customers.

[Justin Jacobs, CEO at Natural Gas Services Group]

After two record years at NGS, we started off 2025 in great fashion. I continue to believe NGS has a very strong competitive position and will continue to deliver attractive growth in revenue and profits in the years ahead. Market demand for compression remains strong, and our success in winning market share stems from a combination of our innovative technology, high service levels driven by the strength of our people, and flexible balance sheet. While while there has been a great deal of market volatility over the past couple of months, we have been fortunate that our business has not been materially impacted to date. Our 2025 unit deliveries, all of which are under a long term contract, remain on target.

[Justin Jacobs, CEO at Natural Gas Services Group]

In addition to the already contracted unit deliveries in 2026, our discussions with customers remain focused on growth in the future. We have and continue to allocate capital prudently supported by our expanded credit facility and a balance sheet that affords flexibility even in these volatile markets. I'll give just a couple of highlights as it relates to first quarter financial performance. Rental revenue hit a quarterly record of 38,900,000.0, a 15% increase versus the prior year quarter and 2% sequentially. Adjusted rental gross margin of 61.9%, another banner quarter for margins.

[Justin Jacobs, CEO at Natural Gas Services Group]

Adjusted EBITDA of 19,300,000.0 in the quarter, once again, a record number. We finished the quarter at 2.18 times leverage, providing significant margin of safety against any currently unforeseen softening of results while also providing significant offensive firepower to maintain organic growth and add inorganic growth to the mix. As a final note in the quarter, we exceeded our internal expectations, which I will discuss further in our forward looking guidance. Turning to the overall market conditions, there is obviously a lot going on in macroeconomic factors and commodity markets. Since since our last call, we've seen WTI in the fifties, in the seventies, and everywhere in between, and our last call was less than two months ago.

[Justin Jacobs, CEO at Natural Gas Services Group]

We've used this volatility to look at the business in multiple cases, an upside, a downside, and stable, so that in each case, we can mount an offensive game plan. We remain confident in our ability to perform regardless of the volatility or price level that we see. Looking at the public pronouncements of customers to date, we see modest CapEx reductions that are not hitting us. These public statements are consistent with our discussion with customers that show a locked in 2025 and growth in 2026. Obviously, we are keeping a very keen eye on this area.

[Justin Jacobs, CEO at Natural Gas Services Group]

Natural gas prices are currently hovering in the mid threes after peaking above four with a broad range of 2026 forecasts, some stable with current levels with others well into the fours and beyond. LNG export growth and new pipeline projects could create upside for our small and medium fleet and present an entry point into midstream large horsepower compression, a potential tailwind not yet reflected in our models. While tariffs remain a source of volatility, the direct impact on NGS is minimal given our supply chain consists of mostly domestic vendors and major imported components are largely exempt. That said, the indirect effects are harder to predict, so we will continue to monitor the market and get and engage with our customers and suppliers to better assess any indirect risks and plan accordingly. As it stands now, our business and customer installations remain on track for what is shaping up to be a strong 2025 and 2026.

[Justin Jacobs, CEO at Natural Gas Services Group]

I'd like to now shift to our strategy and provide some updates as it relates to our growth and value drivers. I'm going to focus on three of them today, asset utilization, fleet expansion, and m and a. I'll start with asset utilization, which is comprised of converting noncash assets into cash and increasing the utilization of our existing fleet. Our days receivable improved from a hundred and eighteen days a year ago to thirty five days at the end of q four twenty four and stayed at thirty five days at the end of q one twenty five. This has been great progress, which we are now maintaining.

[Justin Jacobs, CEO at Natural Gas Services Group]

Additionally, we made significant progress on monetizing the $11,000,000 income tax receivable. It was recently submitted to the joint committee on taxation in the US house of representatives for final approval. This is the last approval required, and, typically, this takes less than twelve months. We look forward to reporting the collection of this amount, nearly $1 per share in cash in the near future. We have significant owned real estate, which we are looking to monetize in the near term.

