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) (NYSE: NGS) is an energy infrastructure company specializing in natural gas distribution and compression services across the United States. The company operates two primary lines of business: the Distribution segment provides natural gas delivery to residential, commercial and industrial customers, while the Compression Services segment rents, sells and services a diversified fleet of compression equipment for midstream and industrial applications.

In its Distribution segment, Natural Gas Services Group engineers, constructs and maintains local pipeline networks, meters and related apparatus to ensure safe and reliable natural gas supply to municipal utilities and private customers. The Compression Services segment offers an extensive inventory of reciprocating and diaphragm compressors, skid systems, parts and maintenance support, backed by field service technicians trained in regulatory compliance and equipment optimization.

Headquartered in Dallas, Texas, Natural Gas Services Group supports customers in multiple states, focusing on regions with growing demand for pipeline expansion and midstream solutions. Over the years, the company has developed an operational footprint that balances short-term rentals with longer-term sales and service agreements, aligning its offerings with evolving market needs and regulatory requirements.

The company’s leadership team brings decades of experience in pipeline engineering, energy operations and corporate governance. By leveraging technical expertise and a customer-centric approach, Natural Gas Services Group aims to deliver cost-effective infrastructure solutions that enhance the safety, efficiency and reliability of natural gas delivery systems.

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 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 0 #. I would now like to turn the call over to Ms. Anna Delgado. Please begin.

[Anna Delgado, Executive and 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 that 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. Accordingly, you should not place undue reliance on forward-looking statements.

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

These and other risks are described in yesterday's earnings press release and our filings with the SEC, including our Form 10Q for the period ended March 31, 2025, annual report on Form 10K for 2024, and our Form 8Ks. These documents can be found in the Investor 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. 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 Jacobs, 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 2025 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. 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.

[Justin Jacobs, CEO at Natural Gas Services Group]

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. 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 $38.9 million, 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 $19.3 million 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 our last call, we've seen WTI in the 50s, in the 70s, and everywhere in between, and our last call was less than two months ago. 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.

[Justin Jacobs, CEO at Natural Gas Services Group]

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. 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.

[Justin Jacobs, CEO at Natural Gas Services Group]

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 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. 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&A. I'll start with asset utilization, which is comprised of converting non-cash assets into cash and increasing the utilization of our existing fleet.

[Justin Jacobs, CEO at Natural Gas Services Group]

Our days receivable improved from 118 days a year ago to 35 days at the end of Q4 2024 and stayed at 35 days at the end of Q1 2025. This has been great progress, which we are now maintaining. Additionally, we made significant progress on monetizing the $11 million income tax receivable. It was recently submitted to the Joint Committee on Taxation in the U.S. House of Representatives for final approval. This is the last approval required, and typically this takes less than 12 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. Currently, we're focusing on the two largest assets: our corporate headquarters in Midland and our recently closed fabrication shop in Midland.

[Justin Jacobs, CEO at Natural Gas Services Group]

We also have opportunities to produce inventory further. As I've stated previously, the combination of the income tax receivable, owned real estate, and inventory creates an opportunity at least as large as the approximately $25 million we monetized 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. 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 and 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.

[Justin Jacobs, CEO at Natural Gas Services Group]

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. 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 first quarter 10Q, our largest customer was 46% of revenue in the quarter, down from 54% fiscal 2024.

[Justin Jacobs, CEO at Natural Gas Services Group]

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. 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&A. We remain focused on continuing to drive significant organic growth while at the same time continuing to explore the M&A markets. We remain well-positioned both operationally and financially should strategic and accretive acquisition opportunities emerge. 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 backdrop, makes us a natural consolidator where valuations are attractive.

[Justin Jacobs, CEO at Natural Gas Services Group]

In April of this year, we amended and expanded our revolving facility from $300 million to $400 million, with an accordion feature raised from $50 million to $100 million. The amended facility has lower pricing and a more accommodating leverage covenant as well. This is a significant win that supports our industry-leading organic growth and provides optionality for M&A. 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 2025 financial and operational performance. For the first quarter of 2025, Natural Gas Services Group reported total revenue of $41.4 million, a 12% increase over $36.9 million recorded in the first quarter of 2024. Rental revenue was $38.9 million, 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. Total adjusted gross margin for the quarter was $24.3 million, an increase of $3.1 million over prior year quarter and $1.3 million sequentially. Adjusted gross margin percentage came in at 58.6%, representing a 140 basis point improvement over Q1 2024 and a 210 basis point improvement compared with the fourth quarter of 2024. These results reflect sustained pricing discipline, unit additions, and enhanced cost controls.

[Ian Eckert, CFO at Natural Gas Services Group]

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 $4.9 million or $0.38 per diluted share compared to $5.1 million or $0.41 per diluted share in the prior year period. Sequentially, net income increased by $2 million, largely reflecting the impact of the inventory allowances recognized in the fourth quarter of 2024 tied to the closure of our Midland, Texas fabrication facility. SG&A expense rose by $0.7 million year on year to $5.4 million. However, as a percentage of revenue, SG&A remained essentially flat at 13%. Adjusted EBITDA for the first quarter was $19.3 million, an increase of 14% compared with the first quarter of 2024 and 7% sequentially.