[Justin Jacobs, CEO at Natural Gas Services Group]

Currently, we're focusing on the two largest assets, our corporate headquarters in Midland and our recently closed fabrication shop in Midland. We also have opportunities to produce inventory further. As I've stated previously, the combination of the income tax receivable, owned real estate, and and inventory creates an opportunity at least as large as the approximately $25,000,000 we monetize in accounts receivable in 2024. Lastly, I'll add that in terms of horsepower utilization, the vast preponderance of idle horsepower is in small and medium units. We're continuing to review options for technology upgrades, electric conversions, and monetization.

[Justin Jacobs, CEO at Natural Gas Services Group]

Although still early, I'm starting to see some green shoots in this area. Certainly, strengthening natural gas prices and increased volumes are helping, but I think the technological innovation service levels we are providing are starting to make a difference. As I've mentioned previously, this was never going to get fixed in a couple of quarters. This will take time, and while I don't have enough data points to have a trend, I'm cautiously optimistic of some anecdotes. The third driver, fleet expansion.

[Justin Jacobs, CEO at Natural Gas Services Group]

We have previously disclosed signed contracts and unit deliveries scheduled to add roughly 90,000 horsepower, most of which in 2025, with another significant number of signed contracts for unit deliveries in 2026. These commitments are all focused on large horsepower, including a material increase in electric motor drives. The majority of these fleet additions are allocated to a key customer that will ultimately become our second largest with well over 10% of our total revenue once units are set. As you will note in the in the first quarter ten q, our largest customer was 46% of revenue in the quarter, down from 54% in fiscal twenty twenty four. This decrease in concentration is due to growth in our other customers, not with any loss with Oxy as we continue to grow that relationship as well.

[Justin Jacobs, CEO at Natural Gas Services Group]

Customer diversification has and continues to be a focus. We are growing both the number of key accounts and the volume of business we are doing with them. The fourth and final driver, m and a. We may we remain focused on continuing to drive significant organic growth while at the same time continuing to explore the m and a markets. We remain well positioned both operationally and financially should strategic and accretive acquisition opportunities emerge.

[Justin Jacobs, CEO at Natural Gas Services Group]

Given the current state of the markets, we believe consolidation will continue this year and more attractive assets may be in play. Our strong balance sheet and leverage position coupled with a volatile commodity back excuse me, backdrop makes us a natural consolidator where valuations are attractive. In April of this year, we amended and expanded our revolving facility from 300,000,000 to 400,000,000 with an accordion feature raised from 50 to a hundred million. The amended facility has lower pricing and a more accommodating leverage leverage covenant as well. This is a significant win that supports our industry leading organic growth and provides optionality for m and a.

[Justin Jacobs, CEO at Natural Gas Services Group]

We appreciate the continued confidence of our banking group and welcome our new lending partners. We look forward to delivering for them and for our shareholders. With that, I'll turn the call over to Ian to review first quarter performance in more detail.

[Ian Eckert, CFO at Natural Gas Services Group]

Thank you, Justin, and good morning to those joining us. I'll begin with a brief overview of our first quarter twenty twenty five financial and operational performance. For the first quarter of twenty twenty five, Natural Gas Services Group reported total revenue of 41,400,000.0, a 12% increase over 36,900,000.0 recorded in the first quarter of twenty twenty four. Rental revenue was 38,900,000.0, up 15% year over year and 2% sequentially. This increase was driven by higher average rented horsepower and continued pricing improvements, particularly from large horsepower units.

[Ian Eckert, CFO at Natural Gas Services Group]

Total adjusted gross margin for the quarter was 24,300,000.0, an increase of 3,100,000 over prior year quarter and 1,300,000 sequentially. Adjusted gross margin percentage came in at 58.6%, representing a 140 basis point improvement over Q1 twenty twenty four and a two ten basis point improvement compared with the fourth quarter of twenty twenty four. These results reflect sustained pricing discipline, unit additions, and enhanced cost controls. Rented adjusted gross margin, reached 61.9%, up 80 basis points from the prior year and 150 basis points sequentially, marking one of the highest levels we've achieved in the past decade or so. Net income for the quarter was $4,900,000 or $0.38 per diluted share compared to $5,100,000 or $0.41 per diluted share in the prior year period.

[Ian Eckert, CFO at Natural Gas Services Group]

Sequentially, net income increased by $2,000,000 largely reflecting the impact of the inventory allowances recognized in the fourth quarter of twenty twenty four tied to the closure of our Midland, Texas fabrication facility. SG and A expense rose by $700,000 year on year to $5,400,000 However, as a percentage of revenue, SG and A remained essentially flat at 13%. Adjusted EBITDA for the first quarter was $19,300,000 an increase of 14% compared with the first quarter of twenty twenty four and seven percent sequentially. As of 03/31/2025, rented horsepower totaled approximately 493,000, representing an 11% year over year increase. Utilization was 81.7%, essentially unchanged from a year ago, and all recently deployed large horsepower units were fully utilized.

[Ian Eckert, CFO at Natural Gas Services Group]

Moving to the balance sheet, we ended the quarter with 168,000,000 outstanding on our revolving credit facility. The leverage ratio was 2.18 times, down from 2.36 times at year end twenty four, and our fixed charge coverage ratio improved to 2.98 times. As of the end of the first quarter, we had $132,000,000 in available credit. This excludes the $100,000,000 expansion that we secured in April. These results put us well within our covenant thresholds.

[Ian Eckert, CFO at Natural Gas Services Group]

Accounts receivable were $15,400,000 at quarter end, a modest decline from year end levels. Days sales outstanding performance remains strong, reflective of our continued efforts to monetize non cash assets. Cash from operations of 21,300,000.0 nearly quadrupled the 5,600,000.0 generated in the first quarter of last year. Capital expenditures in the quarter totaled $19,300,000 including 16,700,000.0 of growth capital and 2,600,000.0 of maintenance capital. Gross spending is in line with our 2025 plan and will be weighted toward the back half of the year in conjunction with scheduled unit deployments.

[Ian Eckert, CFO at Natural Gas Services Group]

Our focus remains on margin expansion, disciplined cost control, and capital efficiency. Our balance sheet is solid and we have ample liquidity to fund our growth initiatives, which potentially could include pursuit of value accretive acquisition opportunities. With that, I'll turn the call to Justin for closing remarks.

[Justin Jacobs, CEO at Natural Gas Services Group]

Thank you, Ian. Thank you, Ian.

[Justin Jacobs, CEO at Natural Gas Services Group]

We entered 2025 with strong momentum, and our Q1 results exceeded our internal expectations. With that background, we are increasing the high end of our adjusted EBITDA guidance to $79,000,000 To preempt some of the conversations I suspect I might have with those following our stock, I know that our q one adjusted EBITDA of 19,300,000.0 annualizes to 77,200,000.0. This puts us above the midpoint of our revised range without accounting for unit delivery schedule, which is predominantly in the second half. I suspect I might hear the word sandbagging at some point in those conversations. Given the current macro uncertainty, and we're only two months since our year end call, I'm going to be, as I will describe it, prudent and a little patient to see another quarter of results and more importantly, overall market conditions.

[Justin Jacobs, CEO at Natural Gas Services Group]

If macroeconomic conditions were more similar to 2024, then the high end of guidance would likely have had an an eight on the front of it. I will reiterate that I do not currently see any material impacts of tariffs on our business, and I'm excited for the balance of 2025 and 2026. We are maintaining the growth CapEx guidance we provided in March, 95,000,000 to two to excuse me. We are, let me start over again there. We're maintaining the growth CapEx guidance we provided in March of '90 '5 million to 120,000,000, heavily weighted to the second half, alongside maintenance CapEx of 10,000,000 to 13,000,000 and a target of at least 20% return on invested capital.