[Ian Eckert, CFO at Natural Gas Services Group]

As of March 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. Moving to the balance sheet, we ended the quarter with $168 million outstanding on our revolving credit facility. The leverage ratio was 2.18 times, down from 2.36 times at year-end 2024, and our fixed charge coverage ratio improved to 2.98 times. As of the end of the first quarter, we had $132 million in available credit. This excludes the $100 million expansion that we secured in April. These results put us well within our covenant thresholds. Accounts receivable were $15.4 million 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.

[Ian Eckert, CFO at Natural Gas Services Group]

Cash from operations of $21.3 million nearly quadrupled the $5.6 million generated in the first quarter of last year. Capital expenditures in the quarter totaled $19.3 million, including $16.7 million of growth capital and $2.6 million of maintenance capital. Growth 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. 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 the 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. 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 million. To preempt some of the conversations I suspect I might have with those following our stock, I know that our Q1 adjusted EBITDA of $19.3 million annualizes to $77.2 million. 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 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 of $95 million-$120 million, heavily weighted to the second half, alongside maintenance CapEx of $10 million-$13 million and a target of at least 20% return on invested capital. 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&A.

[Justin Jacobs, CEO at Natural Gas Services Group]

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. Operator, we are now ready 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# 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 Markets. Go ahead, please.

[Rob Brown, Senior Research Analyst at Lake Street Capital Markets]

Good morning.

[Justin Jacobs, CEO at Natural Gas Services Group]

Morning, Rob.Thanks for calling in.

[Rob Brown, Senior Research Analyst at Lake Street Capital Markets]

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

[Justin Jacobs, CEO at Natural Gas Services Group]

I would say we haven't really seen much of a change in the demand environment over the past, let's call it 60 from 90 days ago. 2025 is essentially all locked in, still having discussions with customers about 2026 growth. We have a significant number of units already contracted for delivery throughout 2026, and there remain ongoing discussions of incremental units to get contracted in 2026. From the demand environment there, we really haven't seen any change. It remains a strong environment. On the pricing side, no material discussions. I mean, obviously, there are always times when customers ask for a price, but there's nothing that's any different from the environment we've seen, or at least I've seen since becoming CEO. It's really pretty consistent from where we were even 90 days ago.

[Rob Brown, Senior Research Analyst at Lake Street Capital Markets]

Okay. Great. Thank you. And then on the gross margins, they continue to tick up. Was there anything unusual in the quarter, or is this just a function of the mix of the high horsepower, and should that continue to expand as the mix grows?

[Justin Jacobs, CEO at Natural Gas Services Group]

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, we're seeing, I think, consistency in kind of that something with a six on the front of it. We were $61.9 million this quarter. The differences there are some items, including kind of parts, where you can see some movement in that quarter to quarter. It's not huge movements, but it can be enough to move it from a $61.9 million to something that's $60.5 million in that zone. It does create just a little bit of movement. Some of those types of items were a little light in the first quarter. That's kind of the natural volatility we're expecting to see.

[Justin Jacobs, CEO at Natural Gas Services Group]

I think we're proving out pretty consistent in the rental adjusted gross margins, and this particular quarter was kind of the high end of that range. Overall, we were able to reduce the gross margin impact of the sales line that was particularly high in the fourth quarter of 2024 as we were closing the Midland Fab facility. We've mitigated a significant amount of those losses in the first quarter, and that's helping the overall adjusted gross margin as well.

[Rob Brown, Senior Research Analyst at Lake Street Capital Markets]

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 Mr. Jim Rawlinson with Raymond James. Go ahead, sir.

[Jim Rawlinson, Senior Vice President at Raymond James]

Hey, good morning, Justin and Ian. Justin, so maybe circling back to follow up on that margin question. You guys have obviously kind of been hanging around the low 60% range in rental specifically. 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 might drag that down, or is kind of a 60+ % rental margin being pretty sustainable as we go forward?

[Justin Jacobs, CEO at Natural Gas Services Group]

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

[Justin Jacobs, CEO at Natural Gas Services Group]

I don't foresee anything specific today, but it's just something that we're closely looking at, and it would be temporary in nature.

[Jim Rawlinson, Senior Vice President at Raymond James]

Gotcha. This kind of seems like the low to midpoint of guidance kind of embeds maybe even a 60-ish or low 60, so I was just trying to, or sub-60 range. I was just trying to get on that. You talked a little bit of update around some of the monetization plans. Maybe just a reminder, you went through the AR last year and still in the 30 days range, which is 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? Given that you guys aren't at the stage of returning capital, is it just redeploying into 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, at that particular time, as we're creating proceeds from any of those different items that you mentioned, whether real estate or income tax receivable or inventory, the immediate use would be to pay down debt, but then it's organic growth. There have been discussions both publicly and privately of return of capital, and that's something that the board is looking, 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.