[Justin Jacobs, CEO at Natural Gas Services Group]

Rental revenue, margins, and EBITDA are all tracking in line or ahead of plan, and our expanded credit facility gives us the firepower to capitalize on organic growth and strategic m and a. We will continue investing in technology, systems, and people to deepen customer partnerships, improve service levels, and further differentiate NGS. In short, it's an exciting time for our company. We are taking market share, strengthening our financial position, and focusing intensely on creating meaningful value for our shareholders. Thank you again for your interest in NGS.

[Justin Jacobs, CEO at Natural Gas Services Group]

Operator, we are now ready to take to open the call for questions.

[Operator]

Ladies and gentlemen, at this time, we will conduct the question and answer session. If you would like to state a question, please press 7 pound on your phone now, and you will be placed in the queue in the order received. You can press 7 again at any time to remove yourself from the queue. We are now ready to begin. Our first question comes from Mr. Rob Brown with Lake Street Capital Market. Go ahead, please.

[Rob Brown, Founding Partner & Senior Research Analyst at Lake Street Capital Markets, LLC]

Good morning.

[Justin Jacobs, CEO at Natural Gas Services Group]

Good morning, Rob. Thanks for calling in.

[Rob Brown, Founding Partner & Senior Research Analyst at Lake Street Capital Markets, LLC]

First question is kinda on the, current demand environment and the volatility. Obviously, know, it's a bit of a bit of a volatile situation. But what's the what's sort of the indications from customers, and how do you see see that flowing into your conversations? Is it is it really timing of of the 26 deployments, or is there starting to be some pricing, pressure? And just what's the what's sort of the demand environment implications at the moment?

[Justin Jacobs, CEO at Natural Gas Services Group]

So, I I would say we haven't really seen much of a change in the in the demand environment, over the past, you know, let's call it, 60 to you know, from ninety days ago. 2025 is essentially all locked in, still having discussions with customers about 2026 growth. We have a a significant number of of units already contracted for delivery throughout 2026. And, you know, there remain ongoing discussions of, of incremental units to get contracted in 2026. And so from the demand demand environment there, really haven't seen any change.

[Justin Jacobs, CEO at Natural Gas Services Group]

It remains a a strong environment. On the pricing side, no material discussions. I mean, obviously, there are always times with customers to ask for a price, but there's nothing that's any different from the environment we've seen or at least since I've seen since, since becoming CEO. So it's really pretty consistent from from where we were, you know, even ninety days ago.

[Rob Brown, Founding Partner & Senior Research Analyst at Lake Street Capital Markets, LLC]

Okay. Great. Thank you. And and then on the gross margins, they continue to tick up. How, you was there anything unusual in the quarter?

[Rob Brown, Founding Partner & Senior Research Analyst at Lake Street Capital Markets, LLC]

Or is this just a function of mix of the high horsepower? And should that continue to expand as the mix grow?

[Justin Jacobs, CEO at Natural Gas Services Group]

On the let me address two parts to the margin. One is the rental adjusted specifically and then the overall adjusted gross margin. On the rental adjusted, you know, we're seeing, I think, consistency in kind of that something with a six on the front of it. We were, you know, sixty one nine this quarter. You know, the the differences there are some items including kind of parts, where you can see some movement in that quarter to quarter.

[Justin Jacobs, CEO at Natural Gas Services Group]

It's not huge movements, but it can be enough to, you know, move it from a $61.09 to something that's 60.5 in that zone. So it does create just a little bit of movement. And, you know, some of those types of items, were a little light in the first quarter. And so that's kind of the natural volatility we're expecting to see, but I think, you know, we're proving that pretty consistent in the rental adjust rental adjusted gross margins, and and this particular quarter was was kind of a high end of that range. The overall, you know, we were able to reduce the gross margin, impact of the sales line.

[Justin Jacobs, CEO at Natural Gas Services Group]

That was particularly high in the fourth quarter of twenty four as, we were closing the the Midland Fab facility. We've mitigated significant amount of those losses in the first quarter, and that's helping the overall adjusted gross margin as well.

[Rob Brown, Founding Partner & Senior Research Analyst at Lake Street Capital Markets, LLC]

Okay. Great. Thank you. Congrats on a good quarter.

[Justin Jacobs, CEO at Natural Gas Services Group]

Thanks, Rob. Appreciate it.

[Operator]

Thank you very much. Our next question comes from mister Jim Rollison with Raymond James. Go ahead, sir.

[Jim Rollyson, Director & Equity Research Analyst at Raymond James Financial]

Hey. Good morning, Justin and Ian. Justin, maybe circling back question on to follow-up on that margin question. You guys have obviously kind of been hanging around the low 60% range in rental specifically. And I'm wondering, as we go through the year and you start taking the bulk of your new deliveries, is there anything on the cost side as you kind of get prepped for those going in the field that that might drag that down or or is kind of a 60 plus percent rental margin been pretty sustainable as we go forward?

[Justin Jacobs, CEO at Natural Gas Services Group]

You know, it's if you look historically for NGS now and historically, I mean, if you look over the kind of the last five years, as we've been setting, you know, increasing amounts of large horsepower, you know, there there have been in certain, instances over that period, you know, a temporary blip in expenses on installations. Now sometimes that's offset with revenue, sometimes not, depends on the customer, and just kinda depends. And and sometimes there's been no impact at all. It's something we're obviously closely looking at and and monitoring to, ensure to the greatest extent that doesn't happen. It's possible to be some, but it would be, you know, very temporary in nature, and I wouldn't expect, it to be a a significant impact.

[Justin Jacobs, CEO at Natural Gas Services Group]

Could it put us to kind of the lower end of the range on what we've seen on the rental adjusted gross margin over the past, you know, six to eight quarters, or probably six quarters? It could. I don't foresee anything specific today, but it's just something that we're we're closely looking at, and it would be temporary in nature.

[Jim Rollyson, Director & Equity Research Analyst at Raymond James Financial]

Gotcha. This kinda seems like the low to midpoint of guidance kind of embeds a maybe even a or low 60, so was just trying to or sub 60 range. So was just trying to get on And then you you talked a little bit of update around some of the monetization plans. Maybe just a reminder, you know, kind of you went through the AR last year and and still in the thirty days range, which is pretty, pretty impressive. As you go through and focus on the real estate, a couple of specific targets you mentioned and the tax receivable, what is your general plan for use of proceeds there?

[Jim Rollyson, Director & Equity Research Analyst at Raymond James Financial]

Given that you guys aren't at the stage of returning capital, is it just redeploying into, you know, additional organic growth? Is that the general kind of thought process right now?

[Justin Jacobs, CEO at Natural Gas Services Group]

It is. I think it's to, you know, at the at that particular time, as we're we're creating proceeds from any of those different items that you mentioned, whether, you know, real estate or income tax receivable or inventory, you know, the immediate, use would be to to pay down debt, but then it's it's organic growth. And and, you know, there have been discussions both publicly and privately of of return of capital and that's something that, you know, the board is looking, you know, has looked at, closely and is continuing to look at very closely of, what do we think is the appropriate time and way to move to return of capital to shareholders. On the one hand, we're growing at a very high rate and have, we believe, very high return on invested capital that we're generating. On the other hand, you know, our industry is one of which, I think shareholders have an expectation around some form of return of capital, and and the board is sensitive to that.

[Justin Jacobs, CEO at Natural Gas Services Group]

And I think it's really just the timing of when when do we move to that, and that's something we're looking, you know, very closely at.

[Jim Rollyson, Director & Equity Research Analyst at Raymond James Financial]

Got it. Appreciate that.

[Jim Rollyson, Director & Equity Research Analyst at Raymond James Financial]

And and congrats again on the the new credit facility, especially given the market environment when you guys got that, signed up.