[Justin Jacobs, CEO at Natural Gas Services Group]

On the other hand, our industry is one of which I think shareholders have an expectation around some form of return of capital, and the board is sensitive to that. I think it's really just the timing of when do we move to that, and that's something we're looking very closely.

[Jim Rawlinson, Senior Vice President at Raymond James]

Got it. Appreciate that. Congrats again on the new credit facility, especially given the market environment when you guys got that signed up.

[Justin Jacobs, CEO at Natural Gas Services Group]

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

[Operator]

Thank you very much. Our next question comes from Mr. Salman Akyol, at Stifel. Go ahead, please.

[Tim Opler, Managing Director at Stifel]

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

[Justin Jacobs, CEO at Natural Gas Services Group]

Morning, Tim. Thanks for joining.

[Tim Opler, Managing Director at Stifel]

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? Also, given some producers are trimming some of their CapEx, do you think there's potential for more outsourced compression and less insourced compression?

[Justin Jacobs, CEO at Natural Gas Services Group]

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

[Justin Jacobs, CEO at Natural Gas Services Group]

In terms of the CapEx budgets, the ranges I've seen so far are kind of, I think the low end was kind of like a 2.5% decrease up to kind of 10%, really not hitting any of the areas in their budgets that impact us. In fact, as I've read a number of customer releases, really a big focus on productivity. That really plays into our strong suit in terms of the technological innovation in our units. We help drive productivity and runtime for our customers. I think there's actually a greater focus on that. In terms of insourcing versus outsourcing, I think it's too early to tell on that. 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. I think it's too early to tell on that.

[Tim Opler, Managing Director at Stifel]

Got it. Perfect. Just wondering if you could give an update on lead times for engines, frames, 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 last quarter. The engines are running, depending on the model and the manufacturer and the model, you're looking probably somewhere six to nine months. Compressor frames at the shorter end of that. And fabrication is nine to up as much as 12 months. So really no change in that.

[Tim Opler, Managing Director at Stifel]

Awesome. Thank you guys for the time.

[Justin Jacobs, CEO at Natural Gas Services Group]

Thank you, Tim. Appreciate it.

[Operator]

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

[Tate Sullivan, Managing Director and Senior Research Analyst at Maxim Group]

Hi. Thank you. Good morning, Justin. 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 at least a $25 million decrease in receivables? Did you frame it that way?

[Justin Jacobs, CEO at Natural Gas Services Group]

Yeah. If you look at the aggregate of those three different areas, meaning the income tax receivable, which that amount is defined, $11 million, 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 large as the approximately $25 billion of cash we were able to pull out of AR in 2024.

[Tate Sullivan, Managing Director and Senior Research Analyst at Maxim Group]

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

[Justin Jacobs, CEO at Natural Gas Services Group]

I think relative to the size of the market, yes, it's still been active. Real estate is a little bit more difficult to predict the timing, a little bit longer lead time. We are actively working on those. The Midland Fab facility, we did not have fully closed down until really the end of the first quarter. Those are ongoing processes in terms of monetizing those. I think they are attractive assets. I think we are not in a rush that we have to sell them for any reason. It is just improving the capital efficiency of the business. We can be prudent and move at our pace in terms of realizing full value there.

[Tate Sullivan, Managing Director and Senior Research Analyst at Maxim Group]

Thank you. A metric in the queue that you highlighted, in case I had not focused on it much before, the % of your horsepower rented on a month-to-month basis was 22% in the first quarter. Do you think that is a level that will remain around that level or continue to come down as you deploy more larger horsepowers on a month-to-month contract?

[Justin Jacobs, CEO at Natural Gas Services Group]

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

[Tate Sullivan, Managing Director and Senior Research Analyst at Maxim Group]

Okay. And 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 would be for midstream purposes or mostly on the smaller horsepower?

[Justin Jacobs, CEO at Natural Gas Services Group]

In terms of our customers today and our applications, it is increased volumes of small horsepowers used in gathering and natural gas. That is where we are sitting primarily anyway. That is where we are seeing some increased level. It is a modest increase, but I think there is some at least positive feelings around that. We are not in the midstream today in terms of true midstream on pipelines, but I think that is a potential opportunity. Even if we do not penetrate that customer base, it keeps what is exceptionally, excuse me, basically 100% utilization of large horsepower across the industry. It keeps that supply very, very tight. Even if we do not 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 and Senior Research Analyst at Maxim Group]

Thank you very much.

[Justin Jacobs, CEO at Natural Gas Services Group]

Thank you, Tate. Appreciate it.

[Operator]

Thank you. I do not see any other questions.

[Justin Jacobs, CEO at Natural Gas Services Group]

Great. Thank you, Luke. 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 day.

[Operator]

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

Participants

Executives

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

Analysts

• Rob Brown, Senior Research Analyst at Lake Street Capital Markets
• Tate Sullivan, Managing Director and Senior Research Analyst at Maxim Group
• Tim Opler, Managing Director at Stifel
• Jim Rawlinson, Senior Vice President at Raymond James