[Justin Jacobs, CEO at Natural Gas Services Group]

So

[Justin Jacobs, CEO at Natural Gas Services Group]

Thank you very much. We were, quite quite happy to get that closed. I think it was right around two days after after April 2. And as I looked at the, high yield and term loan b market, not very much was getting done. So we thought it really spoke to the strength of the relationship and and of the business.

[Operator]

Thank you very much. Our next question comes from mister Akio, Stifel. Go ahead, please.

[Tim Opler, Managing Director at Stifel Financial]

Hi. Good morning. This is Tim on for Salman. Congrats on the quarter.

[Justin Jacobs, CEO at Natural Gas Services Group]

Good morning, Tim. Thanks for joining.

[Tim Opler, Managing Director at Stifel Financial]

So just first question, do you anticipate any of this kind of crude oil volatility to kind of bring some of the smaller compression providers to market? And then also given some producers are, you know, trimming some of their CapEx, do you think there's potential for more outsource compression and and less in source compression?

[Justin Jacobs, CEO at Natural Gas Services Group]

So, on the, the impact of of crude oil prices, I think for us, that's that's primarily our our horsepower sizes that are are servicing, you know, really more crude oil wells are, the large horsepower and and the medium. In terms of the small horsepower, that's driven more by natural gas prices. And as I mentioned in the prepared remarks, you know, we're seeing some green shoots there. Nothing, a trend that I would point to at this point, but, I I think there are, some people who believe that, you know, LNG is really going to drive significantly both not just volumes, prices. Too early to tell on that or the impact of small horsepower, but I think the trend is, you know, modestly favorable at this point.

[Justin Jacobs, CEO at Natural Gas Services Group]

In terms of the the CapEx budgets, you know, the the ranges I've seen so far are kind of, you know, I think the low end was kinda like two and a half percent decrease, up to kinda 10%. Really not hitting any of the areas, in their budgets that impact us. And in fact, as I've read a number of customer releases, you know, really a big focus on productivity, and that really plays into our our strong suit in terms of the technological innovation, our units, we help, drive productivity and run time for our customers. And so I think there's there's actually a greater focus on that. In terms of insourcing versus outsourcing, I think it's too early to tell on that.

[Justin Jacobs, CEO at Natural Gas Services Group]

You know, one would think if, companies are concerned about leverage and cutting back capital, they would move more towards a renting mindset versus a buying mindset, but I think it's too early to tell on that.

[Tim Opler, Managing Director at Stifel Financial]

Got it. Perfect. And then just wondering if you could give an update on on lead times for engines, frames, and and packagers, just kind of what you're seeing in real time on that.

[Justin Jacobs, CEO at Natural Gas Services Group]

Sure. Really no difference from, from last quarter. You know, the the, engines are running, you know, depending on the model and and the, the manufacturer and manufacturer of the model. You know, you're looking probably somewhere six to nine months. Compressor frames at the shorter end of that, and fabrication is, you know, nine to, you know, up as much as twelve months. So real really no change in that.

[Tim Opler, Managing Director at Stifel Financial]

Awesome. Thank you guys for the time.

[Justin Jacobs, CEO at Natural Gas Services Group]

Thank you, Tim. Appreciate it.

[Operator]

And, again, if you have any questions, please press 7 Our next question comes from, Tate Sullivan with The Maxim Group. Go ahead, please.

[Tate Sullivan, Managing Director & Senior Industrials Analyst at Maxim Group]

Hi. Thank you. Good morning, Justin. Can you did I just circling back to a comment from earlier, did you say the potential sale proceeds from Midland assets, the office and the fabrication facility, is that we've the 25,000,000 decrease in receivables? Did you frame it that way?

[Justin Jacobs, CEO at Natural Gas Services Group]

Yeah. So if if you look at the, aggregate of of those three different areas, meaning the income tax receivable, which that amount is defined, 11,000,000, and then adding in the proceeds from, monetization of the real estate and inventory combined, we see that as, an opportunity that's at least as part of the, you know, approximately $25,000,000,000 of of cash we were able to pull out of AR in 2024.

[Tate Sullivan, Managing Director & Senior Industrials Analyst at Maxim Group]

Okay. Great. And then Midland in the last two months, have there been a fair amount of real estate transactions as, building transactions in Midland?

[Justin Jacobs, CEO at Natural Gas Services Group]

I think relative to the size of the market, yes, it's it's still been active. You know, real estate is is little bit more difficult to predict the timing, a little bit longer lead time. And so we're actively, working on those. The Midland fab facility, we didn't have fully closed down until, really the end of the first quarter. And so, you know, those are ongoing processes in terms of monetizing those.

[Justin Jacobs, CEO at Natural Gas Services Group]

I think they're attractive assets, and I think, you know, we don't we aren't in a in a rush that we we have to sell them for any reason. It's just a, you know, improving the capital efficiency of the business, and so we can be prudent and and move at our pace in terms of, realizing full value there.

[Tate Sullivan, Managing Director & Senior Industrials Analyst at Maxim Group]

Thank you. And then a metric in the queue that you highlighted in the case I hadn't focused on much before, the percent of your horsepower rented on a month to month basis was 22% in the first quarter. Do you think that's a level that will remain around that level or continue to come down as you deploy more larger horsepower on multi month contract?

[Justin Jacobs, CEO at Natural Gas Services Group]

I think that number has been, trending down, over the quarters. And any, new units going out, they're all large horsepower. They're all pre contracted, and those are contract ranges that are in the three to five year range and typically towards the high end of that. I if the the impact is, yes, that number should continue to trend down.

[Tate Sullivan, Managing Director & Senior Industrials Analyst at Maxim Group]

K. And then then last, please, is, your comments on the LNG. Is it, mostly related to putting currently unutilized smaller horsepower out into the field, or could it indicate that some larger horsepower horsepower would be for midstream purposes or or mostly on the smaller horsepower?

[Justin Jacobs, CEO at Natural Gas Services Group]

So in terms of our customers today and our applications, it is increased volumes of small horsepower using in gathering and natural gas, and that's where we're we're sick primarily anyway. That's where we're we're seeing some increased level. It's it's modest increase, but, you know, I think there is, some at least positive feelings around that. We aren't in the midstream today in terms of true midstream on pipelines, but I think that is a potential opportunity. And even if, we don't penetrate that that customer base, it it keeps what is, you know, exceptionally, excuse me, basically a % utilization of a large horsepower across the industry.

[Justin Jacobs, CEO at Natural Gas Services Group]

It keeps that, supply very, very tight. And so even if we don't enter into, a midstream application, it just keeps the overall market very tight, for where we are today in the large horsepower.

[Tate Sullivan, Managing Director & Senior Industrials Analyst at Maxim Group]

Thank you very much.

[Justin Jacobs, CEO at Natural Gas Services Group]

Thank you, Tate. Appreciate it.

[Operator]

Thank you. And, I don't see any other questions.

[Justin Jacobs, CEO at Natural Gas Services Group]

Great. So thank you, Luke, and thanks for all of your questions and participation on the call. We sincerely appreciate your support. We look forward to updating you on our progress in the next quarter. Thank you, and I hope everybody has a great

[Operator]

And this concludes today's conference call. Thank you, everyone, for attending.

Participants

Executives

• Anna Delgado, Executive & Investor Relations Assistant
• Justin Jacobs, CEO
• Ian Eckert, CFO

Analysts

• Rob Brown, Founding Partner & Senior Research Analyst at Lake Street Capital Markets, LLC
• Jim Rollyson, Director & Equity Research Analyst at Raymond James Financial
• Tim Opler, Managing Director at Stifel Financial
• Tate Sullivan, Managing Director & Senior Industrials Analyst at Maxim Group